2010s: Decade of the great global shift
We are wealthier and smarter but also worried after a turbulent 10 years.
Malcolm Turnbull declared them “the most exciting times to be alive”. But for many it has been a decade of anxiety, despite an unexpected jobs boom and steady, albeit slower, improvement in living standards for most of us.
The marvel of having the world’s knowledge in our pocket — Britannica, after 246 years, disbanded its print encyclopaedia in 2012 — and the ability to interact with 2.4 billion people via Facebook haven’t assuaged concerns, however, that the economic system that powered the West to prosperity is breaking down.
While the fall of the Berlin Wall defined the 1990s and the September 11 terrorist attack distinguished the 2000s, two factors share that distinction for the 2010s: the long shadow of the financial crisis — which shunted economies on to a path of wage stagnation, soaring house prices and zero interest rates — and a revolution in communication technology that was unimaginable a generation ago.
If the first was unambiguously bad, the second was a mixed blessing. Decline of trust in institutions — politics, churches, banks, big business, media, trade unions — is the single biggest change across the decade, alongside wage stagnation and social fragmentation, for veteran social observer Hugh Mackay.
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“People feel these institutions have turned their focus inward, become more concerned with preserving their own power, wealth and position,” Mackay says. “They’ve forgotten their social licence, that we bring them into being to serve us.”
“Capitalism is not in good shape right now,” says Charles Goodhart, among the most esteemed British economists of his generation. Searches for the term crony capitalism in Google have tripled since 2010 as a share of all searches, compared with the previous decade.
Asked how they felt about the level of change during the past decade, more Australians opted for “concerned”, “overwhelmed” and “fatigued” than for “positive”, “empowered” and “energised”, according to a survey conducted by McCrindle research last month.
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It’s easy to be too pessimistic about the 2010s. While growth slowed, it didn’t reverse. Technology advanced. Concerns about income and wealth inequality that erupted in the wake of the GFC were out of proportion to any actual change. Wages, by and large, have exceeded inflation. Most of us are richer as house prices have soared and shares exceeded pre-GFC highs.
Concerns about the end of globalisation are overstated: trade volumes keep rising. Continued growth in India and China also has seen the world’s wealth rise. But national trends are what matter for politics and perception. For households, businesses and politicians it has been a decade of disruption unlike any other since the 1970s, when oil crises, the Vietnam War and stagflation shattered faith in governments and conventional economic wisdom as the Cold War entered its final stage.
Australians have felt the emergence of a more powerful, aggressive China, too. The dollar fell more than a cent in seconds on the mere rumour, unfounded, that China had banned Australian coal imports. Less than a third of Australians believe China will “do the right thing regarding Australia’s economic interests”, according to the 2019 Scanlon Foundation Social Cohesion report.
Strides in digital technology, powered by the Californian tech giants, have boosted competition, supercharged choice for consumers, and increased scope for transparency by business and government. The proliferation of apps and the smartphones that drive them have slashed what economists call transaction costs across every dimension of life. “Everyone having the internet in their pocket has been the most transformative feature of this decade,” social researcher Mark McCrindle says.
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Mobile phones and desktop computers shrank in the 2000s, but life carried on much as it did before. By contrast, Instagram, Netflix, Spotify, Tinder, Uber, even homegrown Airtasker all emerged in or around 2010, up-ending how we interact with people and businesses, watch movies, listen to music, eat and get around town — condemning wallets, photo albums, street directories and probably cameras to obsolescence. Apple’s iPad launched in 2010, too, eroding further the barrier between work and home life.
People’s lives now revolve around these devices. The internet is with us every waking hour; moments of reflection, the norm throughout history, have become optional — a choice few appear to be making if your typical bus or train scene is any guide. Instagram now has more than one billion active users globally. Facebook’s grew from 500 million to 2.4 billion across the period, including 15 million in Australia.
But social media has been a chalice, if not poisoned, at least bitter. “We have the paradoxical phenomenon of a rising generation of young adults being the most connected in history but the loneliest,” says Mackay. A quarter of Australians, including a third of teenagers and young adults, experience “problematic” levels of loneliness according to recent Swinburne University research.
Rates of self-harm among teenage girls in the US and Britain have increased by half since the late 2000s as their use of social media has spread, according to a new British study by Elisabeth Costa and David Halpern. “Users who deactivated their accounts for four weeks spent less time online, reduced political polarisation (at the expense of news knowledge) and, most crucially, increased subjective wellbeing,” they found.
“It’s a sobering reminder that connection by social media is not the same as face-to-face interaction,” says Mackay.
“People are rediscovering the importance of the neighbourhood and the role of personal interaction to compensate for the inexorable growth of IT in their lives. If this didn’t happen we’d be facing a nightmare scenario.”
Social media also has abetted extremist movements, added a new dimension to global espionage and taken a machete to traditional media that, for all its faults, had provided a check on government and corporate power.
“The way data is harnessed and used is a huge change,” says Rod Sims, chairman of the Australian Competition & Consumer Commission. “If people know where you are, when you’re there, what you’re spending your money on, your sexual preferences, they can do a lot of things.”
People retreat into their curated digital silos. Knowledge about current affairs, basic political and economic facts of the nation, can no longer be assumed. Australians spend as much time on Snapchat as they do on media websites operated by the ABC, News Corp Australia, Nine, Seven West and Ten combined. About 2.3 per cent of the five-plus hours we spend online each day is devoted to reading news, a share dwarfed by the time spent on Facebook, YouTube, Instagram and Messenger (almost 19 per cent) and Google (21 per cent), according to the ACCC’s landmark study into the power of the two digital platforms, released earlier this year.
“Overlay on all that anxiety about the state of the planet, and it’s not surprising our anxiety levels are rising and people are turning their own focus inward, becoming more self-absorbed,” says Mackay.
While the share of Australians nominating economic issues as the most important problem facing the nation has dwindled from 37 per cent to 26 per cent across the decade, concern about environment and climate has almost doubled to 20 per cent, according to the 2019 Scanlon report.
If technological progress has been a mixed blessing, the economy has provided a puzzle: a jobs boom alongside weak inflation and wage growth. A report this month by Cisco found 630,000 jobs could be displaced by new technologies in the next decade, more than 7 per cent of Australia’s workforce. Yet persistent fears about technology wiping out work have proved unfounded.
In the aftermath of the GFC pundits feared a “jobless recovery”; the reality has been the biggest jobs boom since World War II. The sum of the unemployment rates in Japan, Germany, the US and Britain has never been lower. For most of the decade in Australia the unemployment rate has been falling, ticking up a little in 2019 above 5 per cent, mainly because record numbers of women and older Australians have entered the workforce, lifting participation to record highs.
But the communication revolution has done little for wage growth, which fell off a cliff in Australia around 2013 and hasn’t recovered. As for computers in the 1980s — which economist Robert Solow famously said could be seen “everywhere but in the productivity statistics” — economic dynamism sagged. Growth in output per hour of work, or labour productivity, which had averaged 1.7 per cent a year in Australia since the mid-70s, had halved by 2015 and fell to zero last year. Stripping out the benefits of the new machinery and buildings economy — what’s known as multifactor productivity — output per hour worked is shrinking.
Reflecting trends globally, the rate of entry of new Australian businesses has fallen more than 20 per cent since the 2000s, Treasury pointed out earlier this year. Similarly, workers’ “switching rate” between jobs has declined 17 per cent, suggesting workers are less willing to take risks. For all the talk of fintech and start-ups, the share of workers employed by big businesses — those with 200 or more employees — steadily increased to almost a third from 27 per cent a decade ago.
US economist Robert Gordon, in one of the more influential economic articles, declared strong wage growth dead. “There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely,” he wrote in a 2012 paper that foreshadowed a deluge of research that tried to explain the slowdown or “secular stagnation”.
“Invention since 2000 has centred on entertainment and communication devices that are smaller, smarter and more capable but do not fundamentally change labour productivity or the standard of living in the way electric light, motor cars or indoor plumbing changed it,” he added. In other words, planes don’t go any faster than they did in the 70s.
The election of Donald Trump in the US, riots in France and Britain’s vote to leave the EU all reflected in part a growing belief economies were increasingly serving the “swamp”, financial and corporate elites, but not ordinary people. “The bargaining power of labour has contracted enormously because of globalisation,” says Goodhart.
Harvard economist Raj Chetty declared the American dream dead with analysis in 2016 that half of children born in the 1980s would likely be worse off than their parents, compared with 90 per cent of baby boomers.
No analysis had more influence on politics, perception, and economic debate this decade than Thomas Piketty’s explosive 2013 book, Capital in the 21st Century, which sold millions and provided an intellectual crutch for critics of capitalism. “The sharp reduction in income inequality that we observe in almost all the rich countries between 1914 and 1945 was due above all to the world wars and the violent economic and political shocks they entailed,” he wrote. In other words, wage stagnation and widening inequality were our economic destiny as rates of return for investors would consistently exceed the growth rate of the economy at large.
A torrent of Chinese money, buying up property, resources and businesses, insulated Australia’s economy from these global forces in the first part of the decade — delivering us a huge pay rise in the global economy via a dollar that soared above $US1. But we’ve been drawn into the same malaise. The long growth spurt from the early 1990s to the late 2000s that propelled us back into the top 10 richest nations — having tumbled out in the 70s — ground to a halt around five years ago, when annual wage growth almost halved to 2 per cent and the economy began to shrink per capita.
Talk of the “miracle economy” with “28 years of economic growth” under its belt has started to wear thin, even if immigration has retained widespread support.
“You have to pinch yourself. In 2006 our population was under 20 million, and now it’s over 25 million. I can’t think of a developed Western country that’s experienced a change of that magnitude,” says Andrew Markus, a professor at Monash University who tracks social cohesion.
The Chinese-born population of Australia grew by half to 650,000 in the five years to last year (more than eight times faster than the overall population), and by 2023 is on track to exceed English-born. The Indian-born population grew even faster to 590,000, overtaking the number of New Zealanders, traditionally the second biggest stock of foreign-born residents after the Brits. “Surely the big change this decade has been the almost complete absence of any growth in household incomes. Talk about a disappointing decade,” says Roger Wilkins, a professor of economics at the Melbourne Institute and expert on household economic trends.
Australian income data this decade has tended to bear out Piketty’s thesis. After tax, the typical household earned $80,600 in 2009, up 32 per cent from 2001 after adjusting for inflation.
In 2017, the latest year of data from the respected Melbourne Institute survey, the same household earned $80,100. Totting up assets is not much more inspiring. Average net wealth soared over $1m for the first time in the decade to last year as house and share prices surged but the bottom third of households, worth an average of about $100,000, went backwards, according to the latest figures from the Australian Bureau of Statistics.
The middle ranks of the distribution have been hollowing out. The number of households worth less than $300,000 rose 11 per cent. The number with net assets between $300,000 and $1m shrank 10 per cent, while those worth more than $1m jumped 45 per cent, including an 81 per cent surge for “more than $5m”. “Less than $0” was almost the fastest growing net wealth category — up 65 per cent to 127,000 households. Perhaps it’s a surprise the Scanlon Foundation’s index of social cohesion — down about 10 per cent since 2009 — hasn’t fallen further.
Central banks, widely seen to have saved the global economy in the immediate aftermath of the 2008 crisis, have attracted increased criticism since. Ultra-low interest rate policies have ratcheted up asset prices, fanning inequality, and supercharged an already high debt burden without much increase in genuine economic activity. Since 2000 the volume of loans outstanding in Australia — to households, businesses and governments — soared from $740bn to $2.9 trillion. “Debt ratios have risen to the kind of levels that make it quite hard for central banks to lift rates again. We’re in a bit of a trap,” says Goodhart.
The hubris that characterised central banks’ economic policymaking in the 2000s has given way to embarrassment and doubt. Not only was the financial crisis a surprise but interest rate cuts since have failed to have their desired effect: lifting meagre rates of inflation, or spurring business investment. Assumed relationships between interest rates, inflation and wage growth seem to have broken down. “It has toppled the foregoing set of intellectual convictions,” says Claudio Borio, chief economist for the Bank for International Settlements in a December presentation. So far nothing has replaced them. The Reserve Bank of Australia is widely expected to cut the cash rate to 0.5 per cent in February, which would be the fourth cut in 12 months.
The young couples priced out of the housing market or retirees who feel compelled to invest in the stockmarket as returns on their term deposits shrink to zero can thank monetary policy. For almost the entire decade the real interest rate (subtracting inflation from the official interest rate), on average, has been below zero in advanced economies. At the same time central banks’ balance sheets ballooned from less than $US5 trillion in 2008 to about $US17 trillion today, reflecting unprecedented purchase of government bonds with newly created money — known as quantitative easing. The RBA has flagged it, too, will consider creating new money to buy government bonds if inflation remains chronically below its 2-3 per cent target.
For all the attention domestic policy rightly receives, our fortunes in the 2020s will be determined more by China’s development and its relationship with the US. While Australia’s economy grew by a quarter since 2010, China’s doubled. In purchasing power terms, its economy became larger than that of the US.
Climate change that might occur in 2050 dominates political debate but the reality of demographic change will loom larger in the 2020s. “Every fourth household is now just a single person … by the end of the next decade we’ll be looking at one in three households being single,” says Mackay.
With an enviable standard of living, mineral resources and strong alliances, Australia is well placed to navigate whatever the next decade throws up. But it would be better placed still if governments and oppositions could work together better to implement policies they both know are in the long-run national interest. Unfortunately there’s no app for that yet.
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