As humans, we need structures to survive and thrive. We advanced because of languages, symbols, writing, weights & measures, devices and classification systems, and the disciplines and systems of measurement that go with them. These days, being able to identify, measure and forecast industries and markets is vital.
Industries
IBISWorld didn’t create the standard industrial classification (SIC) system for our industries, although we use that system right around the world for our information services. The origins of the SIC date back to the 1930s in the United States and were given global emphasis by the United Nations in the 1960s.
While industry classification has come millenniums later than other classification, measurement or communications systems, it is now indispensable across a nation’s commerce and economy.
Australia’s version dates to the mid-1960s, and is now shared with New Zealand as ANZSIC. It is revised intermittently to allow for the emergence of new industries and the occasional death of others. Our valued clients will be aware of the hierarchical structure of ANZSIC, as shown below.
IBISWorld provides online reports at the industry class level, in Australia and globally. However, in this newsletter we’ll look higher up the pyramid to gain perspective. In doing so, we can link industry information to market information and show trends.
The next two charts show the changing importance of industries measured at the sector and division levels.
Our industry structure is clearly in the post-Industrial Age, given the Industrial Age industry divisions of Manufacturing, Utilities and Construction diminishing from around 40% of GDP in the 1960s to 16% in 2021.
The dwindling of the Agrarian Age divisions of Agriculture and Mining in both the Industrial Age and our new age (the Infotronics Age) is even more dramatic. The Primary sector’s share has fallen from over half our GDP in the 1820s to an eighth of GDP in 2021. However, the sector is still very important to our exports, accounting for almost 60% of all goods & services exports this year, dominated by minerals.
Before segueing into the marketplace which industries supply, it is important to note the aggregation of our 19 industry divisions into 5 sectors, as both the previous exhibits do via the colour pattern.
We can thank Barry Jones and his ground-breaking book Sleepers Wake, published in 1982, for creating three service sectors – Tertiary (commerce), Quaternary and Quinary - to replace the generalized “tertiary” term to cover all services that had prevailed for decades prior to his publication.
The importance of the Quaternary and Quinary sectors nowadays is abundantly clear in the previous exhibits. These sectors now account for almost 60% of our economic output (GDP).
The Marketplace
Now to the markets these industries serve. One important point to make is that a business’s activities should never be described in market terms, because businesses don’t “own” markets (now forbidden by competition laws). They can only own their industries, collectively, with fellow players/competitors. For example, to say one is in the FMCG (fast-moving-consumer-goods) market is correct, but it is more accurate to say what their specific producing industry is. And, of course, the new age has led to the market having the power on a price-minus basis rather than industries operating on a cost-plus basis in the Industrial Age.
Like industries, markets can be arranged hierarchically, beginning with three sectors as seen below.
We now look briefly at each segment, in turn. Consumption expenditure is the largest market segment. Household expenditure dominates this segment, which is divided below into 13 product categories.
The most striking fact is how tiny our spending is on goods: just over a fifth of our income in the form of durables and non-durables (mainly the FMCG cluster as previously mentioned).
While not expanded in this newsletter, the other sub-sectors of consumption expenditure are governments. Their main categories are social assistance, health, education, safety and administration.
Our export market, below, tells us an opposite story: service exports account for less than a fifth of the total. The COVID-19 pandemic brought tourism to a standstill, which of course diluted this share to some extent.
Which leaves the third market category: the investment market, which covers our annual capital expenditure on new assets that make life more comfortable (new dwellings), facilitate increased output, and improve efficiency and productivity.
Australians, and especially our immigrants from developing nations, put home-ownership high on their aspiration list of priorities. In 2020, almost 30% of the $442.0 billion outlay went to dwellings.
Intellectual property (IP) and other intangibles, however small a category it is currently, is growing as a share of this market. It is the smarts that underpin more and more new service products in the current age of services & IT, in contrast to manufacturing and electricity in the Industrial Age. IP is also the most valued component of share prices on the share market these days: some 75% of the value of a share, even though it rarely appears on balance sheets.
In the United States, IP now accounts for well over 80% of share prices; the result of their corporations spending double the percentage of revenue each year that we do on innovation. Perhaps it is not surprising then that they also achieve nearly double the return on shareholder funds at the top end of town that we do.
That said, Australia’s world-envied superannuation scheme with over $3 trillion in assets and dominated by shares — both local and international — could be worth more than the net worth of all our housing (after deducting mortgage debt) sometime in the 2030s.
As we can see, market data and trends tell us as much about our nation’s direction as our industries do.
