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

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Family trusts: Are they still worth it?

Family trusts remain a core structure for wealth management, but rising ATO scrutiny and complex compliance raise questions about their ongoing value. Are the benefits still worth the administrative burden?

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 636 with weekend update

A new academic study shows that almost all Australians agree that there is a housing crisis yet we can’t agree on how to fix it and are sharply divided along generational and ideological lines.

  • 6 November 2025
  • 21
Taxation

13 ways to save money on your tax - legally

Thoughtful tax planning is a cornerstone of successful investing. This highlights 13 legal ways that you can reduce tax, preserve capital, and enhance long-term wealth across super, property, and shares.

Taxation

Taking from the young, giving to the old

Despite soaring retiree wealth, public spending on older Australians continues to rise. The result: retirees now out-earn the young, exposing structural flaws in the tax system and challenges for fiscal sustainability.

Investment strategies

An obsessive focus on costs may be costing investors

As a relentless fee war grips Australia’s ETF market, investors may be missing the real battleground. Beyond basis points, index design itself - not cost - may be the most powerful driver of returns.

Taxation

Clearing up confusion on how franking credits work

It seems the mere mention of franking credits generates a lot of heat but not much light. Here's a guide to how franking credits work, and the impact they have on both companies and shareholders.

Investment strategies

Are the good times about to end?

As the bull market revs up, some investors worry about a possible correction. History shows the real question isn’t timing the top, but whether you have the time and liquidity to ride out inevitable downturns.

Superannuation

Australia slips in global pension ranking

The 2025 Mercer CFA Institute Global Pension Index shows Australia has dropped to its lowest ranking in the 17 years of the index. This explores why we're falling and what can be done about it.

Property

Where wine country meets real estate

High-profile wine regions don’t always see strong property growth - volume, exports, and infrastructure investment often matter more than reputation in driving regional property markets.

Sponsors

Alliances

© 2025 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.