A New Macroeconomic Time Series: Business Profitability in Twentieth-Century Australia

Australia has historical time series for a wide range of economic data. These include statistical information relating to national income, demography, prices, external trade, financial markets, and the government sector covering most of the twentieth century.1 However, we lack a long national time series for business profits. We have calculations for some industries, especially banking, and national figures from 1985 using the IBIS database.2 Business historians in Australia have tended to focus on alternative research agendas such as business strategy, behaviour, and the evolution of individual industries and companies; much less attention has been devoted to measuring and analysing quantitative elements of modern business development such as trends in profitability and investment.3 We offer a business profits time series to fill, in part, this lacuna. Constructing such a time series establishes the building blocks for addressing a range of investigative questions. Our results will enable scholars to look more closely at cyclical and secular trends in business activity. On an aggregate level, we are interested in the distributional question of business’s share of national wealth as reflected in the trend relationship between profits and GDP. Business profitability is a major indicator of the direction and rate of development of a market economy. This is particularly due to its signalling impact on investment and savings and, through them, on capacity, productivity and competitiveness. The returns to entrepreneurship and to shareholder risk, the equity premium, can be estimated by a comparison of a profits series with existing data on interest rates. The performance of our corporate leaders can also be brought into focus by comparisons with nationwide rates of return. Industry level disaggregations will be added in due course, enabling us to examine relative performance and its likely impact on investment decisions. Our understanding of Australia’s economic development in the twentieth century has been enriched by analyses that place it in a comparative context. Comparing a profitability series with those compiled for other countries will add to international benchmarks of Australian economic performance (Arnold 1999; Tafunell 2000; Marseille 1995), and it will throw light upon the relationship, if any, between comparative profitability and in-flows of foreign direct investment, which has been a key feature of Australian experience