Most everyone will agree that we are in the middle of a digital technology revolution. Digital technologies are being integrated into just about every nook and cranny of the economy, society and our personal lives. In the process, they are leading a historical transition from the industrial economy of the past couple of centuries to a new kind of digital economy and information-based society. As part of this transition, our economy, and just about all institutions of society are going through major structural changes whose vast implications are not well understood.
It’s very difficult to anticipate the consequences of disruptive technologies and innovations. When first developed in the late 19th century, electricity was mostly used to replace kerosene lamps and candles with light bulbs. It took several decades for electric appliances, the assembly line and mass production to emerge and help create whole new industries and many new jobs. Similarly, the impact of the automobile has been felt way beyond its original transportation role, becoming a key driver of the economy in the 20th century including the rise of the suburbs.
If it has proved difficult to predict the long term impact of major industrial-based innovations, it’s even more difficult to do so with IT-based innovations because they are so relatively recent. While it might feel that the Web has been around for a very long time, it has only been widely used for less than twenty years. And smartphones, tablets and other mobile technologies we can barely do without have only been with us for less than half that time. So, it is not surprising that most studies looking out a few decades into the future include the caveat that the future is essentially unpredictable, whether because of the emergent behaviors inherent in complex chaotic systems like the economy, or because of the ever-present potential for black swan events which are near-impossible to predict but when they do arrive can profoundly shape the course of history.
But, despite our cloudy crystal ball, a few basic trends stand out. Let me mention and briefly discuss three such trends that appear repeatedly in studies about the future: the need for lifelong education to help workers keep up with rapidly advancing technologies and fast changing job markets; the impact of globalization in raising the standards of living in emerging and developing economies; and the challenges to health care and social benefit programs posed by aging populations around the world.
Jobs and Lifelong Learning
Prior to the Industrial Revolution, only a small percentage of the world’s population was literate. Literacy rates increased throughout the 19th century, as people started moving from the countryside to towns and cities for the job opportunities opening up in the newly industrialized societies. Many of these new jobs, especially the higher paying ones, required the ability to read and write. With the rise of universal education in almost all countries around the world, literacy rates have steadily gone up over the past hundred years.
But, basic literacy is no longer enough. For years now, routine human tasks, that is, those tasks that can well be described by a set of rules, have been taken over by technology substitution and automation. Many blue-collar manufacturing activities in assembly plans have fallen into this category. So have an increasing number of white-collar information-based activities, including record keeping and many kinds of administrative tasks.
Not surprisingly, our knowledge-based digital economy requires better educated workers with specific skills requirements. For example, we are surrounded by smart machines, - cars, music players, TVs, video recorders, smartphones, PCs, the Internet, e-mail, the Web, e-commerce sites, and on and on and on. They have become indispensable tools at work and at home. Digital literacy, that is, the ability to deal with the sophisticated machines all around and use them effectively to help us address complex problems has become a very important skill.
In general, people who are comfortable dealing with complexity are better able to handle more demanding, higher paying jobs. In our complex world, unanticipated situations often arise that we have not encountered before and thus require good problem solving skills. Similar cognitive skills are necessary to help us evaluate the options involved in making complex decisions.
A 2011 study by the McKinsey Global Institute projects a continuous demand for workers with at least a post-secondary education to meet the demands of business. According to McKinsey, employers are already having trouble filling positions requiring technical skills. Many workers will not necessarily have the skills needed for the jobs that are likely to most be in demand,
Moreover, as we look into the future, digital technologies will continue to be applied to activities requiring cognitive capabilities and problem solving intelligence that not long ago were viewed as the exclusive domain of humans. As a result, we will need to continually upgrade our skills in order to keep up with our increasingly smart machines and fast changing job requirements.
Rising standard of living in emerging economies
The Industrial Revolution led to major improvements in the standard of living around the world, with different regions experiencing widely different rates of improvement. These improvements were particularly strong in Western Europe, North America, Japan and other advanced economies that strongly benefited from the technological and scientific advances of the Industrial Revolution. They led to a growing middle class of over a billion or so people, mostly concentrated in these industrialized countries.
But the standard of living improvements of the past couple of centuries were significantly smaller in most of the rest of the world, including China and India. But, thanks to our interconnected, global economy, the situation has now been rapidly changing. The fastest economic growth is now taking place in emerging and developing economies, resulting in significant reductions in poverty and a growing middle class around the world.
“Significant numbers of people have been moving from well below the poverty threshold to relatively closer to it due to widespread economic development. Absent a global recession, the number of those living in extreme poverty is poised to decline as incomes continue to rise in most parts of the world. The number could drop by about 50 percent between 2010 and 2030, according to some models. . . Under most scenarios - except the most dire - significant strides in reducing extreme poverty will be achieved by 2030. . .”
“Middle classes most everywhere in the developing world are poised to expand substantially in terms of both absolute numbers and the percentage of the population that can claim middle-class status during the next 15-20 years. Even the more conservative models see a rise in the global total of those living in the middle class from the current 1 billion or so to over 2 billion people. Other see even more substantial rises with, for example, the global middle class reaching 3 billion people by 2030.”
With billions rising out of poverty and joining the middle class, we can expect an increased demand for critical resources, particularly food and water, as well as for products and services of all kinds. But, meeting these demands and hopefully unleashing an age of prosperity will only be possible in an economy based on sustainable production and consumption patterns. Policymakers and their private sector partners need to be proactive to avoid scarcities in the future.
Aging populations around the world
This same Global Trends 2030 study identified changing demographics as another key megatrend. In particular, the median age of almost all countries is rising rapidly, initially in the more advanced economies of the West and Japan, but increasingly in most developing countries as well.
Over time, a large percentage of the populations of these countries will be over 65 years, posing major challenges to health care and social benefit programs. Technological and organizational innovations are required to help provide high quality, affordable health services to an aging population, as well as to provide the proper environment to enable them to work longer and postpone retirement.
Moreover, an aging population requires more government services, putting additional pressures on public sector budgets at a time when they are trying to contain their rising costs. Government has grown in advanced economies because their citizens have continued to demand more services from their elected officials. It is fairly clear that as the standard of living goes up in emerging economies, their citizens will demand many of the same government services enjoyed by those in the more affluent economies.
This all leads to some very tough questions. How can you balance the rising demands on government to improve the quality of life of its citizens while becoming more productive and reducing its overall costs? How should nations restructure their entitlements to make them more affordable given aging populations, longer life spans and lower birth rates? How do you decide which entitlements to transform, reduce or eliminate altogether?
While each of these trends and their accompanying challenges are well understood, their solutions are not. They will require all our advanced technologies, organizational skills, creative powers, and then some. Hopefully, over time we will find reasonable solutions to these tough 21st century challenges.