Feature Article - 100 Years of change in Australian Industry
As the Australian Bureau of Statistics (ABS) looks forward to celebrating its centenary of operations in 2005, an examination of the changes in Australian industry over the last 100 years is an appropriate way to mark this significant milestone. An analysis of an entire century of Australian industry presents a perspective not usually available in ABS publications, and it provides an interesting and informative view on how the nation's economy has developed over this time period.
The key economic measure chosen for the analysis is industry shares of gross domestic product (GDP). Unlike dollar values, industry shares of GDP are relatively unaffected by changes in the value of money over time. The Australian national accounts, the source of such data, only exist in their current comprehensive form from 1948-49 onwards. To provide data for the entire 100 years, the national accounts data have been supplemented with data external to the ABS. Estimates of value added by major industry groups compiled by N.G. Butlin1 for the period 1900-01 to 1938-39 have been used. While this leaves a gap in the industry series from 1939-40 to 1947-48, the time series created nevertheless provides an interesting view of the changes in industry composition and contribution to national production over most of the 20th century.
The Butlin estimates are not official statistics. The ABS has not undertaken an analysis of the quality of these estimates, and there may be other estimates of Australia's historical performance that differ from Butlin's. However, for the purposes of this article, Butlin's estimates provide a perspective on industry in the earlier part of the 20th century not covered by official statistics.
The concepts and classifications underlying ABS data collections and the national accounts have changed from time to time to reflect changes in industries, the economy and in international standards. While ABS makes every effort to maintain comparable industry definitions and consistent national accounts data sets over time, there is a limit to which this can be done over a long time span. Even data available from 1948-49 to the present are not strictly comparable over the whole length of the series (see Notes on the series at the end of this article).
The industries covered in the analysis are: agriculture, forestry and fishing; mining; manufacturing; construction; government administration and defence; finance, distribution and other services (referred to as the services industry for the purposes of this article); dwelling rent; and other industries.
At the time of Federation, Australia's largest single industry was agriculture, forestry and fishing, which contributed 19.4% to GDP. Distribution services (within Finance, distribution and other services) was the next largest contributor, with just over 15% of GDP. The manufacturing, mining and dwelling rent industries each contributed between 10% and 12%, while construction and other industries each contributed 7% to GDP. Government administration and defence contributed 3.4% to GDP, while the services group contributed a combined total of 31% to GDP.
A SNAPSHOT OF INDUSTRY COMPOSITION
As an introduction to the 100-year series, graph 1 shows data from the three key years 1900-01, 1950-51 and 2000-01. The graph highlights the major contribution of the services industry to GDP at all three time points, and the fall in agriculture's share of GDP between 1950-51 and 2000-01. Importantly, an industry's share of GDP should not be seen as an indicator of an industry's performance, but rather as a relative indication of how significant an industry is to the economy at a particular point in time.
Industry comparisons are a little distorted in 1950-51 as the value of agricultural output was inflated by high prices during the Korean War. Agriculture contributed just over 30% to GDP in 1950-51. Agriculture also contributed over 30% to GDP in 1916-17 and 1917-18, corresponding to the later years of World War I.
Manufacturing's contribution to GDP almost doubled to 22.4% between 1900-01 and 1950-51, reflecting the development of manufacturing during World War II as well as post-war efforts to promote manufacturing in Australia. Mining's share of GDP declined to 2.6% of GDP in 1950-51, mainly reflecting declining gold production since 1900-01. Dwelling rents' contribution to GDP fell to 2.6%.
Contributions of the construction and government administration industries were about the same as in 1900-01, while the contribution of services had declined, partly reflecting the abnormally large share of GDP claimed by agriculture in 1950-51.
Services contributed almost half (48.4%) to GDP in 2000-01. Manufacturing, the next largest industry, contributed 12.0%, slightly less than its 12.2% contribution in 1900-01, but half its contribution of 22.4% in 1950-51. Dwelling rent contributed 9.5% to GDP, slightly less than its contribution in 1900-01, but almost four times as much as its contribution 1951. Both the mining and construction industries contributed 5.6% in 2000-01. Mining's share had more than doubled since 1950-51, but was still only around half its share of GDP in 1900-01.
Agriculture, the largest individual industry in 1900-01 and 1950-51, was only 3.8% of GDP. Government administration increased its contribution to 4.1%, slightly higher than in 1900-01 and 1950-51.
CONTRIBUTION OF INDIVIDUAL INDUSTRIES
Agriculture, forestry and fishing
The story of agriculture in Australia is a story told in two halves. For the first half of the 20th century, agriculture's contribution to GDP generally hovered between 20% to 30% of GDP. In the second half, starting with the Korean War peak in 1950-51, agriculture's relative contribution to GDP declined fairly consistently to between 4% and 5% of GDP from the 1980s onward (graph 2). Drought and other climactic events influence agricultural output more than output from other industries. For example, the recent drought was largely the reason for the agriculture, forestry and fishing industry's share of GDP dropping from 4.2% in 2001-02 to 3.1% in 2002-03.
Two million hectares of land were devoted to the production of wheat for grain during 1901-02, producing over 1 million tonnes of wheat at an average yield of 0.51 tonnes per hectare. By the early-1950s wheat for grain was grown on over 4 million hectares producing an average yield of 0.93 tonnes per hectare. In 2000-01 wheat for grain was grown on 12 million hectares, producing 22 million tonnes at an average yield of 1.82 tonnes per hectare, over three times the average yield in 1901-02. The effect of drought on agriculture is evident in the 2002-03 data, where the average yield decreased to just 0.90 tonnes per hectare.
The nation's livestock herds have also increased. Where 72 million sheep and 8.5 million cattle were farmed in 1901-02, 111 million sheep and 22.7 million cattle were farmed in 2001-02. The early-1970s saw the nation's herds at their peak levels with over 160 million sheep and 27 million cattle farmed.
By 1930-31, the mining industry contributed only 2% of GDP. Gold production increased again through the 1930s, along with large increases in lead, zinc and coal production, so that mining's contribution to GDP was just over 3% in 1938-39.
The value of Australia's mining output in 1900-01 (10% of GDP) was dominated by gold production with smaller contributions from copper, lead and coal. The value and contribution to GDP from the mining industry declined through to 1930-31 as the amount of gold extracted declined. Gold production declined from 103 tonnes in 1901 to 77 tonnes in 1911, 24 tonnes in 1921 and 19 tonnes in 1931. Lead and zinc production increased substantially during this period, but not enough to offset the declining value of gold production (graph 3).
Mining's share of GDP began to increase again in the late-1960s as the scale of iron ore production increased. In 1961 Australia produced 5 million tonnes of iron ore. In 1971 production of iron ore had increased to 57 million tonnes. Production of coal increased from 41 million tonnes in 1961 to 73 million tonnes in 1971. Production of iron ore and coal continued to grow through the 1980s, principally driven by export demand. Mining's contribution to GDP has generally been around 5% since the mid-1980s.
Construction's contribution to GDP fluctuated significantly in the period up to World War II, with the low levels of the 1930's corresponding with the Depression (graph 5).
The immediate post-World War II period was a time of fairly constant increase in the construction industry's share of GDP, corresponding with post-war building and reconstruction, including major developments such as the Snowy Mountains Hydro-electric Scheme. Construction's contribution to GDP peaked in the period from the mid-1960s to mid-1970s, averaging around 9.5% of GDP. Since then, Construction's relative share of GDP declined fairly steadily to around 6% in the early-1990s, where it has since remained.
The manufacturing industry's contribution to GDP reflects the prominence of the industry for almost 60 years, peaking at just under 30% of GDP in the late-1950s and early-1960s, before a long period of decline in its share of GDP to 11% of GDP in 2000-01. The missing time series, from 1939-40 to 1947-48, corresponds with what is probably the period of fastest growth in Australia's manufacturing industry. The manufacturing industries developed during World War II were supported and encouraged by government policy in the post-war years, but ultimately began to decline in importance. As for agriculture, the value of output of manufacturing has not diminished, rather the output of other industries has grown more consistently since the early-1960s (graph 4).
The services industry group contributed around 30% to GDP from 1900-01 to the early-1960s (graph 7). Since then, its contribution has steadily increased to just under 49% of GDP in 2003-04. This industry group embraces a wide range of services including: wholesale trade; retail trade; accommodation, cafes and restaurants; communication services; finance and insurance; property and business services; education; health and community services; cultural and recreational services; and personal and other services.
From 1985-86, the period for which more complete industry data are available, the most significant increases in contributions to GDP have been in property and business services (6.6% in 1985-86 to 11.5% in 2003-04), and finance and insurance (3.6% in 1985-86 to 8.4% in 2003-04) industries. Distribution services (the wholesale and retail trade, and accommodation, cafes and restaurants industries) contributed about the same to total GDP in both 1900-01 (15%) and 2003-04 (14%).
Government administration and defence
The contribution of the government administration and defence industry to GDP has been relatively consistent at around 3.5% to 4.5% of GDP for most of the period covered. Government's contribution peaked at 5.8% in 1930-31, around the start of the Depression (although data are not available for the World War II years where it can be expected to be higher still). Government's share rose steadily from 3.4% in 1960-61 to over 5% in the period 1973-74 to 1982-83. From 1983-84 the Government share of GDP fell consistently to 4.0% in 1988-89. It has remained in a narrow band between 4.1% and 4.5% since then (graph 6).
Dwelling rent's share of GDP was 10.1% in 1900-01 and 9.1% in 2003-04 (graph 8).
In 1900-01 the dwelling rent industry contributed around 10% to GDP. Housing rents were generally high as demand for housing exceeded supply. In the early-20th century, States introduced legislation to provide public rental housing for low income earners, followed by Commonwealth Government moves to provide financial assistance for access to home ownership to medium- to low-income groups. These actions led to an increase in the supply of more affordable housing with a consequent decline in rent's share of GDP to around 7% in the mid-1920s. From there, rent's contribution increased sharply to 11% in 1931-32. The increased share through this later period is due to contraction in other industries through the Depression, rather than an increase in the value of dwelling rent. The rent share of GDP fell from the mid-1930s as the rest of the economy picked up while the value of the rent industry stayed more or less constant.
The concept of dwelling rent as an 'industry' in national accounting is explained in Notes on the series. However, it is worth noting that dwelling rent comprises actual rent, as paid by tenants to landlords, and an imputed rent to owner occupiers.
In the post-World War II period, the dwelling rent industry's share of GDP increased from a low of 2.6% in 1951-52 to peak at close to 10% in the 1990's. Some doubt remains over the consistency of the data available for dwelling rent for the first half of the century compared with the second half, and therefore trends over the whole of the 100 year period should be interpreted with caution.
Changes in the combined contribution of other industries to GDP since the mid-1980s were chiefly driven by changes in the communication services component (separately identified from 1985-86 onwards). Communication services contributed 2.4% to GDP in 1985-86, increasing to 3.3% in 1997-98 and 1998-99, before falling away slightly to 3.0% in 2003-04. Transport and storage services contributed 6.8% in 1985-86, falling fairly steadily to 5.6% in 2003-04. Electricity, water and gas increased its share from 1.9% in 1949-50 to 3.9% in the late-1980s, before falling away fairly steadily to 2.5% of GDP in 2003-04 (graph 9).
The material in this article provides an interesting perspective on the changing nature of Australia's economy over the last 100 years. It shows that economic and industrial change is not always in one direction. Economic shocks, from war or depression, can have a significant influence on specific industries as well as the whole economy, as can policy decisions. Overall though, the changes in relative contributions of key industries to GDP over time point to the broadening and deepening of the Australian economy as well as its increasing engagement with the rest of the world.
NOTES ON THE SERIES
In creating the historical time series, limitations arise which may result in some inconsistencies.
Time series for 1948-49 to 2002-03 were compiled from estimates published in various editions of Australia's official national accounts, most recently in Australian System of National Accounts, 2003-04 (5204.0). Time series for 1900-01 to 1938-39 were compiled by N. G. Butlin from a combination of official and other statistical material. Estimates of industry-based GDP are not available for the period 1939-40 to 1947-48, though estimates of Australia's national income and expenditure were compiled by the Commonwealth Bureau of Census and Statistics (the predecessor of the ABS) for this period.
While every effort has been made to ensure the consistency and comparability of the time series, there are some differences in scope that should be noted.
Estimates from 1989-90 to 2003-04 are for industry gross value added at basic prices, consistent with the recommendations of the System of National Accounts 1993 (SNA93). Those for 1948-49 to 1988-89 are for industry gross value at factor cost and are consistent with the recommendations of the System of National Accounts 1968 (SNA68). The Butlin series are simply described as industry shares of gross domestic product, but can also be presumed to be at factor cost and be broadly consistent with SNA68. The difference between estimates at basic prices and factor cost is relatively minor in the context of these series.
The Butlin series, covering the period 1900-01 to 1938-39, were produced from data that are likely to be less comprehensive and of lesser quality than the series available from official estimates for the second half of the century. Data for services in particular are expected to be relatively weak compared with that available from 1948-49. Also, the Butlin series are not subject to the same integrated national accounts estimation process as the later series.
The industry classification used in Australia's national accounts, and more widely in economic statistics, has also changed from time to time to reflect changes in the composition and importance of various industries, as well as to align more closely with international standards.
While these factors should be borne in mind, it is considered unlikely that they will significantly impact on the broad overview of the changing nature of the Australian economy highlighted in this article.
The first five industries: agriculture, forestry and fishing; mining; manufacturing; construction; and government administration) are relatively well known and require little further explanation. Finance, distribution and other services, represents something of a catch-all for a diverse range of services including: wholesale trade; retail trade; accommodation, cafes and restaurants; finance and insurance; property and business services; education; health and community services; cultural and recreational services; and personal and other services. While it would be desirable to produce separate time series for the major components in this group, the level of detail available prior to 1985-86 prevents this. For example, from 1948-49 to 1985-86, 'Trade' includes wholesale and retail distribution services, accommodation services, cafes and restaurants. Butlin's 'Distribution' series covers wholesale and retail trade while accommodation, cafes and restaurants is part, though not all, of his 'Other services' series. A wholesale and retail trade series (including accommodation, etc.,) thus cannot be identified for the full time series.
The value of housing services, whether provided by rented dwellings or owner-occupied dwellings, have always been included in the national accounts measure of GDP. The ratio of owner-occupied to rented dwellings can vary significantly between countries and even over short periods of time, so that both international and intertemporal comparisons of the production and consumption of housing services could be distorted if no imputation were made for the value of own-account housing services. A separate industry, 'ownership of dwellings' is created in the Australian national accounts to record the value added by all housing services. This industry is represented by the series 'dwelling rent' in this article.
The final series shown is for 'other industries', which mainly comprises the electricity, water and gas, and the transport, storage and communication industries, with some unallocated elements in the Butlin series.
(Footnote 1: N.G. Butlin, Australian National University Source Papers in Economic History No. 6, November 1985: Australian National Accounts 1788-1983, N.G. Butlin, Department of Economic History.)