About this Interview
Our exclusive interview with Phil Ruthven AM - Founder of revered business intelligence group, IBISWorld.
Over a fifty-plus year career, Phil has been Australia's leading, go-to forecaster & commentator on business trends, strategic services and thought leadership.
Founded in 1971, his legendary firm, IBIS World provides trusted industry research on thousands of industries worldwide, leveraging economic, demographic and market-data to provide critical and unique insights that assist decision makers across the globe.
Today, IBISWorld has over 400 employees in 6 offices across the World including Melbourne, Los Angeles, New York, London, Frankfurt & Beijing.
In 2017, Phil launched the Ruthven Institute to assist Australian businesses achieve World's best practice profitability through functional excellence.
Outside of his corporate interests, Phil is a recent past board member of the Melbourne Institute, CEDA as well as a past Director of Open Family Australia, a role he held for some 18 years.
The Interview, Phil Ruthven AM Transcript
*Please note, this transcript was auto-generated and some inaccuracies may exist.
Rob Langton 00:16
Our guest this afternoon is Phil Ruthven, a founder of revered business intelligence group IBISWorld. Over a 50 plus year career, Phil has been Australia's leading go to forecaster and commentator on business trends, Strategic Services and thought leadership. Phil, it's an honour having someone of your expertise and standing on the program. Thanks for your time. To start things off, tell us about your reading on the economy at the moment?
Phil Ruthven AM 00:42
Well, I think you almost have to describe that in a relative sense compared to somebody else in that sense. And we're already the 10th highest standard living country in the world with something like 230 nations around the world. So we've got a good start, even in 2021, we certainly have had the least number of deaths per capita in terms of COVID.
So in that sense, we're fine. However, like so many countries, we do have a very big debt as a result of having to handle COVID the way we did do it last year. And all I can say is thank God for very, very low record low interest rates, so it's not going to cost us very much for the government to service that debt.
So I think if you look at that, compared to where other countries are, particularly United States, where they've just lost their 500,000th, death through COVID. And fortunately, that's far higher than ours, of course, only lost less than a thousand of course, so, or England, which is also had a bad time. So I think that one should always say compared to whom, and I think on that basis, you know, we're in much better shape than most countries. That said, I think we're going to pay a price. as we did for all the debt, we're incurring the same as we did with the GFC. Back in 2008. Nine, were the result of that debt, slow the economy down by a good half a percent a year, and I think this time will slow down another half a percent a year later, five to eight years. But relatively, where else would you want to be within Australia?
Rob Langton 02:06
On a macro level? What are the major opportunities you see for Australia as a nation over the next, say, one, three to five years?
Phil Ruthven AM 02:12
Or I think each of those time differences give a different answer. But if you take the longer term first, you'd have to say being part of the Asia Pacific, or Asia, generally, if you include the Indian subcontinent, we've got almost half the world's economy there these days, you'd have to say what a fabulous opportunity Australia's got in terms of exports, and their trade, generally, tourism, export of minerals, services, whatever you like.
So that, I think being the fastest growing region of the world, virtually on our back doorstep for the first time, we've always been here geographically, but we've never been here in terms of economic trade was usually with mother England, or the United States or Europe, whatever at large. So I think the long haul, we've just got more opportunities and anybody could wish for in terms of being part of Asia, with a fabulous growth in the fabulous trading opportunities. I think, in a more medium term, I think we're going to have to handle the ups and downs of the post COVID problem over the next one to three years. In other words, do we have a V shaped recovery like we're going through at the moment? Or is it a sugar hit as a result of sort of going without spending for so long? If it's not a V, it could be a W shape one, in other words, we might run into limited troubles second half of next year, and then recover from it, of course, so that I think the short to medium term, it's got a few traps in there, the present time, that won't give us necessarily another nasty recession.
But I think we should be very careful not to assume it's just going to be a straight V shape recovery. I'm not convinced that's going to happen. But I think the difficulty is we're often thinking too short term these days. But if we were to take the longer term, which I do all the time, I think we've got a lot of opportunities and a lot of good economic growth. But we have to work much harder than we've been doing recently to get it that's the only other thing?
Phil Ruthven AM 02:38
What are the major challenges us see over the next, you know, at least medium to longer term, which is that?
Phil Ruthven AM 04:09
Well, I think, first of all, it's businesses that create the the GDP wealth of the nation. And we've got just over two and a quarter million businesses in Australia. But that said, you know, the top 2000 corporations out of the 2.3 million, accounted for nearly half the entire economy. Which means I think the the challenges we've really got is at the big end of town, as we call it. In other words, it's the big corporations that aren't doing very well, compared to say our United States cousins.
For example, if you look at the 100 biggest corporations in america, on the stock market, they would average around about a 20% return on their shareholders equity, year in year out year over any long period of time. But compare that 20% we make 11% so we're only running at about just over half the pace of the Americans. And I find a lot of excuses out there that are we're going to be a population or they're much more high tech.
None of this got anything to do with return on equity, with either profit has got nothing to do with population size, or whether you got high tech companies not that's nothing to do with that we, we've got enough good companies in Australia that are earning what you call world's best practice profitability to know that it doesn't matter what industry you're in, or how big your population is, you can still get a world best practice performance.
And so I think one of the greatest challenges is for our corporations to understand the true Keys to Success these days, which the Americans understand far better than us, in America, and about four out of every 10, companies would would average over 22% return on funds year in year out, because they know the new rules by which way you should run their businesses. In Australia, we're lucky to have one entity and so that, I don't mean that in a critical sense of corporations.
I'm not just saying that alone is an opportunity, because if we can get up to four out of 10, doing what the Americans are doing, we'll set this economy alight. You know, at the present time, I think the indication of the problems we've got is you only gonna look at our superannuation funds, which control about $3 trillion dollars worth of assets for the members to find that, you know, usually two thirds that will go into shares, which they do. But those shares are increasingly going to America. In other words, our super funds cannot find enough good companies to invest in on the stock exchange in Australia. And that's why, you know, in some cases, more than half of all the shares, they buy are American shares not Australian ones. So in some ways, I think the greatest challenges for our corporations to really truly understand what are the keys to success these days, like the Americans understand so well, but we don't.
Rob Langton 06:44
To what extent have the events of the past 12 months in particular COVID-19? How much have they accelerated changes in business and society?
Phil Ruthven AM 06:52
You know, this might surprise anybody's listening or watching my experience in going back through all the recessions and depressions Australia's had for hundreds of years already, 200 years at least, is that, really, the trends that come out on the other side of either a pandemic or the other side of a great war or a major recession, you come out the same way as you went in, but not straightaway.
In other words, things like working from home is a factor was growing quite strongly anyway, before COVID, Now during COVID. Of course, that just jumped up enormously to where most people have to work from home. And people say well there's the new trend. Well, now it's not, it's simply going to mean that we're on the way from 10%, working from home to 20, to 30, which we were before COVID 30% of the workforce, were working either part time or full time from home, that jumped up probably near 70%, of course during COVID or 80%. And it will come back to 30%. For keep growing.
In other words, firms are well known now that we can all work from home, we'll move to the country, and a lot of people are doing that. But they're going to find that that's not the life that really they really want you to think why'd I do this, you know, and I love the country too. But in other words, I think we've got to be very careful to see or if the things that a pandemic, or great war or recession ever permanently changes anything it doesn't, you've got to treat those as an interruption to the trends are already there.
So that, for example, we're already starting to do a lot of purchasing online rather than go into stores well if anything we went back to buying from stores quite a lot, particularly the panic buying but buying online was growing before COVID and will certainly grow after COVID. Things like fast food where people was not going to eat in the fast food restaurants or much have takeaway or home delivery.
That went berserk. Of course during COVID, that's going to go back to the same trend. In other words, we will not be sitting down at a fast food restaurant, or takeaway as we were, you know, that's already moving towards either home delivery, or going into a normal restaurant. So I just get very nervous about people that think that life's gonna change forever. It doesn't, you know, is a hiccup and whatever goes up comes down and goes back to normal.
Rob Langton 09:11
What are some of the major trends or patterns that you've observed over the recent last decade or or two?
Phil Ruthven AM 09:18
I think a lot change. There's no question we're going through enormous. I mean, first of all, the sort of industries that are growing and the jobs are changing enormously. And I think since that's so much part of people's self esteem, it's a good place to start. But there's no doubt all the service industries are growing as they are worldwide in the European or the Western world economies. So their service industries have just been growing and growing and growing fast over the last 10 years.
It may surprise or may not surprise some people know that in fact, our biggest employing industry these days is health. It employs almost 1.8 million people out of the 30 million workforce. It's not that long ago, you could say retire was the biggest employer ran at 1.3 million It was then when before that you would have said manufacturing, which for about 20 or 30 years was the biggest employer. So that we've now got the service industries accounting for something in excess of 70% of all the jobs and continuing to go there. And I think the other interesting thing is that whilst we push to try and get more high tech industries in Australia, it's which we sure did that question about that. But what very few people would realise that most of the new jobs we've created for hundreds of years have come through one simple term that's called outsourcing, if things can seem awfully more complicated than they really are.
But that outsourcing is given us virtually every job we've got, for example, if you went back 200 years ago, most people grew their own food, their own backyard. In fact, Captain Arthur Phillip, the dictator, the block of land should be somebody at least approaching a quarter acre block. For an average home, the reason for that is they should be able to grow their own food, for example, chop down a tree or to to build a house. In other words, it was a very self reliant type society in those days. But we gave up for example, growing your own food, and that's what created the agriculture industry, we wouldn't have had one if we're still growing our own food in the backyard or milking a cow or raising chooks. And then people used to make their own clothes at home or make their own furniture, we wouldn't have had a manufacturing industry if we kept doing that. So we established manufacturing industry because of outsourcing. So the last 10 years to come back to your question, the fastest growth has been in the outsourcing of services from the home.
Very few people know that we are employing well over half a million people in fact I think it's over a million now. In people doing things for us at home that we do ourselves, like house cleaning, like washing the car, like minding the children, you know, cooking meals, when we get them home delivered. The average families are spending pretty close to I think it's around about $50,000 a year, getting things done for them they used to do for themselves, or what we call DIY, it's now moved towards DIFM do it for me.
And so the fastest growing industries in the last 30 to 40 years, not only the last 10 have been outsourcing services from home. And I mean, you just don't see anybody mowing their own lawns anymore. 40 years ago, if you saw somebody getting their lawns mowed, you would have thought they were a lazy son of a gun can't even mow their own lawn. If you saw that same person mowing the lawn today you'd think he's lost it, he hasn't heard of outsourcing. And so it's amazing how things have changed. But we just often don't realise that simple things have created most of the jobs throughout the whole of history and, and will continue to do so in the future, really. And what's going to change spectacularly is that with the advancement that's given we're getting through artificial intelligence type software is that the mechanisation and the automation of so many more things are going to accelerate very, very quickly. And I see this I come back into this for a second time. But I think that we're going to move into a stage where almost over 90% of all the conscious decisions we make during the course of a day either at work or at home, are going to be automated for us by artificial intelligence. So brave new world is going to be but the service industries. Now artificial intelligence is really going to change life.
Rob Langton 13:15
Now as to one of your own businesses IBIS World, it's got roughly 400 staff, I think, in about six offices across the world, Melbourne, Los Angeles, New York, London, Frankfurt and Beijing. So how has the business been impacted over the past 12 months? Has it been a positive or negative impact in terms of the actual business itself?
Phil Ruthven AM 13:32
Well, here I've got to admit to having some thoughts. As a forecaster, I'm going to tell you because we thought in April last year, we might take a bit of a beating during the year with COVID. Because we thought maybe it's not considered an essential service to have all of our online information about where industry is going, I've got to tell you, I've got that wrong. And I'm glad I got it wrong. Because we didn't go down the 30%, we thought, we went up something like about 8% up. And I give all the credit to our executives, particularly our chief executive, Karen Dobie. Because what she did immediately was to try and make sure that every industry we had a story about right around the world, and we do well over 500 reports in every country covering every industry in that country, whether it be Germany or America or China.
And what she decided to do was to put a report about what COVID was going to do to that industry. And so for the 1000s and 1000s of industries we cover around the world, there was a story about whether COVID would help or hinder and by how much and I think maybe that's what helped the customer saying we can't do without this service. So we actually went up rather than down so I'm glad I was wrong about that. I gotta tell you.
Rob Langton 14:40
Now let's explore the background of yourself as I understand it. You grew up in Parramatta. Attending Marist Brothers College and later the University of New South Wales enrolling in a Bachelor of Science degree. Talk to me about your upbringing and what you remember of it most fondly.
Phil Ruthven AM 14:56
A very fortunate life and I think all of us can say that, but I grew up with five brothers and sisters equally a twin sister. And in what I'd probably call a middle class family, maybe slightly upper middle class and a very happy family. And again, you assume that's most families. But I'm sad this not always true. But I grew up with an extraordinary family with a very much a yin yang balance of mum and dad, because dad was quite being an only child who actually as it turns out virtually lost his own father when he was three years old and did go on to have six children, I suppose, as a great shock he was going to ever get in his life. Whereas My mother was a very outgoing woman, extraordinary thing. And I think I've got probably as much as my mother in me as I've got my father. So I grew up in a very happy, balanced family, I think, and in a family that was very encouraging. My mother would say, look, if you're going for a job and they don't take you they're an idiot, you know, in other words, whereas some people might say to the child Oh, look, you may not get it, sweetheart, but look, another one will come along, that was not my mother, she assumed that I had every right to get the job.
And I my marriage won't continue there because my wife is since died, which is very sad, but few years ago, but she was also a very up person as well. So I grew up in a happy, upbeat family. And I think that was one of the best free kicks I can get really, and very high family in terms of ethics, I suppose. And, but love more than ethics, I think I've been fortunate, son of my parents I can tell you.
Rob Langton 16:33
And where did the interest in science originate from?
Phil Ruthven AM 16:37
Well, I'm not sure that it was did was quite that way. I mean, like most 16 year olds, which I was when I finished high school, finished high school, he hid I suppose the most we would, I said to my father, what on earth am I gonna do? He said, will you teach a class in Maths, Physics and Chemistry? Well, I think you should do something like science. He said, Not at all. Okay, we don't get a Sydney University said because that's too theoretical, he said go to this new University of New South Wales, they're much more grounded, you know, in business.
So I did, and so I started a chemical engineering degree. And the first year is always common in science degree. But I got talked into doing food technology as a major, it was a four year degree in those days. And I thought, because the professor of food technology said, you always got to eat come wars or depression, that's a good idea, or so I did it. But he didn't tell me that it's a very poorly paid profession. But that's why I did it. I chose it because the I had the, the score marks to get there, I suppose. And, and even though I didn't use that for really long, I only used it for about four years after I graduated.
But I found that a thorough grounding in facts. In fact, I'm glad I did. Mathematics, Physics and Chemistry before I did economics, because economics had too many doubtful elements to do. Whereas in science, like building a bridge, you can't ever fall down on you. You kill people. Who would economists don't care about that. If it didn't work, or Well, we got the variable wrong. You can't earn I just couldn't. I couldn't believe economics was so vague, you know. And so as forever grateful I did science first.
It just gave me a discipline to go into economics, which is probably why we became the top consulting and forecasting firms in the country, I think, because I applied the discipline to that. I think in those days, it's getting more disciplined now. But it just wasn't there. It was just too vague for me. And I'm not going to have this bridge fall down on me. I'll tell you that.
Rob Langton 18:29
So you graduated in 1961. But I think you found at IBIS World in 1971?
Phil Ruthven AM 18:34
I did.
Rob Langton 18:35
What did you do in that sort of decade between?
Phil Ruthven AM 18:38
Well, funnily enough, I got the first job I applied for after I left University. In fact, even a year before, because my last year was a part time year, my professor at the University said, Look, the Birds Eye frozen food company, which is pretty young, in those days, had been in Australia for seven years, is looking for a new chief chemist and put your name up. So Dan, I've talked to him. So I did. And I said, Get you'll do. So I became the chief chemist of Birds Eye frozen foods in 1961. And I stayed there for two years. But by that stage, birds I'd been purchased by the Edgel food company, which is famous for asparagus and peas, and soup and stuff like that.
And so after two years, they said, you want to become chief chemist of the major factory, we've got at Bathurst and I thought that seems alright. So it made me chief chemist at Bathurst and up I went, you know, and in 1963, with a slightly bigger staff a little large in those days, of course, and then within two years, threes, they made me factory manager. And within five years, they made the general manager of 700 people. I mean, that was ridiculous at the age of whatever I was in 68 with 700 people. I mean, thank God, I had no false tickets on myself, because, I mean, the people have been there for 500 years, it seemed to me, I mean, the foreman and the engineers and the chief accountant. I mean, they knew more than I did about all that sort of stuff.
And so I thought, I'm not going to tell them what to do, but If I can see ways of improving the way the businesses run, I'll do that. But I'm not going to tell them how to do their job. So I think I survived as being the youngest person ever to be the general manager. And whilst I was there, too, I won a scholarship through rotary to go on to America, which lead for three months.
And that's what changed my life from being a scientist to an economist in a funny sort of way. Because one of things I did say, in America, I was a was an underground war room from the US defence department, which I was very lucky to get into. And they just blew my mind with the amount of information and data and how they could make a talk to you. And they were covering everything from military information to economic information, everything, and I thought, Oh, my God, if had he had that amount of information to run a business, you'd run it better, you know. And so funny enough yes, my life at Bathurst changed me in many different ways, I finally changed my career. And the only reason I did leave Bathurst was I was promoted even further. And within the corporation, I was when because of that stage. Petersville owned Edgels. And that's a company that no longer no longer here. That was the biggest food company in Australia at the time back in the late 60s. And they own things like four n twenty pies, and Petersville ice cream and Edgels and Birdseye frozen foods they were huge, and, and not very profitable, that are just too diversified, as it turned out, but they may be chief Research Director for the entire Corporation.
And so I did and, and but then I started to fall in love with more the economics and the efficiency side of businesses and just gradually moved out of my science background into a totally different background, then formed IBIS 1971, as you've already mentioned, and that wasn't an easy three, four years, because starting any businesses isn't easy, I bet you and many other people find the same. And an encouragement I had in those days was listening to a famous cartoonist, when asked him how long it took him to be an instant overnight success. And he said five years, 10 months and three days, he remember, he finally sort of cracked it, you know? And that changed my life. Yes.
Rob Langton 22:03
So what gap did you identify in the market in terms of business intelligence? And how did you go about actually launching IBIS World?
Phil Ruthven AM 22:11
Well, I should talk about my mistakes. First, because what I had hoped to do in 1972, in particular, was to try and emulate what the US war rooms done. In other words, give you a fantastic amount of computer provided data about how to run your business. In other words, know the outside world, you know, what's happening in your industry, what's happening to exchange rates, what's happening in the labour market, in terms of wage costs, what's happening to inflation.
And inside the company, how's your factories going to sales or so I was probably the first one in Australia to build what you might call a corporate War Room concept, where you could take a board of directors into that room or a group of C suite executives, and fully make them fully au fait, with all the things that mattered to that business, either on the outside of the business, like the industry in the marketplace, and everything else, and the inside of the business, which is so that you could find out your cost of operations.
And I thought, what they're going to take to this, because that was already working in America, there was some very famous cases in the early 70s of companies that have done that by General Motors. And in fact, some governments like the Chilean government, in South America actually built these war rooms so they could get a better fix to their economy and all that sort of stuff. So they could just run the show more efficiently.
While I waited and waited and they didn't come, you know, and I think we built three, one for a house construction firm. We built one from RMIT University and I think two others one for the Coles organisation. And then it just all dried up. And what had happened really was that the whole context scared the daylights out of chairmen and CEOs, because most companies at the board level those days were run by people that were revered with or something like that, so that they made decisions not based on really information, they get some information from somebody, but that's not what led to the decision.
The decision was also john, what do you think about this? Oh, I said, I think it's going to be okay. Yes, Charles said I think it probably got... That's how decisions were made in the 1970s.
Phil Ruthven AM 24:25
I couldn't get over it. And in fact the only board meeting I ever went to with the previous company I've been with which was Petersville was to an actually an Edgel board meeting one time that was very soon after I joined the company and i thought oh my god, I'm nervous because I to go up there to try and justify why I need to spend money on a new laboratory and new equipment or restaurant, which wasn't much money compared to what you do in a factory you know, gosh, almighty.
So anyway, I've seen you had the nervous and I go to the board meeting and there were a few nights on board too. I was asked to come in just as they were finishing off a decision on a $3 million new potato making potato chip making plant and Alvaston. And they'd obviously been talking about them for some time. And I went around the room and I said, Well, chairman said, He's lovely guy. What's the vote for him? He said, I'll be in that does it? Yeah, I think John Dryden. That's how they decided that the whole vote was based on a gut feel.
So anyway, that I think that seems to me that whole decision was made in about 25 minutes, then they go on to my laboratory it was test tubes, a few bits of chemical stuff, and a new table and chairs, the whole thing would have been more than God knows you have $2,000 that took them two hours. Why they were they were comfortable, because they knew about chairs and tables, and they and cups and saucers. And ohh I think we'd get ait cheaper from Myer, and we can do it. I couldn't believe it. Now, that was boards of directors those days, you know, I think today, even now, there's still a bit too much gut feel than there is solid gutsy long term analysis being made on decision so that my experience in that early days was that I had one hell of a job in front of me.
So I had to decide not to go down what I call the information route as I had wanted to do, which was a war room with online data being supplied them in copious amounts. I had to abandon that for 17 years before I could actually find that Mark was ready for it. And in the meantime, I switched over to strategic consulting, because in my last years with Petersville, I had started with a bit of internal consulting for them, rather than just doing research. And in fact, in the first year, I think I doubled their profit just by setting up a much more efficient purchasing operation.
So they could combine all the purchases for the entire suite of companies they own. So I got into strategic consulting. And that worked very well, I think we developed quite a few new techniques that was never seen Australia or America for that matter. Because our long term view was to have a look at the history of an industry over say 50 or 60 years, we wonder where it was on that long cycle. Because we found a very quickly that every industry in Australia runs in roughly an average of about 43 years cycle, some along some are shorter. And if you don't know where you are in that cycle, you're going to be making the wrong decisions all the time. So we pioneered that, we pioneered the concept of what market change take up, you know, being major or minor, or whatever it is, we broke ground every which way.
And we became the biggest strategic consulting firm in Australia by the early 1980s. So we're very proud of that. So the early years were not easy. And we had to abandon the whole idea of becoming a high powered information database company until 1988. So I had to wait seventeen years, to be able to do what I wanted to do in the first place.
And, and after that, well, we still twelve years to go overseas. But after that, wow, and so we, from thereon, we'd become the world's biggest online information database company for industries markets, that are nothing's easy is to say, an instant overnight success is at least six years for start, you know, and, and even now, it may be interesting to know that for all of our size, whenever we open up a new country, we're quite prepared to run that at a loss for seven years, if needs be.
But at the end of seven years, we will totally own control, like their country completely in terms of our supply. Because we spent so much money more money than anybody else in the way of a competitor. We've just become much more thorough and better. But if anything, I learned out all of that it's having long patience. And you eventually need some deep pockets as well, which we've got. But you need a lot of patience and tenacity, I think to make something work. But yes, that's how I started and we ended up in a different place, I suppose eventually.
Rob Langton 28:43
And in your view, what are the key economic indicators that you look for? And why?
Phil Ruthven AM 28:49
I think one of the most serious ones at the moment, if I can answer that would be productivity. Because one of the biggest problems we've got at the present time over the last five to eight years, is our efficiency and our productivity is very, very low. So we went back over the last 200 years, our efficiency has grown at just under 2% average a year. It's a bit like saying if you made 100 widgets this year, you made 102 next year, that's 2%, better than 104, then underneath, etc. So a 2% productivity growth doesn't see much. But in a decade, you've gone up more than 20% because if it's compounding at 2%, you're about a quarter higher than what you were when you started.
So productivity is how our standard of living in this country or any country improves. But instead of growing at 2%, it's slowed down to about 1.7% per annum over the last 40 odd years. And now it's slowed down to about point seven and then at .4 I think over the last four or five years. So I think one of the most serious economic problems we've got is efficiency and productivity at the present time is not the only problem is one of the biggest ones. I think the second biggest economic challenge is getting companies to look much further ahead. And I find it quite, I arrange a lot of directors who say to me feel east on this long term sort of forecasting staff last year, they said are just as work for you got to understand you can't tell them the more than about three to four years.
And it's just, we don't do that anymore. Now Corporation, we were having a three to four years. That's right. I believe that what he made I believe I'm the chairman, you know, I said, Yeah, but you've just invested $87 million in this new bloody expansion, and you can't write that off for at least 10 years. So you've made a 10 year decision already, haven't you by buying it investing in on it was all about growth. In other words, you know, the reality is different to the perception of people. And, and, of course, the idea of reporting quarterly or half yearly is become a very dangerous, practice over recent years. But my experience with corporations is if they plan long, or stick to it, and of getting the data, as long as they said, the shield was back in to the hilt, you know, they won't worry. But those are constantly mucking around with quarterly things on it - yes the shares have gotten down like here? Yeah. But
Phil Ruthven AM 31:07
it's just it's not right. Shareholders won't back a long term plan. If it's well strategized, and they think it's going to work, they'll back you all the time. There's no question about that. And so I think having much better long term planning, as well as getting much more productive than we are used to the greatest economic challenges, I'd say we've got, I mean, we do have plenty of other challenges.
The fact that we are part of the Asia Pacific, which I mentioned already, is very, very important, because now 1/5 of our entire economy, is now exported. Now there was a time when it was only made about one eighth of our economy. So we're much more, we can call it exposed if you live, but I'd say much more opportunistic. Now, as we import more than we export more, now I couldn't, I could see a time when we could easily go up to a quarter of our economy being dependent on trade, only three quarters, depending on the domestic economy.
Now, that means you've really got to know what you're doing and trade's not easy. But then again, it's not easy domestically, either people they got domestic economies raised and export. I'm not sure that's always true. But it can be pretty volatile. And the trouble with our exports is that 50% of them are minerals. And they're a very jumpy thing. I mean, those prices can go up down all over the place. And some countries can play hardball. And we’re experiencing a bit of that, as we know recently with our minerals going on and running Windows, but wine and stuff going to China, because, international diplomacy is never been an easy thing to do.
It's, you do see a fair degree of bullying, I suppose up to a point or people pretend to be offended, normally sort of stuff too. And we've just got to be careful about that. There's no is no sense complaining about it. So the more we are exposed to this fabulous Asian period, the more skills we're going to have not only in being good at what we're doing, but also in diplomacy as there's no doubt about it.
That message has come home very clearly over the last year as well. It's one of the things does worry me, I just don't I think our corporations need a lot more help to get up to the American Standard of performance, which doesn't mean you have to work harder or screw the the employees which people think they do in America, that's not true. We're in America, biggest operations in New York, Wall Street, and also in LA. I think there's a lot of misunderstanding about America, they they're because they're efficient. It's not because they screw everything to the watches. That's one of those nonsense things that you hear over and over again.
And I think we've just got to get a much more efficient, much smarter, much cleverer bunch of corporations in Australia to take advantage of what we've got been part of Asia. So it's a very exciting future. But it's, it can be a scary one if we don't do it properly. One of the other things that I'm very pleased about because it's a very slow, but a very positive thing is that most of our immigrants are coming in from Asia. In fact, two thirds of all of our immigrants these days are not from Europe, or America or anywhere else they from Asia. In other words, Australia is becoming slowly but surely a eu, European and Eurasian and towards an Asian society.
hat'll happen over the next five generations, which is about 100 years will be very different mix of people extremely, wealthy, probably 100 years later, we'd be at least five times better off than we are even now. We're 100 years ago we're five times better off than we were in the early 1900s. We're going to be super wealthy and super looked after that it's going to not be a European or British type society and more is going to be the Eurasian society and that'll be very slowly, osmotically developed over that period of time and easily cope with but I couldn't be pessimistic about Australia's future. But that's not to say I don't think we have to pull up our socks in a lot of areas.
I think in terms of some of our attitudes as a society towards Asia, but I think we're much less racist than in most countries. We have pockets of it. It makes you shutter. But by and large, we're fairly tolerant nation in my opinion, but but I think being part of Asia and the Asia culture and the Asian societies where Australia's going, I mean, we were a funny sort of an aberration in Asia being a British Island. In the middle of an Asian society, we're going to be more Asianised over a hundred, and probably bettere looking as a result, as well as wealthy.
Rob Langton 35:26
Where do you see GDP growth in the medium term?
Phil Ruthven AM 35:30
That can be up and down, but it's, again, the service industries that are giving us our growth by and large. I mean, the present time the hero for the last year during COVID, of course, was our minerals our mining industry, because they pretty well continued growing whether it was our iron ore in particular.
But other minerals were growing as well, too. And because the prices were up through the roof, again, like they were back in the early 2000s. So that the short to medium term growth is definitely coming out of things like mining, but also out of health, which is is a very big employer in Australia these days, too. I think the one that will come to the aid of the party, but not necessarily the next two months, but over a much longer period of time is our agriculture. The only difference is time is a bit like mining, you don't necessarily need many people to to to run mining companies anymore. In fact, mining contributes 10% to our GDP, 1/10 of our GDP comes from mining, only around about 250,000 people employed there, which is 3% of it most of the workforce doing 10% of the economy.
Agriculture, which used to be 50%, of our economy at once is down now to only 2% very few people realise how tiny agriculture is, you think that's tiny in America, the whole their agriculture in the Americas is down to 1.4. Because it's mechanised, of course, growing more and more stuff that he's taken the don;t need anybody to do it. So it takes up a very small amount of GDP to do it. I think agriculture, we can't possibly feed the whole of Asia, for example, because we just don't have enough water, we've got plenty of land, not enough water, and most we have is that we could I suppose at the top end. But I think we're going to become probably irregular calls from grow at least four times, maybe four to six times bigger in output than it is now and most of that will be going to Asia. But that's going to be very heavily mechanised. And more and more of is going to be the top end of Australia where water is because 60% of all of water Australia gets he is the top 1/3 of Australia. So why on earth we sit at the bottom of I don't know, you know, all the waters out there.
And so I think agriculture is a long term growth theory, but over the next 12 to 18 months, it'll still be in minerals. It will be construction, for example, growing quickly, and we're starting to see that return with the housing boom going on. So construction can be very important, that will feed back into the manufacturing as well. But again, health is enormously fast, and the other one is growing quite quickly as your professional services area. In other words, it's part of creating a much more IP based company, if you've got the services of first class IT people, lawyers, accountants, whatever. So here, we've got plenty of good growth industries coming through in the next 12 months. And the further out you go, yes, add agriculture to the thing.
But funnily enough, if I was to say, going into the 2030s, which is over 10 years away, what would be our biggest export, it'll probably be tourism, it won't be minerals, that won't be agriculture, it's going to be tourism, because we're getting in almost 8 million visitors a year before COVID. And will eventually go back to that number too it's going to take a few years to get back there, of course, but I remember protocols having to be observed about NPM exits of people.
But you see exports of tourism was getting up around $18 billion. Yeah, before COVID. And okay, minerals are about over 200 million. But I think the thought that tourism would overtake mining, and this will shock a lot of people but tourism may well be a bigger single industry being exported, you know, within 10 or 15 years from now, that's going to be positive in a number of ways. I think, first of all, tourism does get a much better understanding between races of people. It's a good way to sort out any sort of prejudices or biases you've got with us going overseas, others coming here in greater numbers. You do away with a lot of the misunderstandings between society. So it's a great leveller in terms of peace in in a region and that a massive income earner too and I think it's going to be a very big one for our exports.
Rob Langton 39:28
There's been talking at all levels of trying to recreate Australia's manufacturing past. Do you think that's realistic?
Phil Ruthven AM 39:36
No I don't? I think it's one of those wishful things and there's still people who should know better still saying that, not in doubt is we doing great progress with what you call advanced manufacturing. But see, these days manufacturing is only just under 6% of our entire GDP at its peak, which is vital if University was right, about 30% of the economy's now down to six and I've had six About half a percent of that seeks or one twelth is advanced manufacturing is doing alloy wheels for cars overseas or all sorts of things.
Special parts, titanium parts for jet engines all people are CSL, which is the third most valuable company on a stock market these days for the vaccines and blood plasma things. We've got some manufacturing, which is very, very advanced and world best practice. So that's going to hold up very, very well. But we're not going to be able to compete with things and we stopped competing with trying to make a television mobile radios, we stopped making cars. We made cars for at least 10 to 15 years longer than we should have, you know, because once the world we've recovered from World War Two time is gonna run out for a country as small as Australia to pretend we can make motor cars our domestic market was just too small to even kick started. And it wasn't big enough in Scandinavia with Volvo and people are that either.
So the point is, I think that you will also that's an industry being mechanised so quickly, we can still keep increasing the output of things we're still good at. Without putting in on any more people. It's a bit like warehousing, I mean, these days are going away as compared to what it was 20 fully automated them and if you know the trick is, can you see a person here anyway? Anybody working was reasonably into and people would have been a warehouse if it was a big enough warehouse now you can't see anybody you know.
Now that's happening in this this is mechanisation and intellectual property at its best. So now I don't see if manufacturers is going to recover. It won't be so much big recovery as a share of GDP, because of mechanisation. But it might shock people to know that probably within 20 years, we could be on our way to being the world's biggest steelmaking company, again, country, you know, because the iron ore was here, the energy is here to do it, we probably won't be using coal to convert iron into steel in those days, and probably either natural gas or something else. A technology that has not been perfected yet, but with having a massive amounts of energy and massive amounts of the world's best iron ore. If we can't make the world's cheapest steel, then we should give the country to somebody else who can, you know?
And that's some of the challenges I think with going being part of the Asia Pacific. Are we up to the challenges? Are we or are we so short sighted or looking backwards that we just don't see where it's going to go? It's bit like saying electric cars will never work? Well, I'd like $1 for every time they said that about Tesla. It's the best car I ever owned is a Tesla. You know, trouble-free. Don't have to go to service station, cost me nothing to charge the car up because it's got solar panels on the roof. So if I charge up and I pay nothing for electricity, and it never goes wrong. We can be too quick and say oh, that won't work that won't work.
And Australia's not got a is good reputation innovations at once had Australia's most innovative century was definitely the 1800s to the 1900s. That century was where our corporate Australia could be the most proud. Because here we were in this wild country, which nobody understood. And between 1800 and the 1900s, we moved to the highest standard of living country in the world, we had number one status over the United States, England, everybody. We had the highest income per capita. And we looked at the entrepreneurs that drove that century, whether it be special jump plumb ploughs, or all sorts of innovations, how to grow wheat and ina country with only, you know, 12 inches of rain falls as opposed to 30. The innovation and the drive of that century, it was the century in which our corporations were the heroes, even more so than a military which wasn't big in those days or sports people. last century, the 20th century, our heroes were the military, because they went and defended almost every country they can think of for nine out of the 10 decades. So we had a very illustrious reputation, the military and an equally illustrious reputation with our sports people who for the first Olympics 1896 went on to win more gold medals per capita and anybody, the corporation's definitely in the backseat during that last century and they still haven't come to the front again. So that yes, I really am quite passionate about the need to, to see that sort of innovation returning to Australia. I think it's so so darn critical.
Rob Langton 44:09
So in 2017, you established the Ruthven Institute, overall, what services do you provide?
Phil Ruthven AM 44:15
We're trying to really have one prime service and that's to help any business get up to world's best practice profitability. In other words, can you take the average Australian profitability, which is much lower than people think? I mentioned earlier that there was 2.3 million businesses in Australia to the quarter million, their average profitability over the last 35 years, it's only been 4% return on capital investment. Now, that's scary because the bond rates been five and a half percent over a period of time and that's a risk free investment. If you look at our major listed companies, they earn about 11 percent on average over the three four or five year period Americans earn nearer to about 20. And so the prime objective of the Institute is to show the unfailing what I call golden rules of success, to get up to world's best practice profitability.
Because if you get up there, you're not going to have problems with a lot of the other problems, we often seem to worry about, you know, whether it be wage problems or sharing profits in some way, or another few wages or whatever. And of course, if you're not up to world's best practice how on earth you're going to compete overseas, or withstand overseas competition coming into Australia, so we're going to get both of those things are happening. And for example, this is historical, but most of our banks went overseas, sometime over the 80s 90s, most of them have had to come back and have been written off billions and billions of dollars. And it's mainly because they would have the world's best practice before they left.
And the other problem they faced is they had to become a very small player in those countries, not a big one like here. And being a small player means you have to be able to almost dance and be very unique compared to be where you got economies of scale, so that we've got enormous challenges still going through this century, to be able to compete overseas successfully. And you've got to be clever to do that. You've got to have unique intellectual property, you've got to just know what you're doing. And you've got to have that inside Australia, too, not only because of local competition, but because the overseas people are coming in here. And if they know much more than you do. And see, we already know that most of the foreign companies in Australia do far better return on investment here than an Australian companies do. they've always done that.
Because they know was best practice when they come in, you know, because they couldn't survive around the world if they weren't worth based. So they bring in world's best practice. And we think all Well that's because the bigger the American that's not the point, they've just got worse based practice. And it's not that hard to find out world's best practice. He may or isn't it isn't, I suppose but so the reason Institute is there, not to criticise corporations as ridiculous, I can be critical of corporate Australia. I'm not critical of businesses individually. I think I've never made really a direct or German downline, that'd be happy to sit down talk to them, by the way. Yeah. Because they clever people, they just mostly just don't know the world's best practice ideas.
So the institute's there to help them. And we do two types. One is a corporation itself. And we've started to do that, which is good, because it's taken us a while to mechanise. What we know is world's best practice, we've done it for 40 odd years, 50 years was consulting anybody else. So we know what to do we do it their sleep. I mean, projects that used to take take three months and costs anything from 250,000 to a million dollars to do, we can probably do for 50, 60,000 these days, because everything's mechanised, like anything else, making cars, whatever.
Phil Ruthven AM 47:52
We could probably review a strategy in probably three days as to whether it's working or not. And to convert it or help a corporation converted, probably takes another team. It doesn't take three months anymore, and it doesn't take hundreds of millions of dollars to do it. It was , like anything else it can be mechanised. And that's what we're doing. So we were trying to cooperate more so trying to help the super fund, we're just launching this next month, a product for the super funds, because they're handing $3 trillion worth of members funds.
And as a magnitude earlier, increasingly, they've been investing overseas where the companies give a much better return than our Australian listed company. So what we're trying to do is help them find out the best Australian companies over the long haul. I mean, they're probably better at me knowing what's going to happen over the next six to 12 months or 18 months, it the finger on the pulse or the going to be up with it. That's fine, but five to 10 years I'll back myseld every time it gets that and more and more superfans are trying to get a longer term view for the members anyway.
So we're offering a brand new range of products starting from around about April, that's going to be able to sort out the whole 300 biggest corporations on the stock exchange and tell them when the good, bad or indifferent. Tell them what's wrong with them if they're not working, and be able to tell them what how to fix it. Because more and more super funds are now starting to say we've got to start fixing our mess.
But you know, we can't keep investing our money overseas all the time. We're finding a lot of the heads of the super funds would like to go and sit down with the chairman and the CEO or the board of a company and say, Look, we're not investing in you guys. But we'd like you because you're big and we'd like to see you do better. We think we know what you're not doing right now. It's not working. Can we help you know? And I'd say, well, the job is not yours.
But I think most sensible people say well, okay, well you test our dog. What do you reckon, you know, now if we're going on the Superfund with a brilliant analysis, so the board might say Oh, my okay, right, where we're at to help overspray and, and help superfan fun members event. That's what we're trying to do and I don't need to make any more money because I'm a But that ibisworld still made a fortune and still does. But really, it's just, it's more legacy. I just like to leave a much more intelligent, clever Australia than what I believe this earth and have found that all that we're in business to help them do that. And we've done a couple of days already. I mean, like nature nines, it's not fair. But in fact, we had one of our clients, or about a year ago, when he stopped us halfway through the programme, we thought it might take two months, because we have to do by zoom, because we couldn't get up to see the clients interstate.
And we're halfway through. He's one of the cleverest guys are now in Australia, actually two pieces of advice. I know what I'm doing wrong. Thank you very much. And we just chopped our price in half. Because he said, I don't have to go all the way through. I know, he told me here and actually kicked myself for not seeing it, you know. And that's great news, you know. And I think anybody who's not overly self ego tripped or a sociopath or something like that. I think if you've got an open mind, I do. You can say, well, it that can double my profit might not do too bad. Good. Listen.
Rob Langton 51:14
My final question is, how does Australia go about managing the Australia-China relationship? And then the Australia say, US relationship has a go about balancing those?
Phil Ruthven AM 51:25
It's it's tricky. I think that the first thing I suppose it's important with China, is it's up until 1870, or there abouts. It had been the world's largest single economy for 3000 years. People often talk about the Roman Empire because as Europeans are formed, we started reshaping the Roman Empire was the biggest, you know, they may assume the British Empire was the biggest you know until that started to come about after World War One. No. China's been the biggest single economy for most of history, you know, so. And they're number one again, they ever took America four years ago, and they're now the largest economy in the world.
But very few people might realise though is that India's number four, and it's going to become number two, within the next 10 to 15 years. And very few people might know that India was also the second largest economy in the world for over 3000 years, up until, you know, the Brits decided they didn't want that, because the Brits stopped them getting into manufacturing, of course, which they could have done. And that will threatened the whole of the British textile industry in clothing. And he also in he was held back the same as China and China's held back more by the Yanks and by the Brits, or both, I suppose but so I think the first thing to understand is that history is going back to where it was the two most populous nations on Earth, which is China and India, again, reasserting themselves as the world's first and second biggest economies.
And that'll happen during the lifetime of most Australians here, now, they're alive today. So that's the first thing the second thing is you take them the rest of Asia, which never was all that rich, either. You know, whether it be a Vietnam or anything else, they're, they're coming along at a speed that nobody's ever had before. In fact, going back to China to China, no country in the history of the world, to my knowledge has ever been able to grow like China has done an average of eight and a half percent growth in GDP for 50 years.
That's what China's done for 50 years I know there's never been never heard of America became a number one the world growing at something like around about 4% Britain became the number one with the Empire growing at about two, the Romans about one you know, now is China growing at eight and a half percent, India's they're getting up towards that level as well. So handling China in India has to first of all respect the fact A historically they've always been the biggest, they're back to being the biggest thing is coming up very fast behind it. Now that warrants some respect, I think, and not only because they've got the, the potential hegemony to to be able to bully that putting that to one side.
They be and therefore has to be respected for what they are they big, the big day for the market for us to they're going to be pretty demanding. But fair enough. But we've been used to dealing with the British Empire for the first 100 years where history is a European nation here. And with the second half, mainly with the United States, and they're having to deal with Asia, a great place to be, as I've said all the way along with it, because it's so big growing so damn fast. And we're going to be slowly Asian eyes over a very long period of time.
But the diplomacy that goes with that is going to be very, very tricky. And the difficulty, of course, is when you might get what I might call authoritarian style leadership in some of these countries. It's a little harder again, there's no doubt about that. And see, we've been spoiled by the fact that with England, we're always dealing with democracy. In fact, the the system which we adopted for our own government here, and then we're dealing with the Americans, which again was a democracy No pets are first Republican or Democratic Republic in the world in the modern world. And now we're not dealing with quite that way
Phil Ruthven AM 55:07
of control China, certainly not that sort of a democracy, China would argue that democracy has been out, it's going to be very difficult to succeed by the end of the century. And I think there's an element of truth in that. The main reason being when you've got so many educated people, so many votes, you're going to splinter up the economy and make it very, very hard to manage. And democracy is going to come under a lot of pressure through the rest of the century.
I'm not going to forecast its depth, I won't, because I don't necessarily think that it's going to take a lot of adjustment. But China and India, India being nominally a democracy, and and he is I mean, they do have a vote, but a lot of difficulties. In India, which they're overcoming, I'd say. And they've got a lot of those to do with either religion or race or all sorts of problems and polarisation of incomes, etc, etc. But it's a long winded answer.
But I'd say we are going to have to respect not kowtow. Totally, we have to respect with diplomacy and with actual realities, a different world to where we've been for the last 230 years, since 1788. alternative for years, whatever it is. And, as I say, that's gonna take a lot of care, it's, sometimes you got to swallow your pride a bit here and there. And we just got to be very, very careful and very, very sensitive. But I think Above all, we're gonna have to be very, very clever. We are going to find the competition from those big countries. Very, very impressive. You know, how universities may not be able to compete with a good Chinese University for very much longer. They're going to be able to pay for and get the most intelligent people in the entire world was what American Do you think about it, too, they bought all the biggest brands, I can get out of Europe, and spent a lot more on research and development innovation.
And we've done that. So yeah, I think diplomacy and lifting our game way above where it is now towards world's best practice. And the two great challenges we've got.
Rob Langton 57:06
Well, Phil Ruthven, an absolute pleasure having you on the program this afternoon, a business legend. Thanks for your time.
Phil Ruthven AM 57:13
Welcome. Thank you.
