The Fourth Industrial Revolution: what it means, how to respond was the central theme of the 2016 World Economic Forum (WEF) that took place earlier this year in Davos, Switzerland. The theme was nicely explained by Klaus Schwab, WEF founder and executive chairman, in the lead article of a recently published Foreign Affairs Anthology on the subject.
Dr. Schwab positions the Fourth Industrial Revolution within the historical context of three previous industrial revolutions. The First, - in the last third of the 18th century, - introduced new tools and manufacturing processes based on steam and water power, ushering the transition from hand-made goods to mechanized, machine-based production. The Second, - a century later, - revolved around steel, railroads, cars, chemicals, petroleum, electricity, the telephone and radio, leading to the age of mass production. The Third, - starting in the 1960s, - saw the advent of digital technologies, computers, the IT industry, and the automation of process in just about all industries.
“Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century,” he noted. “It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.”
- Velocity: Compared to the previous three revolutions, “the Fourth is evolving at an exponential rather than a linear pace.”
- Scope: Disruptions are taking place in “almost every industry in every country.”
- Systems impact: “The breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.”
He further adds that there are no historical precedents for the opportunities ahead. Technology advances keep expanding the benefits of the digital revolution across the planet. “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.”
This digital revolution could significantly improve the quality of life of billions around the world. But, it will be accompanied by serious challenges. We must not forget that technological revolutions are highly disruptive to economies and societies. In particular, we’ve already seen major dislocations in labor markets over the past few decades, benefiting workers in low-cost developing nations while severely impacting workers in advanced economies. Moreover, as intelligent machines become more capable and less expensive, they will increasingly replace unskilled human labor even in developing economies.
“We cannot foresee at this point which scenario is likely to emerge, and history suggests that the outcome is likely to be some combination of the two,” writes Schwab. “However, I am convinced of one thing - that in the future, talent, more than capital, will represent the critical factor of production. 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.”
The article examines the impact of the Fourth Industrial Revolution on three major segments: business, government and individuals.
Impact on Business. Adapting to the ongoing digitization of the economy is already a major challenge for many companies. The accelerating velocity, expanded scope and systemic impact of the Fourth Industrial Revolution will lead to constant surprises and serious disruptions, including:
- Customer expectations - No transformation is more challenging than meeting the service expectations of digitally empowered customers. Digital technologies enable companies to better engage with their customers and offer them a superior experience at affordable costs. But, providing such an experience to increasingly savvy, - and fickle, - customers is getting harder.
- Product enhancements - Technology advances are giving rise to a large variety of smart connected products and services, combining sensors, software, data, analytics and connectivity in all kinds of ways. These innovative offerings are restructuring industry boundaries and leading to the creation of whole new industries.
- Collaborative innovations - Companies have to become much more innovative to better respond to the fast-changing, highly competitive business environment. Collaboration is indispensable for innovation, both within the company’s own boundaries and beyond, - including customers, partners, startups, universities and research communities.
- Organizational forms - Company structures and culture must be rethought to better deal with new market environments and business models. The hierarchic organization that prevailed in the 20th century was appropriate to a production oriented, industrial economy, but it will not work so well in the more global and fast-changing digital economy.
Impact on Government. Aligning government with 21st century technological, economic and social realities will require innovations at least as disruptive and profound as those embraced by the private sector.
Realizing the potential of the Fourth Industrial Revolution, - e.g., Internet of Things, health analytics, smart cities, autonomous vehicles, - requires considerable support and actions from policy makers. These include policies to protect the privacy and rights of consumers and businesses; stronger security requirements for critical devices and systems; incentives that promote fair data sharing across companies; and new regulations to help us deal with increasingly intelligent machines.
Support from policy makers is also required to help address job creation, - one of the toughest challenges facing nations around the world. Higher educational attainments are necessary for many of the kinds of jobs that will be available over the next few decades, thus requiring a national commitment to education. Creating an environment that fosters a talented workforce, well-paying jobs and a decent standard of living is one of the primary responsibilities of government.
“Ultimately, the ability of government systems and public authorities to adapt will determine their survival,…” writes Schwab. “How, then, can they preserve the interest of the consumers and the public at large while continuing to support innovation and technological development? By embracing agile governance, just as the private sector has increasingly adopted agile responses to software development and business operations more generally. This means regulators must continuously adapt to a new, fast-changing environment, reinventing themselves so they can truly understand what it is they are regulating. To do so, governments and regulatory agencies will need to collaborate closely with business and civil society.”
Impact on People. “The Fourth Industrial Revolution, finally, will change not only what we do but also who we are. It will affect our identity and all the issues associated with it: our sense of privacy, our notions of ownership, our consumption patterns, the time we devote to work and leisure, and how we develop our careers, cultivate our skills, meet people, and nurture relationships. It is already changing our health and leading to a quantified self, and sooner than we think it may lead to human augmentation. The list is endless because it is bound only by our imagination.”
What will digital life be like in the decades ahead? A couple of years ago, the Pew Research Center conducted a study, Digital Life in 2025, where it asked over 1,800 experts what will likely be the most significant impact of the Internet on humanity by 2025.
The study’s overriding consensus was that “the Internet will become like electricity - less visible, yet more deeply embedded in people’s lives for good and ill… Information sharing over the Internet will be so effortlessly interwoven into daily life that it will become invisible, flowing like electricity, often through machine intermediaries.” But, along with its many benefits, a ubiquitous digital life will be accompanied by serious issues, especially the loss of privacy: “you may be tracked/watched/recorded without you even knowing it.”
“In the end, it all comes down to people and values,” writes Schwab in his concluding paragraph. “We need to shape a future that works for all of us by putting people first and empowering them. In its most pessimistic, dehumanized form, the Fourth Industrial Revolution may indeed have the potential to robotize humanity and thus to deprive us of our heart and soul. But as a complement to the best parts of human nature - creativity, empathy, stewardship - it can also lift humanity into a new collective and moral consciousness based on a shared sense of destiny. It is incumbent on us all to make sure the latter prevails.”