An article by Klaus Schwab, who is the founder and executive chairman of the World Economic Forum Geneva called ‘The Fourth Industrial Revolution: what it means, how to respond‘ sketches a wealth of interesting implications for the future economy.
Beginning with some historical context:
“The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.”
As hundreds of millions and then billions of people becomes more and more friction-less, “The speed of current breakthroughs has no historical precedent.” And this will only intensify because “the possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.”
Life has become radically more comfortable because “technology has made possible new products and services that increase the efficiency and pleasure of our personal lives. Ordering a cab, booking a flight, buying a product, making a payment, listening to music, watching a film, or playing a game—any of these can now be done remotely.” At the same time, this increase in productivity and efficiency will dramatically reshape labor markets as transportation and communication costs drop, logistics and global supply chains become more effective, and the cost of trade gets cheaper. “This will give rise to a job market increasingly segregated into ‘low-skill/low-pay’ and ‘high-skill/high-pay’ segments, which in turn will lead to an increase in social tensions.”
“Technology is therefore one of the main reasons why incomes have stagnated, or even decreased, for a majority of the population in high-income countries: the demand for highly skilled workers has increased while the demand for workers with less education and lower skills has decreased. The result is a job market with a strong demand at the high and low ends, but a hollowing out of the middle.
This helps explain why so many workers are disillusioned and fearful that their own real incomes and those of their children will continue to stagnate. It also helps explain why middle classes around the world are increasingly experiencing a pervasive sense of dissatisfaction and unfairness. A winner-takes-all economy that offers only limited access to the middle class is a recipe for democratic malaise and dereliction.”
Platforms like Uber and airBnb are examples of “a key trend is the development of technology-enabled platforms that combine both demand and supply to disrupt existing industry structures, such as those we see within the ‘sharing’ or ‘on demand’ economy. These technology platforms, rendered easy to use by the smartphone, convene people, assets, and data—thus creating entirely new ways of consuming goods and services in the process. In addition, they lower the barriers for businesses and individuals to create wealth, altering the personal and professional environments of workers. These new platform businesses are rapidly multiplying into many new services, ranging from laundry to shopping, from chores to parking, from massages to travel.” The success of these companies is that they leverage supply and demand in heretofore unimaginably efficient ways because they foster cooperation and transactions between strangers.
“On the whole, there are four main effects that the Fourth Industrial Revolution has on business—on customer expectations, on product enhancement, on collaborative innovation, and on organizational forms. Whether consumers or businesses, customers are increasingly at the epicenter of the economy, which is all about improving how customers are served. Physical products and services, moreover, can now be enhanced with digital capabilities that increase their value. New technologies make assets more durable and resilient, while data and analytics are transforming how they are maintained. A world of customer experiences, data-based services, and asset performance through analytics, meanwhile, requires new forms of collaboration, particularly given the speed at which innovation and disruption are taking place. And the emergence of global platforms and other new business models, finally, means that talent, culture, and organizational forms will have to be rethought.”
These are examples of the trends that are pushing along “the inexorable shift from simple digitization (the Third Industrial Revolution) to innovation based on combinations of technologies (the Fourth Industrial Revolution).” For better and worse the future beckons.