Tectonic Shifts

June 2021

Phil Ruthven AM, Founder and CEO

The term ‘tectonic shift’, while applicable to the world’s moving mantle plates (with some devastating results at times), is now also used to describe huge economic and sociological changes.

Several of these tectonic shifts are worthy of elaboration, as they impact on economies, societies and cultures. In this article, we look at how these changes have affected Australia.

Empires and regional hegemony

There have been many empires throughout history, often assessed by their share of the world’s land mass. Five have controlled more than 10% of the world’s land mass at a given time, being: the Spanish Empire (10%, c. 1810); the Qing Dynasty (11%, c. 1790); the Russian Empire (17%, c. 1895); the Mongol Empire (18%, c. 1270); and the biggest ever, the British Empire (26%, c. 1920).

Oddly, the most written-about Roman Empire occupied less than 4% of the world’s land mass, but was one of the longest-lasting in history.

Empires have gone, but regional hegemony hasn’t. The first chart below shows the slow but powerful shifts that have occurred in world GDP over the past century and a half.

Not many would know that Asia – comprising the Asia Pacific and Indian subcontinent – had a larger economy than Western Europe 150 years ago, as noted in the above chart. However, when it came to influence and scene-setting, Western Europe was dominant from 1870 to WWII, with the United Kingdom being the most powerful nation. Then it was North America’s turn, with the United States remaining the most powerful nation until recently.

As is often said, this century is the Asian Century. More specifically, the Asia Pacific region (of the world’s eight regions) is dominant, with China being the most economically powerful nation. However, with India now the world’s third-largest economy (GDP in purchasing power parity or PPP terms), the term ‘Asian Century’ is apt.

In this 21st century, two-thirds of Australia’s total immigration emanates from Asia, as does two-thirds of our inbound tourism; while more than 75% of our trade activity occurs with Asian nations. So, we are very slowly progressing towards an Asianised economy and society, while continuing to become a richer and longer-living population; as we have done over the past three centuries.

Indeed, given our standard of living (real GDP per capita) rose over five times in the 20th century – as we Europeanised and then began Asianising – it should do so again this century, rising from around $50,000 per capita in 2000 to over $200,000 per capita (in today’s money terms) by 2100.

Changing industry hegemony

A second tectonic shift has occurred among our industry sectors, as seen in the below chart. Long gone is the dominance of the primary sector (being the Agriculture and Mining industries).

Gone, too, is the dominance of the secondary sector (manufacturing, utilities and construction), or what we called the Industrial Age, since the mid-1960s.

In our current Infotronics Age of ubiquitious information and communications technology (ICT) – which is currently in its second stage manifestation and termed the Digital Era – we are now working with a dominant quaternary sector of seven service industry divisions, as shown in green in the above chart.

Perhaps surprisingly, the tertiary sector (of wholesaling, retailing and transport), often called the commerce sector, has never dominated the economy; but it has occupied the most consistent share of our GDP over time, having always been a prominent and tactile part of our lives.

In the second half of this century, we can expect a further tectonic shift in our sectors; with the quinary  sector – particularly the health sector – having an increased impact on our economy, as shown in blue in the above chart. The rapid progress of artificial intelligence (AI) technology in our current Digital Era will also continue to affect our waking hours in terms of knowledge, work, living and leisure.

Changing spending hegemony

A third tectonic shift relates to our social or household spending. The below chart outlines this changing expenditure over more than a century.

Long gone is the dominance of sustenance outlays to stay alive. Indeed, our total spending on goods now barely accounts for one-fifth of household incomes, compared with over 62% at the beginning of the 20th century.

Like other advanced economies (the OECD group at large), Australia is now a services-spending society. Those services include those returned to us via our taxes in the forms of education, health, and support services, among others.

And that’s not all

 We are also experiencing other societal, political and work-related shifts, as noted below:

Some societal shifts

  • Longer lives, ageing, and the changing power of generational types (to Generations Y and Z)
  • Demographic changes (coastal growth, cities versus inland towns/regions)
  • More dense living (apartments versus houses)
  • Religious changes (less belief and allegiance)
  • Increased outsourcing of chores and resultant growth in leisure
  • Increased uptake of renewable energy resources, both in principle and in practice

Some workforce shifts

  • Increased business ownership by households
  • Payment for outputs, rather than inputs (hours)
  • Increased power and participation of women in the workforce
  • Longer working lifetimes (from 25 years in 1800, to 45 years in 2000, to 60+ years today)
  • Fewer hours worked per year (despite no change in total lifetime work hours)

Some political shifts 

  • The replacement of ‘socialism versus capitalism’ by ‘rationalism versus emotionalism’
  • The rise of the fifth level (regional politics, e.g. EU, NAFTA) and, eventually, the sixth level (world politics)
  • Increased dominance of expenditure taxation (indirect) over wealth creation taxes (wages, profits)
  • The ongoing challenge of statesmanship, alongside the risk of autocracy and dictatorships

As humans, we often underestimate our capacity to change and eventually embrace radical shifts in every aspects of our lives. More often than not, these transitions are for the better, even if they are painful.

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