Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

The Great Transition

  •   3 September 2015
  •      
  •   

The Great Transition examines the rise of the information economy in the context of the debate around ‘secular stagnation’. It is our view that the information economy should herald a better global economy, but this can only occur after a period of difficult transition, which requires sound policy and patience.

The transition is occurring in the context of a profound productivity shift as a consequence of China, smartphones in the hands of 1.75 billion people and the rise of services. This positive change is made problematic by both the disruption and the inability of contemporaneous statistics to properly capture the change.

Like most upheavals, the information revolution will not be pain-free. Traditional businesses and business models will fall as the industrial economy declines and the information economy expands.

However, the end result should be a better global economy, one in which consumers are increasingly empowered. It will be an economy driven by perfect competition with remarkable personalisation and a rising demand for services, some of which will come in forms that we have not yet imagined.

For western economies the challenges are immense, with the decline in entrenched industrial economies. But in the coming decade this stagnation may moderate as the information economy continues its rapid growth.

Rather than stagnation, we are facing a transition. The future will bring a world economy that works differently, that will bring opportunities and challenges to which governments, businesses and investors will need to adapt.

In The Great Transition, we examine three key themes: Productivity, Capital Consequences and Historical Rhythms.

Productivity

‘Productivity’ considers how the nature of production is changing. Analysis includes:

  • How the smartphone will drive the new economy. In 2014, almost half a billion new mobile devices were produced, 88% of which were smartphones. In that same year, mobile data traffic grew by 69%, an amount 30 times larger than the entire internet traffic of 2000.
  • China’s role in the information revolution. China has been largely responsible for putting these incredibly powerful devices in the hands of one in five of the world’s people.
  • The secrets of China’s success. In 2006, a 42-inch LCD television cost US$4000; in 2015 you could pick one up for US$384. This phenomenon has often been credited to an almost endless supply of cheap Chinese labour. However, since 2006, China’s labour costs have risen 15% a year. What China has done well is improve productivity through encouraging competition and infrastructure development.
  • The move towards services. Living standards are rising. The richer and more connected we become, the less time we have and the more we demand services. This helps improve our lives through higher consumption of leisure while increasing the employment opportunities in the same fields.


Capital consequences

‘Capital consequences’ looks at the erosion of capital’s value and the rise of the intangible. Analysis includes:

  • Declining capital. China’s perfect competition model and better outcomes for consumers will lead to an erosion of capital’s earnings power.
  • The power of connectedness and information. Consumers will no longer pay more for products due to convenience, geography or lack of information.
  • Big firms losing their advantage. Cheap information allows much smaller organisations to effectively compete with big ones. Consumers will expect personalised, high quality, competitively priced products and services, increasingly provided by individuals rather than firms.
  • The rise of GAFA. Google, Apple, Facebook and Amazon may have a distinct lack of tangible assets, but they are at the forefront of the new economy and its new rules. Their assets may be intangible but their sales are not.
  • The “Tetris economy”. How using resources more efficiently can lead to an expansion in economic activity without so many inflationary pressures.

Historical rhythms

Finally, ‘historical rhythms’ looks at how the Long Depression of the late 19th century can teach us important lessons about the Great Transition. Both periods feature rising living standards, but also financial crises and deflation. Analysis includes:

  • Technological progress and its consequences. What the railway, the steamship and the telegraph can teach us about the information revolution.
  • The financial consequences of the Long Depression. How falling prices, interest and profits led to the destruction of historic capital and the rise of newer capital.

The Great Transition describes a world in which technological change allows more to be done with fewer resources. It is a world of improved productivity and the crumbling past, higher living standards but slow growth, where the old corporate economy gives way to an economy in which consumers and producers interact directly.

Sound policy and patience will be required in the years ahead. The rate of change will be exponential: in 2015 alone we may see the demise of business models and methods once considered impregnable. The transition will change our economic and investing lives profoundly, but it will also bring a wealth of opportunity.

James White is an Economist for Colonial First State Global Asset Management. This article is for information purposes only and does not consider the circumstances of any investor..

 

  •   3 September 2015
  •      
  •   
banner

Most viewed in recent weeks

Building a lazy ETF portfolio in 2026

What are the best ways to build a simple portfolio from scratch? I’ve addressed this issue before but think it’s worth revisiting given markets and the world have since changed, throwing up new challenges and things to consider.

Get set for a bumpy 2026

At this time last year, I forecast that 2025 would likely be a positive year given strong economic prospects and disinflation. The outlook for this year is less clear cut and here is what investors should do.

Meg on SMSFs: First glimpse of revised Division 296 tax

Treasury has released draft legislation for a new version of the controversial $3 million super tax. It's a significant improvement on the original proposal but there are some stings in the tail.

Ray Dalio on 2025’s real story, Trump, and what’s next

The renowned investor says 2025’s real story wasn’t AI or US stocks but the shift away from American assets and a collapse in the value of money. And he outlines how to best position portfolios for what’s ahead.

10 fearless forecasts for 2026

The predictions include dividends will outstrip growth as a source of Australian equity returns, US market performance will be underwhelming, while US government bonds will beat gold.

13 million spare bedrooms: Rethinking Australia’s housing shortfall

We don’t have a housing shortage; we have housing misallocation. This explores why so many bedrooms go unused, what’s been tried before, and five things to unlock housing capacity – no new building required.

Latest Updates

3 ways to fix Australia’s affordability crisis

Our cost-of-living pressures go beyond the RBA: surging house prices, excessive migration, and expanding government programs, including the NDIS, are fuelling inflation, demanding bold, structural solutions.

Superannuation

The Division 296 tax is still a quasi-wealth tax

The latest draft legislation may be an improvement but it still has the whiff of a wealth tax about it. The question remains whether a golden opportunity for simpler and fairer super tax reform has been missed.

Superannuation

Is it really ‘your’ super fund?

Your super isn’t a bank account you own; it’s a trust you merely benefit from. So why would the Division 296 tax you personally on assets, income and gains you legally don’t own?

Shares

Inflation is the biggest destroyer of wealth

Inflation consistently undermines wealth, even in low-inflation environments. Whether or not it returns to target, investors must protect portfolios from its compounding impact on future living standards.

Shares

Picking the next sector winner

Global equity markets have experienced stellar returns in 2024 and 2025 led, in large part, by the boom in AI. Which sector could be the next star in global markets? This names three future winners.

Infrastructure

What investors should expect when investing in infrastructure: yield

The case for listed infrastructure is built on stable earnings and cash flows, which have sustained 4% dividend yields across cycles and supported consistent, inflation-linked long-term returns.

Investment strategies

Valuing AI: Extreme bubble, new golden era, or both

The US stock market sits in prolonged bubble territory, driven by AI enthusiasm. History suggests eventual mean reversion, reminding investors to weigh potential risks against current market optimism.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.