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Charting Australia’s future: Part 1

Charting Australia’s future: Part 1

Introduction

Whilst we are principally interested in the state of the Australian economy, we are interested in what we can learn from other countries. We were recently inspired by the book, Adrift: America in 100 Charts, by New York University Stern School of Business Professor, Scott Galloway, in which, through the use of 100 charts, he looks to the past – from 1945 to present day – to explain just how America arrived at its current state.

Galloway believes that the America is a nation adrift. "We lack neither wind nor sail, we have no shortage of captains or gear, yet our mighty ship flounders in a sea of partisanship, corruption, and selfishness."

In this paper we present a summary of the key issues identified by Galloway, as well as actions that he identifies need to be taken to find solutions.

We’re seeking to start a conversation about how that compares with Australia and what steps we need to take to ensure that we don’t find ourselves adrift as well.

We are in the process of producing an Australian version of this US paper. We highly recommend reading Galloway’s book. You can buy a copy of Adrift here.

Chapter 1: Rise of the Shareholder Class

The shift away from community and institution to shareholder capitalism has benefited the shareholder, but come at a cost to workers, public infrastructure, and vulnerable communities.

  • Declining Infrastructure: Since 1966, declining investment in infrastructure as a percentage of GDP has led to worse conditions across the country for roads, bridges, schools, hospitals, water treatment, sewers, etc.

  • Healthcare Cutbacks – increased homelessness: The US has less than half the number of psychiatric beds available today than it did in the 1960’s. Research has identified a link between decreased availability of psychiatric hospital beds and rising levels of homelessness.

  • Labour Loses its Voice: Since the 1950’s the number of unionised labour strikes has markedly decreased, while unfair labour practice charges have increased steadily. The union movement in the US declined as a result of factors such as corruption and overreaching by the unions.

  • The LBO (Leveraged Buyout) Boom: Between 1981 and 1988, Leveraged Buyout volume grew from 1% of the approximate total of $125 billion in M&A transactions, to a peak of 30% of the total $400 billion of M&A transactions in 1988.

  • Productivity Soars, Compensation Stagnates: Productivity has been steadily increasing in the US since the 1950’s. Until the early 1970’s, hourly compensation increased in line with productivity, however, since that time hourly compensation has grown only 9% compared with 72% growth in net productivity.

  • Income Inequality – the divide between wealthy and poor increases: Between 1979 – 2013, wages increased by almost 140% among the top 1% of earners, compared with only a minimal increase (approx. 20%) for the bottom 99% of earners.

  • An Overwhelmed IRS – $ billions lost in unpaid taxes: Increased tax complexity and decreasing numbers of tax audit since the 1960’s has led to an estimated loss of $600 billion in unpaid taxes per year.

  • The Offshoring Explosion – increased use of tax havens: The share of US multinational corporate profits registered in foreign tax havens has grown from 5% in 1966 to 50% in 2016.

  • Stock Market Participation: has increased from 30% to around 50% of households since 1990 – but the wealthiest 1% hold almost half the stocks owned by households.

Chapter 2: The World We Made

Globally, capitalism has been the engine for unprecedented growth in the post-WWII era. Global GDP has grown exponentially, life expectancy has increased, and poverty has decreased. Democracy has flourished, migration has increased, and while the digital age has brought increased connectivity, there remains huge disparity around internet access, particularly in the least developed countries.

  • Productivity Revolution: Since the end of WWII, global GDP has grown exponentially, from around $10 trillion to over $100 trillion in 2015.

  • Billions of People Work Their Way Out of Poverty: Since 1981, the amount of people globally who are living in extreme poverty (less than $1.90 per day) has reduced significantly, and most markedly in China and India. In China it has dropped from 750 million to less than 10 million.

  • Health is Wealth: Developments in healthcare, sanitation, education and economic opportunity have resulted in increased life expectancy globally from 53 years in 1960 to 73 years in 2019.

  • A New World Order – Democracy: Across the globe, the number of nations with a democratic system of government has grown from fewer than 10 in 1900 to almost 100 in 2018.

  • Freedom of Movement – Migration: Migrants contribute significantly to technological, scientific, and business innovation in the US. Globally, since 1970, the number of international migrants has increased from 85 million (2% of world population) to 272 million (3.5% of world population) in 2019.

  • The Red Blood Cells of the Consumer Economy – Shipping Containers: Approximately 80% of all goods are carried by sea. The number of goods carried increased from 102 million metric tons in 1980 to approximately 1.83 billion metric tons in 2017.

  • The Digital Age – Global inequity around internet access: There is enormous disparity globally around access to the internet. Since 2005, across the Developed World, access grew from around 52% to close to 90%, compared with 10% to around 45% in the Developing World, and even slower growth from almost 0% to close to 20% in the Least Developed Countries.

  • Accelerating Technological Advancement: Both internet value and computing power have grown exponentially since 1990, but, as growth in internet value plateaus, changes to our online experience will be technology-driven rather than driven by increased connections.

Chapter 3: Idolatry of Innovators

The exponential growth of technology has transformed the way we interact, to the detriment of personal and community connection. We idolise the super-wealthy and hold technology as sacred. As technology replaced low-skilled jobs, jobs requiring tertiary education have increased – along with the cost of higher education, further entrenching inequality.

  • Turning Away From Community Organisations: Community involvement (eg, church, Rotary, interacting with neighbours) is decreasing, potentially shifting to online forums; meanwhile, research indicates that increased segregation leads to decreased tolerance of minorities.

  • Privatised R&D = Privatised Progress: Since the 1970’s, Government funding of research has reduced significantly and the gap has been filled by private funding, which is subject to market pressure, private ownership of innovation, and potential exploitation and overstepping of ethical boundaries.

  • College Has Become the Entry Requirement to the Middle Class: In 2020, 33% of all jobs require a college or Master’s degree, compared to just 16% in 1973. Higher education costs have increased significantly, and lower-skilled jobs have reduced from 32% to just 12%.

  • The Entrenchment of Wealth: In the US, 89% of all stock is owned by the wealthiest 10% of households, partly due to US tax policies which favour wealthy individuals while diminishing opportunities for others.

  • It’s Never Been Easier to Be a Trillion-Dollar Company: In 2018, Apple became the first public company to reach $1 trillion valuation with annual revenue of $229 billion. Since then, companies reaching a $1 trillion dollar valuation have each done so with less revenue than the company before it. (Apple, Amazon, Google, Microsoft, Facebook, Tesla)

Chapter 4: Hunger Games

The gap between rich and poor grows ever wider: the minimum wage is decades behind; CEO pay is now 351 times that of the average worker; the richest 1% control 16 times more wealth than the poorest 50%; and only 50% of 30-year-olds born in 1980 were earning more than their parents did at the same age (compared to 90% for children born in 1940). The six big tech companies grow ever powerful and now account for more than 20% of the S&P 500.

  • The Great Divergence: Corporate profit and employee compensation used to be aligned, but post-2000, profits grew exponentially, yet compensation grew only steadily. By 2021, the increase in corporate profits is more than double the increase in employee compensation since 1960.

  • It's Wealthy at the Top: In 2020, CEO pay was 351 times that of the average worker, compared with only 21 times that of the average worker in 1965.

  • From Lopsided to Dystopian: Distribution of Wealth in the US grows ever more unequal. In 2021, the richest 1% of Americans controlled 32% of the nation’s wealth, whereas the bottom 50% of Americans controlled only 2% of the nation’s wealth.

  • Invasive Species: The big 6 tech companies now account for more than 20% of the S&P 500 compared to just 6% back in 2013. (Meta, Amazon, Apple, Netflix, Alphabet, Microsoft)

  • The Minimum Wage is Decades Behind: In 2021, the minimum wage of $7.25 per hour is effectively less than it was in the 1950’s. Had it increased alongside productivity it would now be $22.18 per hour.

  • Waking Up From the American Dream: The possibility of creating a better life than your parents is decreasing, with less than 50% of 30-year-olds born in 1980 earning more than their parents did at the same age, compared to 90% of those born in 1940.

Chapter 5: The Attention Economy

While technological innovation has brought about a boom in digital advertising, it has come at a cost to newspaper revenue, leading to severe cuts to news budgets and the quality of journalism. Fake news and disinformation have proliferated, and trust in news organisations has reached an all-time low.

  • Digital Billboards: Digital ads now account for 63% of advertising revenue, up from 20% in 2011. Advertising is now a $250 billion industry compared to $150 billion in 2011.

  • Decline of the News: Between 2008-2020, newspaper advertising revenue dropped by 76% to $9 billion; and journalist positions across all forms of media fell by 24% to 85,000.

  • Fake News: Less than 6 in 10 Americans trust the information that comes from national news organisations.

Chapter 6: House of Cards

Population growth and marriage rates are the lowest on record; young adults are living at home longer due to lack of financial security, education costs and fewer intimate relationships; and the wealth gap between white and non-white households remains high. Trust in government remains below 30%.

  • Marriage Rates Are at Record Lows: In 2021, marriage rates in the US hit an all-time low of 5.1 per 1,000 people, with men in the bottom third of incomes experiencing the greatest decrease (over 30% are less likely to get married).

  • Failure to Leave Home: Limited financial security, cost of higher education and fewer intimate relationships mean that young adults are living at home longer. The rate in July 2020 peaked at 52% – the highest level on record (the pre-Covid high was 47% in Feb 2020).

  • Population Growth Is Slowing to Great Depression Levels: The current rate of 7.4% risks impacting economic growth.

  • The Long-Term Erosion of Trust in the Federal Government: Trust in the government to do the right thing ‘almost always or most of the time’ has not risen above 30% since 2007, compared to a peak of 75% in 1958.

  • Old Money, Old Problems: The wealth gap between white and non-white households remains high, with Black households having 12 cents, and Hispanic households 21 cents, for every dollar a white household has.

Chapter 7: Threats

External perceptions of the US are shifting – fewer people see the US as a good example of democracy; and the US has been replaced by China as the country with the most trading partners. US spending on R&D now only accounts for 30% of global spending; and despite committing an enormous budget to defence, countries with lower labour and equipment costs get more ‘bang for their buck’. The defence budget is almost 10 times the budget for disease control, despite the huge impact of Covid 19 and increased risk of infectious diseases.

  • China Has Replaced the US as the Most Popular Trading Partner: As of 2020, China has three times as many trading partners as the US. China’s Belt and Road initiative will further increase this margin, which potentially reduces US economic influence.

  • The US Gets Less for Its Military Dollar: While the US accounts for more than 30% of the world’s total defence spending, when measured in real terms, countries with lower labour and equipment costs gain more for their expenditure.

  • Military Spending Doesn’t Always Equate to Effectiveness: The US defence budget of $778 billion is almost 40 times greater than the GDP of Afghanistan, and more than 500 times the size of the Taliban’s income.

  • Does Our Budget Allocation Align With Our Threats: In 2021, the total budget for the Department of Defense was $704 billion, compared with the total budget for the Center for Disease Control of just $7.9 billion – yet Covid 19 has killed more Americans than all 20th century wars combined.

  • Erosion of the World’s Most Important Brand – Favourable view of the US diminishes internationally: In 2020, around 40% of people in UK, Germany, Japan and Italy had a favourable view of the US – down from more than 75% of people in those nations in 2000.

  • The US Is No Longer the World’s Laboratory: In 1960, the US accounted for 69% of global R&D spending, but in 2019, accounted for only 30% of global spending.

  • Clean Energy’s Silk Road Runs Through China: China is highest processor of Rare Earth minerals, Lithium and Cobalt for green technology.

  • The Spawning Ground for Capitalism’s Apex Predators: Since 1990, China has seen strong growth in the number of companies ranked in the largest 50 in the world, and has seen rapid increase in the number of wealthy individuals (including billionaires).

Chapter 8: The Bright Side of Instability

History shows that war and plague can stimulate growth and opportunity; and immigration has a stimulating effect on the economy.

  • Crises Trigger Growth: History shows that major crises and challenges such as war and plague, have stimulated growth and opportunity as a result.

  • Immigrants Are the Original Entrepreneurs: In 2020, the rate of new entrepreneurs among immigrants was 0.59% - nearly double the rate of those born in the US.

Chapter 9: Possible Futures

The current trends point to a future characterised by remote work, and increased reliance on technology, to the detriment of close friendships and connection. Investment in the social safety net is less than in Western European nations, and there is an increased likelihood for reliance on economic stimulus measures during downturns (as happened during the GFC and Covid).

  • Printing Our Way to Prosperity: Aggressive expansion of the money supply by the US government in response to the GFC and Covid appears to have had a positive outcome.

  • Investment in the Social Safety Net: The US continues to trail Western European nations around public social spending.

  • Fast Future: In the post Covid era, up to 38% of work teams plan to work either fully- or partially remotely.

  • Space Is Lonely Without Friends: Since 1990, friendship has been dwindling. As of 2021, 15% of men and 10% of women have no close friends at all.

Chapter 10: What We Must Do

Solutions include: tax reform; increased funding of regulatory bodies and tighter regulations; reducing inequality; reform of higher education; and, creating alternate pathways to employment and training.

  • Simplify the Tax Code: In 1955, the tax code had approximately 409,000 words; by 2021, it has approximately 4 million words. It is time-consuming and costly to complete, and tends to favour the wealthy.

  • Rebuild the Regulatory System: The US needs to reinvest in fair, efficient enforcement to prevent monopolies from suppressing innovation and competition, and to invest in bodies that protect our environment. Between 2006 and 2018, the EPA (Environmental Protection Agency) budget decreased approximately 15% to $520 million, and staffing levels decreased from approximately 3,300 to 2,600.

  • Restore the Algebra Deterrence – Ensure fines actually have a deterrent effect: Recent fines imposed by the Federal Trade Commission (FTC) create an illusion of enforcement (for example, the $5 billion fine on Facebook for consumer privacy violations represented only 7% of the company’s year-end revenue) – fines need to be set at levels that actually deter wrongful behaviour.

  • Reform Section 230: Protections against legal liability for any content users post on social- media platforms need to be reformed in line with current conditions. Social media companies should be subject to the same rules as all other media companies.

  • Rethink the Land of the Free / Incarcerated: America has the highest rate of incarceration out of any country in the world – 629 per 100,000; with overrepresentation among the Black and Hispanic population (60%).

  • Enact a One-Time Wealth Tax: A 2% tax on the wealthiest 5% of households would raise approximately $1 trillion, which would go some way toward recovering Covid stimulus funding that was misdirected such that large companies benefitted at the expense of workers facing huge wage losses.

  • Rebrand Nuclear: Only 29% of Americans have a favourable view of nuclear energy, despite that nuclear power is a clean energy source with accident- and pollution-related death rates approximately 300 times lower than those of coal and oil, relative to energy production.

  • Support Children and Family Formation: In 2019, nearly 1 in 7 American children live in poverty, despite America’s status as the richest nation in human history. Access to childcare and early education are strong predictors of higher maternal workforce participation and progression to college post-school. Increased funding (eg, a universal $3000 per child allowance) would reduce poverty and racial inequality.

  • Reform Higher Education: Higher education should be incentivized to expand the number of places on offer – through increases in subsidies and state funding of (non-elite) universities; and through linking increases in undergraduate places with tax exemptions on endowments received by elite universities.

  • Enable Other Pathways for Upward Mobility – Embrace vocational training: In the US, only 3 in 1,000 workers pursue an apprenticeship, which is fewer than the rate in comparable economies. Apprenticeships provide job-ready skills in a short period, and have a high rate (94%) of success in securing employment post completion.

  • Invest in National Service: National and Public service generates empathy, builds skills and offers vocational opportunities for young people. Taxpayers recoup an estimated $2.5 billion per year from National Youth Service Programs.

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