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Where is Australia’s future growth?

We are told that Australia has the fastest growing economy in the developed world. True, but at 2.7% in the year to March 2016 and the same growth per annum over the past five years, we are not growing as fast as the average for Australia over the past 50 years (3.2% pa) or the 20th Century (3.5% pa). The slower growth is due to a lack of reform to our labour market, taxation and the parliamentary process, and having the worst broadband speed and capacity in the developed world - a disgrace in an age of digital disruption.

Australia should be part of the New World in Asia

It is small comfort to know that the rest of the developed world is growing slower than we are, has different problems such as national debt levels, larger government deficits, excessive taxation, and excessive legislation. This is less relevant when we realise we are not part of the old rich world of the European Union and North America, but are part of Asia which is bigger in GDP as well as population than both those regions and growing three times as fast as they are. And at more than double our speed. Asia is our new economic and demographic arena. It is where we are competing and need to be compared.

But, we do have a modern economy in terms of our mix of industries, and we do have growth in enough of them in terms of value-add and employment to keep the show on the road.

The first chart below shows the mix of industries as recorded by the ABS in the most recent National Accounts release (click on any image to enlarge it).

It is a mix dominated by service industries, as are all the developed economies of the world. Manufacturing is poised to fall to 5% of our GDP soon, having been almost six times that share at 29% in the early 1960s. However, our standard of living (real GDP/capita) is three times higher than in 1960, so clearly manufacturing has been replaced by more wealth-creating industries.

Where is Australia’s growth coming from?

The next two charts show where the growth has come from over the most recent year and five years.


The only goods-based industries contributing to our growth are mining and, to a lesser extent, construction. Most of our losses are in manufacturing. Mining of course has had an horrific fall in prices over the past few years, but volumes (upon which real GDP is measured) continue to grow. However, some 70% of all growth over the past five years has come from our service industries.

A not dissimilar picture emerges when we examine the structure and growth of our industries in employment terms. The first chart below shows where our 12 million employees were in March 2016, and the second exhibit reveals what sort of total earnings were being enjoyed in each of the nation’s 19 industry divisions in 2015.

(Note: Quaternary is defined as information &/or finance based, and Quinary is defined as more recently outsourced personal and household services, mostly in the post-industrial age.)

Again, it is a nation where the workforce is dominated by service industry jobs. And contrary to common belief, there are more above-average earnings in the service industries than in the goods-based industries. Manufacturing is well below the national average nowadays. Why do we still have some politicians suggesting we should go back there? Regressive economics.

The good news - that is not publicised enough to a society nervous about jobs for themselves and their children - is that we are creating far more jobs than we are losing. This is abundantly clear in the two exhibits below that cover the year to March 2016 and the five years to the same time.

In the latest year, we created three-and-a-half times more jobs than we lost, and in the past five years, we created six times more than we lost. So why on earth do we make big song-and-dance and hand-wringing routines about job losses, but practically no celebration of our new jobs?

We have a lot to cheer about, but we cannot be complacent about urgent and overdue reforms.


Phil Ruthven is Founder of IBISWorld and is recognised as one of Australia’s foremost business strategists and futurists.

Warren Bird
June 25, 2016

I think this view is incorrect. It has been a popular misconception for a while now. While manufacturing drove economic success in the wake of the industrial revolution, but this is because the rise in living standards was from a very low base. Consumers demanded things. But now, in the 21st century, consumers are on the whole well supplied with things and actually demand, spend more money, on services than ever before.

That is, economies that efficiently deliver what consumers want, not what producers want, are the successful ones.

June 24, 2016

At an open forum at the Detroit motor show in 2014, Ford chief Alan Mulally was asked by a university student about the importance of government assistance in manufacturing.

I think his general comments about manufacturing are particularly relevant especially when viewed in the context of value adding and reducing Australian foreign debt which seems to be on an exponential path. Should we be satisfied with being a farm, quarry, hotel to the rest of the world and providing services to one another.

"No country is ever successful in the long term … without a really strong and vibrant manufacturing base," said Mr Mulally.

"It's the foundation of all economic development. You actually make things that create value. That's why every country around the world is collaborating with the private sector … to figure out how to create an environment where manufacturing (is viable)."

Mr Mulally said 70 per cent of all the research and development in advanced technology and investment is associated with manufacturing, and it was the "foundation of wealth creation".

"You create value and you create jobs," he said

Maybe Phil would like to respond to this.

June 24, 2016

Phil has said there has been significant growth in employment. I wonder if you are able to get him to provide in a future article the growth of part time vs full time positions as a whole AND/ OR by industry. I understand there have been many more part time positions created than full time positions. Maybe the growth in public vs private sector positions could be another aspect of this question, On a different matter, I wonder about the productivity / value created by employees and whether there is a relationship between the value created by employees and their salary/wages. [ I have an unproven belief that remuneration has grown at a rate faster than the output / value created - what I think we have seen is a raft of people moving into middle / senior levels and less recruitment at lower levels. This means income levels have been dragged higher while not necessarily delivering increased output and value]. Of course there are many other aspects to this discussion and it would be appreciated if someone like Phil could provide a commentary on these matters.

June 23, 2016

Like the multitude of economists, business academics and politicians there is no real understanding as to how to create and then sustain 'economic well being'. The current approach has failed and has mirred many economies in debt.

The focus should be on making the economy more 'competitive'. Increasing nation 'competitiveness' via the acquisition of technology is a prerequisite to and the only way to maintain existing industries, create new industries, create jobs and balance trade.

The current innovation hype is the wrong focus and more than likely to reduce Australia's 'competitiveness'. It should be noted that the US spends hundreds of billions on R&D and innovation and yets its 'competitiveness' continues to decline. Its a myth that throwing money at innovation will generate a competitive outcome. Cutting wages, increasing productivity, etc are all pointless if your economy is not 'competitive'.

Bruce Gregor
June 23, 2016

Interesting historical pictures but unfortunately no focus on Australia reliance on high migration for high past GDP.

Now that manufacturing has collapsed we have little scope to absorb high migration and maintain standards of living. We should be cutting migration significantly, learning to live on less and recycle financial assets and resources until we have a cost structure and infrastructure comparable with the rest of developed world,

The article does not answer where is our future growth but no-one else is answering this question, Turnbull's focus on innovation and trickle down company tax cut makes an effort for future growth but the thin evidence for how many jobs there are in this shows just how desperate our plight is. The regular claims by all governments of "how many jobs they created" is a scam as it makes no allowance for how many new full time jobs are required just to absorb migration.

June 23, 2016

I see nothing specifcally pro or against any party, just a collection of interesting factoids.

June 23, 2016

Unfortunately this article seems to be a political opinion piece - not that I necessarily disagree with the commentary - but wouldn't this be better placed in the tabloid press rather than an investment newsletter?

June 23, 2016

I disagree Craig. If you have read any of Phil's articles in the last 10 years, you would know that he is fact based and stat based, and politic agnostic.

June 23, 2016

I'm refering to this article, not previous ones. Some quotes mentioned below with my comments:

"The slower growth is due a lack of reform to our labour market, taxation and the parliamentary process ..."

- if this is truly a politically agnostic piece, Mr Ruthven could well be advocating the compulsory adoption of workers advisory committees and associated representation on company boards as it exists in Germany? I doubt that is what he is referring to.

- the suggestion of the need to "reform the parliamentary process". How is this not a political opinion. He doesn't say how the parliamentary process needs to be reformed but that it is the cause of slower growth, but doesn't explain why.

"Why do we still have some politicians suggesting we should go back there? Regressive economics."

- which politicians? How is this not a political opinion?

"So why on earth do we make big song-and-dance and hand-wringing routines about job losses, but practically no celebration of our new jobs?"

- where is this song-and-dance and hand-wringing going on do you think? I assume the political arena.

"... we cannot be complacent about urgent and overdue reforms"

- political opinion


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