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Identifying Growth and Margin Opportunities
In the ten countries that produce around 60% of global GDP - Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, the United Kingdom and the United States - the historical link between net worth growth and GDP growth no longer holds. While economic growth in advanced economies over the past two decades has been lukewarm, the balance sheets and net worth that have long tracked it have tripled in size.
This discrepancy emerged as asset prices rose. However, this was not the result of 21st century trends, such as the increasing digitization of the economy. In an economy increasingly driven by intangible assets such as software and other intellectual property, excess savings have a rather hard time finding investments that generate sufficient economic returns and lasting value for investors. Instead, these savings went to real estate, which accounted for 2/3 of the net worth in 2020. Other fixed assets that can drive economic growth only accounted for around 20% of the total. Moreover, asset values are now almost 50% higher than their long-term average relative to income. Over the past 20 years, for every dollar in new net investment, overall liabilities have increased by almost $4, of which about $2 is debt.
To construct a global balance sheet, we sum up all physical assets in the economy, as well as all financial assets across all sectors (including primarily the financial sector), similar to the way a corporation builds its balance sheet. On a functional level, the global balance is made up of three interrelated components: the balance sheet for the real economy, the financial balance sheet, and the balance sheet for the financial sector.
Many companies are investing in their instruments and planning capabilities - some of them have made progress in one or more areas. However, only recently have they started to deal with planning with the holistic perspective needed to significantly increase productivity and solve a complex set of problems. An efficient scheduling feature can provide consumer firms with the ability to capture the value in both the top and bottom lines.
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