By Phil Ruthven, Ruthven Institute Founder, and CEO
Media Release 7 May 2020
With the global pandemic currently threatening the success of several industries across Australia, many wonder whether the economy will be completely different as a result of COVID-19, or whether it will make a full recovery after the situation eases.
According to Ruthven Institute founder and respected economic futurist, Phil Ruthven, the direction in which the economy was heading before the pandemic will not dramatically change, as long as businesses can adapt their strategies and base them on trends, life cycle phases, and rational analysis.
Well-strategized and well-led corporations that are at, or close to, the world’s best practice profitability and functionality will survive and continue to do better than the rest of corporate Australia, said Mr. Ruthven.
They will last longer in the war of attrition, will be able to raise the necessary capital, and will go on to even greater success in the aftermath of the pandemic.
Unquestionably, we need a profound change in the way the business world operates. We see a recovery via reformed business practices as the challenge, not a brave-new-world economy, which had already been underway since the mid-1960s.
Mr. Ruthven said the new world economy had predominantly been led by a number of factors, including:
- Growth in service industries, which now account for over 70% of GDP in advanced economies;
- The emergence of Information and Communications Technology (ICT);
- A turbocharged digital era, composed of fast broadband, artificial intelligence (AI) software, big data, and analytics;
- Advanced telecommunication software and appliances;
- Greatly expanded international trade, which accounts for 30% of world GDP in 2020 (compared to 10% in 1960);
- An explosion in international travel (20% of the world’s population travels internationally in 2020, compared to 1% in 1950);
- China and India recovering their status as the two largest economies; and
- A new political dialectic, with rationality vs. emotionality/populism replacing capitalism vs. communism/socialism.
According to the Ruthven Institute, recessions, depressions, world wars, and pandemics do not alter the long-term direction of an economy or its mix of industries. They simply interrupt the year-to-year performance for up to five years, then resume the original trend direction for industries and other economic and social trends“ be it up, down, or flat.
Australia has experienced five depressions, 27 recessions, two world wars, and several severe pandemics since modern settlement some 230 years ago, Mr. Ruthven said.
These events punctuated and punctured our standard of living, as we see in the chart below. However, they did not alter the emergence of the three ages of the economic development and its products as we left the Hunting & Gathering Age to progress through the modern Agrarian Age, the Industrial Age, and into the current Infotronics Age of service industries and ICT.
These events don’t change the direction of our industries, as much as they force businesses to change their modus operandi.
It is often thought that industries and the economy will regress as a result of a disaster. Some people believe that going back to the ways of the Industrial Age will succeed as a defense mechanism against this. But Mr. Ruthven disagrees.
The cure isn’t bringing back old industries“ we got rid of them for a reason, he said.
Nor is it creating a raft of new growth industries. For a population of a mere 26 million, we have already developed an industry mix that makes sense.
We need corporations to know the modern ways to achieve world best practice profitability via strategy, plans, and functionality.
According to Mr. Ruthven, there are several trends for businesses to consider in the current climate:
Keeping a nation competitive in the world today is a never-ending challenge of adjustments, reform, and emulating the world’s best practices. According to Mr. Ruthven, the period from 1983 to 2000 saw well-overdue reforms in the areas of labor market regulation and industrial relations (IR); trade and protectionism; sensible deregulation of the finance industry; superannuation; taxation and surplus budgets; and many more initiatives. However, nothing much has happened since. In a post-pandemic world, he believes that parliamentary, taxation, and labor reforms will need to be made in order for businesses to thrive.
There were encouraging promises made by the Prime Minister recently with regard to all the above reforms. He stated that all past studies and recommendations will be taken out of the archives and used to establish a genuine reform program, said Mr. Ruthven.
This would be helped enormously if all parties co-operated, including Federal Government and Opposition, the States, and the Unions. One would think a post-pandemic environment should provide enough goodwill to see a large measure of this cooperation occur. But whether ideologies will give way to fundamental, rational, and commonsense approaches to allow this to happen remains to be seen, he added.
Working from home
Over the past 25 years, the percentage of Australia’s workforce with partial or full work-from-home arrangements has already increased from 20% to 30%. Given the range of teleconferencing products available for use, as well as the emerging digital era, Mr. Ruthven believes we can expect this trend to continue“ if not rapidly increase“ after the pandemic eases.
Before COVID-19, the success of traditional and discount department stores was challenged by the rise of online shopping outlets including eBay, Amazon, and Alibaba. In addition, video and record stores were hit hard by the rise of Netflix and other online streaming sites. In Mr. Ruthven’s opinion, the demise of high-street shopping that we have seen over the past decade will continue at a faster pace through and out of the pandemic period.
Pharmacies and universities
Mr. Ruthven believes that industries such as pharmacies and universities were in the midst of starting a new life cycle in the opening years of the 2020s, even before the pandemic. This was due to the emergence of progressive changes in products, customers, locations, systems, and ownership. Although these changes will not have been the result of COVID-19, he believes many in the future will think they were.
Despite many predicting that the rise of electric vehicles“epitomized by Tesla“ would eventually fail, Mr. Ruthven is not so sure that this will be the case. He notes that one cant is so sure of how many giant or once-giant internal combustion engine manufacturers might even survive this new decade without mergers and rationalization. On top of this, COVID-19 may act as an accelerant to these internal challenges.
Mr. Ruthven believes that corporations that were unstable before the pandemic are evidentially worse off, with Virgin Airlines being just one of these unfortunate victims. He notes that it is already proving difficult enough for very successful corporations and SMEs to weather the storm, let alone the ones that were already struggling to bounce back.
As mentioned earlier, many believe that a lesson learned from this pandemic will be to bring more manufacturing back onshore. Mr. Ruthven does not believe that this will solve all the issues facing the economy, particularly since manufacturing wages are now well below the national average. However, Mr. Ruthven believes that we are likely to spread our sourcing overseas, rather than having all our eggs in one basket with a single country.
Mr. Ruthven also believes that advanced manufacturing in Australia will progress well in the post-pandemic economy. With underpinning new technology, steel manufacturing and some petrochemicals could have a reincarnation in the 2030s or later; almost certainly so with foreign investment.
These few examples remind us that successful strategy, planning, and functionality in business has to be based on trends, life cycle phases, and rational analysis, Mr. Ruthven said.
When faced with catastrophes such as the current pandemic, it is more important than ever to base our decision-making on facts rather than emotion, intuition, or gut-feel.
In short, Australia’s recovery from COVID-19 will not be centered on managing a different economy, a different mix of industries, and a different trading arena of products and nations“ rather, it will be centered on managing our corporations up to the worlds best practice.
Our ability to recover will depend more on how we do things than what we do, concluded Mr. Ruthven.