Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 421

In a short-term world, take a longer-term view

There is an old saying that when you are up to your knees in alligators, it is hard to remember that the original plan was to drain the swamp. In 2021, that swamp is the COVID-19 pandemic.

But the developed world has been thinking in shorter and shorter timeframes for some decades now, and some things like climate change are starting to tell us we have to take a longer view.

The increasing focus on the short term

So, this article is about standing back and taking a longer view of economic and financial issues, mainly in Australia, although a lot of the observations apply to the developed world at large. Just why is the western world into short-termism and slowing in resolve, and growth?

There are many reasons:

  • Relative world peace for some 75 years has led to a lower need of a re-building catch-up following wars, depressions and recessions which none of us want to repeat.
  • The well-off countries (in the OECD) are less hungry for growth than poor and emerging nations.
  • Productivity in the post-industrial infotronics age of services and technology is not matching the productivity growth of the previous industrial age of goods and electricity and telephony.
  • The new political dialectic of Rationalism versus Emotionalism (gut feel) is seeing the latter winning.
  • National and state leadership across the world is at levels similar to the 1930s (dictatorships, saber-rattling, fascism, corruption, short-termism or incompetence) and becoming rife.
  • Climate change is demanding preventative and alternative measures to avoid global catastrophes, that will slow many economies’ growth for some decades.

Australia's long-term economic growth

Australia’s growth over more than one and a half centuries is as good as anywhere. We can be thankful that in the post-WWII years, economic growth has been less lumpy, with fewer recessions and no depressions.

The absence of recessions is mainly due to agriculture shrinking from 20% of our GDP to 2%, thereby removing the recessions caused by droughts, floods and low export demand. Modern fiscal and monetary management helped avoid depressions, and some recessions.

But our economic growth has slowed from 5% pa in the 1950s to 2% pa in the 2020s.

Inflation was non-existent (averaged over any decade) for 217 years to WWI due to the Gold Standard. Since then, we have had four inflation cycles - unevenly - with average 25-year cycles, as we see below. The peak of the current fifth cycle is probably not due till later in this decade, perhaps into the early 2030s.

In turn, inflationary cycles create interest rate cycles, at least in real terms as we see in the next chart.

Focus should be on real rates

As we are regularly informed by our RBA Governor, we need not expect nominal interest rates let alone real rates to rise anytime soon. But, when we hear interest rates are at record 'lows', it’s not true. There have been 20 individual years when real rates have been much lower than recently. And the average real bond rate has averaged 2.4% pa for 160 years compared with an average 5.5% pa in nominal terms over the same time frame.

Then there is the sharemarket as measured by the All-Ordinaries Index over a century and a half as we see below.

What stands out is the extraordinary volatility over eight decades from the 1930s depression until the GFC in 2008-09, when deviations of ±30 to 60% were common. That said, there is no saying it won’t happen again with Price/Earnings ratios in some stockmarkets of over 40:1.

Australia has not gone that far into the stratosphere, fortunately, so we may experience less volatility when the next (inevitable) corrections come. There is a prima face average cycle of some 30 years at play, but of unequal lengths, so the next wide gyrations - if we get them at all - are due around the turn of the decade, or soon after.

Industry divisions: mining and agriculture

Then there are long cycles in the nation’s 19 industry divisions. The two industries that have dominated our exports for the past 233 years since British settlement (or 'invasion') are mining (our first export ever as coal was backloaded) and agriculture.

In 2021, however, agriculture has shrunk to just 2% of our GDP and around 5% of our exports, having dominated our total exports for most of the first 200 years. Mining now accounts for over half our exports although likely to be half that within 15 years or so.

They remind us that our industries run in cycles too when measured by their contribution to the nation’s economy (GDP). They are very different in their lifecycle lengths and peak shares of GDP, as are the other 17 industry divisions that make up our $2 trillion GDP these days.

Taking a long view creates much-needed perspective

We need longer-term vision of the sort we once had, and the sort that is now in evidence in fast-growing emerging markets, most which are in our own region - the Asia Pacific, headed by China - and in our mega-region of Asia including the Indian sub-continent, headed by India. Perhaps getting rich has made us soporific. Time to wake-up to the operational and competitive challenges as well as the fabulous opportunities.

 

Phil Ruthven AO is Founder of the Ruthven Institute and Founder of IBISWorld. The Ruthven Institute was created to help any business that wants to emulate world best performance and profitability using the Golden Rules of Success, based on over 45 years of corporate and industry analyses and strategy work. 

 

  •   18 August 2021
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

Why does Australia’s skewed stock market underperform?

Why Australian shares are falling behind the world

The next phase of Australian equity leadership

banner

Most viewed in recent weeks

How to minimise tax with a will

Inheritance tax implications in Australia may surprise some, as poor estate planning without proper wills or trusts can lead to costly tax bills and delays for beneficiaries.

Testamentary trusts post-budget: Estate planning, tax reform and the ‘death tax’ debate

Proposed Budget changes to taxation are casting new uncertainty over testamentary trusts, prompting closer scrutiny of estate planning structures and the real implications of reforms still taking shape.

Meg on SMSFs: The CGT changes don’t impact super but what about Div 296 tax decisions?

New CGT rules could tip the scales in the super vs non-super debate. For those facing the Division 296 tax, the case for withdrawing has gotten more complex. A "comparison rate" tool may help assess decisions.

High quality businesses are on sale

Beneath the dominance of the ASX's largest stocks, much of the market has been left behind. High-quality companies are now trading at levels rarely seen, offering opportunities for investors willing to look deeper.

The investment mistake killing your returns

Retail investors face an increasingly complex product environment, but simplicity may be the most overlooked advantage in building a portfolio you can actually live with.

Welcome to Firstlinks Edition 667 with weekend update

The downfall of the giant and three lessons for investors.

  • 18 June 2026

Latest Updates

SMSF strategies

Meg on SMSFs: How wide is the ban on LRBAs?

The government's recent deal with the Greens has put SMSF property borrowing on the chopping block. The change raises tricky questions about timing, exceptions and what SMSFs will still be able to buy.

Shares

Why Australian shares are falling behind the world

Australia’s market boasts a long record of outperformance, but recent results tell a different story. Is the ASX’s lagging performance a temporary setback or evidence that structural forces will keep global markets ahead?

Taxation

The strange effect of the 30% minimum capital gains tax

The 30% minimum tax on capital gains sits at the heart of the budget's proposed reforms. Yet the mechanics reveal anomalies that introduce unexpected distortions that raise questions about its design.

Shares

The next phase of Australian equity leadership

For years, banks have powered Australian sharemarket returns. But changing economic conditions, stretched valuations and global trends suggest the next generation of winners may not be found in familiar domestic sectors.

Economy

Global market growth hinges on Iran War and AI rollout

Global growth is facing mounting pressure from war, higher oil prices, inflation and trade tensions. But a wave of AI-related investment may prove powerful enough to support economic activity and reshape the outlook for markets.

Retirement

The retirees who can't spend

Why do so many retirees pass away with their wealth intact? Conventional wisdom blames pension rules for the reluctance to spend, but a case study from New Zealand shows that the answer may not be as predictable.

Investment strategies

Here’s my investment philosophy. What’s yours?

Investors often hear they need an “investment philosophy,” yet few know what that really means. Beneath the jargon sits a simple idea: a handful of core beliefs that shape every financial decision, for better or worse.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.