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Unprecedented levels of GDP growth since the 1950s
GDP per capita growth
Contributions to global GDP growth
Compound annual growth rate, %
Population growth
4.7
4.8
3.8
3.1
3.0
1974–
1984
1984–
1994
3.6
2.5
1.9
1.9
1.7
0.9
<0.1
0.1
1–1000 1000–
1500
0.3
1500–
1600
0.5
0.1
1600–
1700
1700–
1820
1820–
1870
1870–
1900
1900–
1913
1913–
1940
1940–
1950
1950–
1964
1964–
1974
SOURCE: Jutta Bolt and Jan Luiten van Zanden, The first update of the Maddison Project: Re-estimating growth before 1820, Maddison Project working paper number 4, University of
Groningen, January 2013; UN Population Division; McKinsey Global Institute analysis
1994–
2004
2004–
2010
2
“THE GREAT MODERATION”
§  “Demographic dividend”
§  Reduced macroeconomic volatility
§  Cheaper resources
§  Progressively cheaper capital
§  Abundant labor
§  Governments privatizing, cutting taxes, and promising more
3
Four disruptive forces changing the picture
Industrialization
and urbanization
in emerging
economies
Disruptive
technologies
An aging
world
Greater global
interconnections
4
3,000 times larger than the UK Industrial Revolution
Country
Years to double per capita GDP
1700
United Kingdom
United States
Germany
Japan
South Korea
China
India
1800
Population at start
of growth period (million)
1900
2000
154
9
53
10
28
65
48
33
22
10
1,023
12
16
822
6
The economic centre of gravity is shifting east and south
at an unprecedented speed
Earth’s economic center of gravity
1 CE
SOURCE: Angus Maddison; University of Groningen; McKinsey Global Institute analysis
7
The economic centre of gravity is shifting east and south
at an unprecedented speed
Earth’s economic center of gravity
1970
1960
1950
1980
1990
2000
1940
1913
2010
2025
1820
1500
SOURCE: Angus Maddison; University of Groningen; McKinsey Global Institute analysis
1 CE
1000
46 of the global top 200 cities will be Chinese by 2025
Global top 200 cities in China, in terms of 2025 GDP
New entrants into
global top 200
Already in 2010
global top 200
Daqing
Urumqi
Exceeds 2010
GDP of…
Los Angeles
Singapore
Dubai
Harbin
Changchun
Tianjin
Shenyang
Baotou
Tangshan
Changzhou
Beijing
Shijiazhuang
Dalian
Kunshan
Taiyuan
Wuxi
Zibo
Yantai
Jinan
Qingdao
Suzhou
Xuzhou
Shanghai
Xi’an
Zhengzhou Nanjing
Hefei
Wuhan
Chengdu
Ningbo
Hangzhou
Nanchang
Chongqing
x
Guangzhou
Changsha Fuzhou
Dongguan
Taipei
Foshan
Kunming Nanning
Shenzhen
Xiamen Kaohsiung
Zhongshan
Macau
SOURCE: McKinsey Global Institute analysis
Hong Kong
9
Technological breakthroughs are speeding up
First website
1991
First phone
call 1876
Hargreaves’
Jenny 1764
Advanced
robotics
Internet of
things
16
years
115
years
Mobile
Internet
First iPhone
2007
GM’s Unimate
1962
198
years
SOURCE: McKinsey Global Institute analysis
Google’s
Schaft 2010
Artificial
intelligence
48
years
11
Adoption of new technologies is also accelerating
Time to reach 50 million users
38
years
13
years
4
years
Radio
Television
Pod
SOURCE: Press reports; McKinsey Global Institute analysis
3
years
Internet
1
9
year
months
Facebook
Twitter
12
Twelve technologies have significant potential to disrupt
Disruptive Dozen
Changing the building
blocks of everything
IT and how we use it
Mobile
internet
Cloud
technology
Internet of
Things
Machines working for us
Advanced
robotics
SOURCE: McKinsey Global Institute analysis
Autonomous and
near-autonomous
vehicles
Automation of
knowledge work
Next-generation
genomics
Advanced
materials
Rethinking energy comes of age
3D printing
Energy
storage
Advanced oil and
gas exploration
and recovery
Renewable
energy
13
The population of advanced economies is aging rapidly
Global population distribution,
% of total population over 60
Advanced economies
2.5%
1.5%
Emerging economies
Compound annual
growth rate 2000–25
35
29
20
19
15
13
12
7
1950
SOURCE: UN Population Division; McKinsey Global Institute analysis
7
1975
7
2000
2025
2050
Networks of global trade flows are expanding
and becoming much more interconnected
USD 50–100 billion
USD 100–500 billion
USD 500 billion or more
Lines show total trade flows between regions, figures in bubbles show participation in world trade
1990
100% = $1.8 trillion
2013
100% = $17.2 trillion
4%
12%
41%
2%
2%
8%
8%
3%
2%
5%
22%
7%
SOURCE: The Conference Board Total Economy Database; UN Population Division; McKinsey Global Institute analysis
32
%
4%
5
%
4
%
6%
32
%
17
The “new world” looks increasingly volatile
Number of “3-sigma” days (days when S&P 500 price changes are beyond three standard
deviations from mean)
50
40
30
20
10
0
1950
Average
days per
year
1960
1
SOURCE: Standard & Poor’s; McKinsey Global Institute analysis
1970
1
1980
2
2000
1990
3
3
2010 2014
12
18
No global recession in an unlinked world
Real GDP growth, PPP adjusted, %
7
6
5
4
3
2
1
0
-1
-2
1950
60
SOURCE: World Bank; McKinsey Global Institute analysis
70
80
90
2000
2010
19
The world’s first truly global recession in a linked world
Real GDP growth, PPP adjusted, %
7
6
5
4
3
2
1
0
-1
-2
1950
60
SOURCE: World Bank; McKinsey Global Institute analysis
70
80
90
2000
2010
20
The new economic era will be different in six ways
1. Power of new consumer class
2. Need for resource revolution
3. Farewell to cheaper capital
4. Labor market dislocation
5. Rise of new competitors
6. Trade-offs for governments
21
Nearly 3 billion people will join the consuming class by 2025
World population, billion
53%
Share of population
in consuming class
Consuming class
36%
23%
23%
13%
<1%
1.0
1.0
0
1820
3%
1.3
1.2
0.1
1870
7%
4.4
4.0
4.2
2.2
0.1
1900
3.7
2.8
1.5
0.3
1950
SOURCE: Homi Kharas; Angus Maddison; McKinsey Global Institute Cityscope 2.0
Below consuming
class
6.8
5.3
3.7
2.5
1.6
7.9
2.4
0.9
1.2
1970
1990
2010
2025
23
Many new consumers will come from little-known
“middleweight” cities in emerging markets
Advanced Economies
Emerging Economies: megacities (popul. of >10M.)
Emerging Economies: middleweight cities
Emerging Economies: small cities and rural areas
Contribution to GDP and GDP growth by type of city, %
100% = $45 trillion
GDP growth, 2013–2025
100% = $72 trillion
GDP 2012
5%
11%
22%
28%
40%
60%
SOURCE: McKinsey Global Institute Cityscope 1.1
72%
13%
11%
50%
24
Technology is opening up new routes to these consumers
2003–2013 e-tailing market by country, $ billion
Compound
annual
growth rate,
2003–13, %
300
250
200
150
100
50
0
2003 04
05
06
07
08
09
10
11
12 2013
United States
16
China
105
Japan
20
United Kingdom
15
Germany
20
South Korea
17
France
31
Brazil
26
Russia
37
Canada
14
SOURCE: Euromonitor; Forrester; US Census Bureau; Japanese Ministry of Economy, Trade, and Industry; iResearch; McKinsey Global Institute analysis
25
26
The nature of work is changing – and so are the skills required
Employees
Job growth
Percent
Number, 2008–13
Transaction
20
19
36
34
16
-55
Production
44
47
2008
2013
Interaction
SOURCE: ABS 6291.0.55.003 Labour Force, Australia, Detailed, Quarterly
338
27
Growing wage inequality in the advanced nations
Growth in real, composition adjusted weekly wages for full-time male workers (1963 = 1), 1963-2008
By 2025, the China region alone will be home to almost one-quarter
of Fortune Global 500 companies
Number of Fortune Global 500 companies
500
500
500
23
23
24
500
500
12
130
26
11
26
34
Africa &
Middle East
Southeast Asia
South Asia
120
Eastern Europe
& Central Asia
Latin America
477
477
476
China region
370
271
1980
1990
2000
SOURCE: Fortune Global 500; MGI CompanyScope; McKinsey Global Institute analysis
2013
2025
Developed
regions
Technology will continue to give rise to innovative entrants and
disrupt incumbents
New normal
Advanced incumbents,
established start-ups
Digital media
Tipping point
CPG and
retail
Mainstream
customers
adopt
Retail
banking and
Insurance
New trends
emerge
Laggard
incumbents,
drop-off
Traditional
media
Early adopters
embrace the new
Innovative
models
start-ups
create disruptive
business models
Time
Advanced
incumbents
begin to adapt
Since 2007, the ratio of debt to GDP has increased in most countries
Change in debt-to-GDP ratio1, 2007–14
Percentage points
Leveraging
Ireland
180
Increasing leverage
130
Singapore
120
110
Greece
100
90
China
80
70
60
Finland
Malaysia Korea
Slovakia
50
Portugal
Spain
France
Italy
Belgium
Sweden
Netherlands
Japan
Thailand Canada
Czech RepublicPoland
Hungary
Denmark
Chile
Australia
Mexico Turkey
United Kingdom
Brazil
Austria
Morocco
Russia
Indonesia
United States
Norway
Vietnam
Nigeria
Colombia
South Africa
Germany
Philippines
Peru
Argentina
Romania India
Egypt
Saudi Arabia
Israel
40
30
20
10
0
-10
-20
-30
Deleveragin
g
Deleveraging
-40
0
30
60
90
120
150
180
1 Debt owed by households, non-financial corporates, and governments.
2 2Q14 data for advanced economies and China; 4Q13 data for other developing economies.
SOURCE: Haver Analytics; national sources; McKinsey Global Institute analysis
210
240
270
300
330
360
390
420
Debt-to-GDP ratio, 2Q141,2
%
Over the last two centuries, there has generally been an expectation
of advancement
2%
Numbers of
households with flat or
falling income from
wages and capital
before taxes in 25
advanced economies
1993-2005
70%
2005-2014
Individuals who were younger and less-skilled fared worse than their older,
better educated peers
Less educated
Medium educated
Higher educated
Average change in labour income for United States labour force members, by age and
education attainment lever, 2003 – 13 in %
0
-5
-10
-15
-20
-25
OPPORTUNITIES AND CHALLENGES
1
2
3
4
5
Meeting graduate needs within budget constraints
Increasing productivity by increasing completion
International opportunities and international competition
Disruptive models: offence or defence
Collaboration in the age of innovation and data
1. MEETING GRADUATE NEEDS WITHIN BUDGET CONSTRAINTS
How will we educate more students in an environment of increasing costs
and decreasing budgets?
~40
million
39%
400+%
SOURCE: OECD Education at a Glance, 2013 SHEEO 2012; McKinsey Global Institute
World needs more university
graduates
Shortfall of highly-skilled workers, globally, in 2020
But costs per student are increasing
dramatically...
Increase in real expenditures per student between
2000-2010 in OECD countries
… while tuition burdens are
skyrocketing
Increase in cost of higher education tuition since 1985
(household income increased by 109%)
37
1. MEETING GRADUATE NEEDS WITHIN BUDGET CONSTRAINTS
Graduates are concerned about the value of their degree
Overqualification
~50%
Proportion of graduates
from four-year colleges
who say they are in jobs
that don’t require a fouryear degree
Regrets
~50%
Share of all graduates
would choose a different
major or a different school
SOURCE: McKinsey Voice of the Graduate survey, May 2013. n=4,900
Underpreparedness
~30%
Proportion of graduates
who do not feel college
prepared them well for the
world of work
Disappointment
~40%
Four in ten graduates of
top 100 colleges in the US
couldn’t get jobs in their
chosen field
38
1. MEETING GRADUATE NEEDS WITHIN BUDGET CONSTRAINTS
As a result, trust in traditional higher education is decreasing
Has your trust in universities/higher education institutions increased,
decreased or stayed the same over the past 10 years?
Canada
1
20
5
United States
8
England
2
Spain
DK/NR
SOURCE: Ekos Research Associates, AUCC Survey 2014, N>1000 per country
35
27
7
51
55
46
8
Sweden
71
0%
9
9
45
31
52
20%
Decreased
40%
60%
Stayed the same
7
9
80%
100%
Increased
39
2. INCREASING PRODUCTIVITY BY INCREASING COMPLETION
We looked at 117 factors that could determine the probability of dropout
for a US university
Academic preparedness (e.g. test scores)
Enrolment status and history
Family background
Financial situation
Life circumstances
Mindsets
Engagement
40
2. INCREASING PRODUCTIVITY BY INCREASING COMPLETION
Predictive models allow universities to identify specific high-risk
students—and why
Identify specific high-risk students
Student
ID
1000
Probability
of dropout
33%
Risk
category
Low
Determine which factors make them high risk
Student ‘scorecard’
Factor
Social belonging
Grit
Risk category
High
Medium
Relevance
Low
Low
…
High
62%
Medium
…
Medium
1004
55%
Medium
…
Low
1005
80%
High
…
High
1006
70%
Medium
…
Low
1007
8%
Low
…
High
1008
92%
High
…
Medium
1009
65%
Medium
…
Low
1010
89%
High
High school GPA
Medium
1011
15%
Low
Scholarship
Medium
1001
64%
Medium
1002
15%
1003
41
2. INCREASING PRODUCTIVITY BY INCREASING COMPLETION
Low cost, brief interventions to shift mindsets have been proven to
work—and last
Sample interventions and impact
Mindset/action
Impact
Social belonging
1 session
Relevance
4–5 essays
Grit
1 session
SOURCE:
50%
decrease
0.8 GPA
increase
80%
decrease
in achievement gap between first year minority
and non-minority students after both groups read
about how social adversity is a normal aspect of
adjusting to college
for students with low expectations for
achievement after writing essays relating their
coursework to their lives
in likelihood of dropout after struggling
students watched videos of seniors discussing
how their grades were low at first but improved
over time with hard work
http://www.mindsetworks.com/webnav/experiences.aspx; https://web.stanford.edu/dept/psychology/cgi-bin/drupalm/system/files/brainpoints_chi.pdf; Interventions in
Education: They’re Not Magic; A Brief Social Belonging Intervention Improves Academic and Outcomes of Minority Students
42
3. INTERNATIONAL OPPORTUNITIES AND INTERNATIONAL COMPETITION
Australia cannot take continued growth in education exports for granted
Australian annual education exports1
A$B, current prices
20
15
+19%
10
5
0
1970
1980
1990
2000
2010
2020
1 Includes education related travel services and education services
SOURCE: ABS 5368 Table 11a
43
3. INTERNATIONAL OPPORTUNITIES AND INTERNATIONAL COMPETITION
New competitors are emerging: Asian universities represent 17% of the top
100 universities in the world, up from 12% in 2004
# Schools in top 100, Qs World University Rankings
2004
2013
United States
35
30
-5
Asia
12
17
+5
UK
14
18
+4
Australia
11
8
-3
Others
28
27
-1
SOURCE:
Qs World University Rankings
Change
New entrants from Asia
include
•  Tohoku University
•  Nagoya University,
•  Seoul National
University
•  Korea Advanced
Institute of Science
and Technology
•  Fudan University
•  National Taiwan
University
44
3. INTERNATIONAL OPPORTUNITIES AND INTERNATIONAL COMPETITION
Australia’s tuition fees and living costs are relatively high for
international students
Net tuition costs for
international students, 2013
US$1
Australia (peak forex)
25.4
United States
25.2
Australia
(current forex)2
19.9
United Kingdom
19.3
Canada
Singapore
18.5
14.9
Living costs for international
students, 2013
US$1
13.1
10.5
10.3
11.0
7.5
9.4
1 At July 30, 2013 exchange rate
2 Approximately equal to 2005-2010 average AUD-USD exchange rate of $0.727
SOURCE: HSBC; team analysis
45
4. DISRUPTIVE MODELS: OFFENCE OR DEFENCE
New models are creating new competitors for traditional HEIs
New competitors
are emerging to
offer…
Examples
…cheap or free
online content
Low cost online degree with full
accreditation
…more flexible
degree pathways
Flexible education for adult learners,
often based on competency
…alternative
credentials
Industry developed credentials to
provide training in coding or clean
energy
…expanded forprofit offerings
Moving beyond traditional test prep into
more content-based education
46
5. COLLABORATION IN THE AGE OF INNOVATION AND DATA
Institutions of higher learning can contribute strongly
to regional economic growth
Anchor institution(s)
Silicon Valley
Boston
Zhongguancun
Tel Aviv
Melbourne
SOURCE: Press search
Local companies
5. COLLABORATION IN THE AGE OF INNOVATION AND DATA
Australian universities conduct world-class research, but commercialisation
lags behind other nations
We are terrific at research …
… but not commercialisation
Australian Population & Publications
% share globally
Number of patents per 1m population
Average 2010 - 2012
3.4%
793
USA
331
NZ
303
China
240
UK
0.3%
Global Population Global Scientific
Publications
Citeable research/capita: ~2x U.S.
SOURCE: Global Innovation Index; Scopus SCImago Journal; World Development Indicators 7
Singapore
Canada
Australia
184
132
107
Patents/capita :~ ½ x U.S.
48
5. COLLABORATION IN THE AGE OF INNOVATION AND DATA
Australian firms typically weak on innovation & learning
and external orientation
Australia vs. US average scores (0 = equal to US)
DIRECTION
-1
COORDINATION
& CONTROL
ACCOUNTABILITY
-2
EXTERNAL
ORIENTATION
2
INNOVATION
& LEARNING
LEADERSHIP
2
-10
CAPABILITIES
MOTIVATION
0
-3
CULTURE
& CLIMATE
-3
SOURCE: McKinsey OHI database, Australia, N = 18,017 (Data as of March 2014)
-4
The enduring value of higher education
Earning more,
fueling growth
35% higher earnings for Australian tertiary graduates
Researching
and innovating
27%
Building
communities
Regional economic development
Attracting
talent
High-skill immigrants and networks of ambassadors
for Australia
Developing
citizens
Ability to exercise critical thinking and contribute
to civic society
Australian R&D performed by universities
SOURCE: OECD Education at a Glance, 2013 & 2014; ABS Gross Expenditure on R&D; McKinsey analysis
Externally
focused to
reset
intuition
Agile and
low cost
Optimistic