Klaus Schwab - «The Fourth Industrial Revolution» (2016): some citations

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(Dmitry Fedyuk) #1

Decline in the share of labour as a percentage of GDP

Over the past few years, an overwhelming majority of the most developed countries and also some fast-growing economies such as China have experienced a significant decline in the share of labour as a percentage of GDP
As a result, the great beneficiaries of the fourth industrial revolution are the providers of intellectual or physical capital – the innovators, the investors, and the shareholders, which explains the rising gap in wealth between those who depend on their labour and those who own capital.

Platform effect

The concentration of benefits and value in just a small percentage of people is also exacerbated by the so-called platform effect, in which digitally-driven organizations create networks that match buyers and sellers of a wide variety of products and services and thereby enjoy increasing returns to scale.

The consequence of the platform effect is a concentration of few but powerful platforms which dominate their markets.
The benefits are obvious, particularly to consumers: higher value, more convenience and lower costs.

The Uber model epitomizes the disruptive power of these technology platforms.
These platform businesses are rapidly multiplying to offer new services ranging from laundry to shopping, from chores to parking, from homestays to sharing long-distance rides.
They have one thing in common: by matching supply and demand in a very accessible (low cost) way, by providing consumers with diverse goods, and by allowing both parties to interact and give feedback, these platforms therefore seed trust.

This enables the effective use of under-utilized assets – namely those belonging to people who had previously never thought of themselves as suppliers (i.e. of a seat in their car, a spare bedroom in their home, a commercial link between a retailer and manufacturer, or the time and skill to provide a service like delivery, home repair or administrative tasks).

Digital platforms have dramatically reduced the transaction and friction costs incurred when individuals or organizations share the use of an asset or provide a service.
Each transaction can now be divided into very fine increments, with economic gains for all parties involved.
In addition, when using digital platforms, the marginal cost of producing each additional product, good or service tends towards zero.

The key feature of all new developments and technologies

All new developments and technologies have one key feature in common: they leverage the pervasive power of digitization and information technology.
All of the innovations described in this chapter are made possible and are enhanced through digital power.
Gene sequencing, for example, could not happen without progress in computing power and data analytics. Similarly, advanced robots would not exist without artificial intelligence, which itself, largely depends on computing power.

Blockchain

If, at the moment, blockchain technology records financial transactions made with digital currencies such as Bitcoin, it will in the future serve as a registrar for things as different as birth and death certificates, titles of ownership, marriage licenses, educational degrees, insurance claims, medical procedures and votes – essentially any kind of transaction that can be expressed in code.

Blockchain will soon revolutionize the way it operates because its possible applications in finance have the opportunity to reduce settlement and transaction costs by up to $20 billion and transform the way the industry works.
The shared database technology can streamline such varied activities as the storage of clients’ accounts, cross-border payments, and the clearing and settling of trades, as well as products
and services that do not exist, yet such as smart futures contracts that self-execute without a trader.

Genetics

In recent years, considerable progress has been achieved in reducing the cost and increasing the ease of genetic sequencing, and lately, in activating or editing genes.
It took more than 10 years, at a cost of $2.7 billion, to complete the Human Genome Project. Today, a genome can be sequenced in a few hours and for less than a thousand dollars.
With advances in computing power, scientists no longer go by trial and error; rather, they test the way in which specific genetic variations generate particular traits and diseases.

Synthetic biology is the next step. It will provide us with the ability to customize organisms by writing DNA.
Setting aside the profound ethical issues this raises, these advances will not only have a profound and immediate impact on medicine but also on agriculture and the production of
biofuels.

This differs from genetic engineering practiced in the 1980s in that it is much more precise, efficient and easier to use than previous methods.
In fact, the science is progressing so fast that the limitations are now less technical than they are legal, regulatory and ethical.

Ageing

We live in a society where more than a quarter of the children born today in advanced economies are expected to live to 100.

Productivity

Hal Varian, Google’s chief economist, points to various examples such as the increased efficiency of hailing a taxi through a mobile app or renting a car through the power of the on-demand economy.
There are many other similar services whose use tends to increase efficiency and hence productivity.
Yet because they are essentially free, they therefore providing uncounted value at home and at work.
This creates a discrepancy between the value delivered via a given service versus growth as measured in national statistics.

Employment

We have to understand the two competing effects that technology exercises on employment.

  • First, there is a destruction effect as technology-fuelled disruption and automation substitute capital for labour, forcing workers to become unemployed or to reallocate their skills elsewhere.
  • Second, this destruction effect is accompanied by a capitalization effect in which the demand for new goods and services increases and leads to the creation of new occupations, businesses and even industries.

It has always been the case that technological innovation destroys some jobs, which it replaces in turn with new ones in a different activity and possibly in another place.

Take agriculture as an example.
In the US, people working on the land consisted of 90% of the workforce at the beginning of the 19th century, but today, this accounts for less than 2%.
This dramatic downsizing took place relatively smoothly, with minimal social disruption or endemic unemployment.

The app economy provides an example of a new job ecosystem.
It only began in 2008 when Steve Jobs, the founder of Apple, let outside developers create applications for the iPhone.
By mid-2015, the global app economy was expected to generate over $100 billion in revenues, surpassing the film industry, which has been in existence for over a century.

The trend is towards greater polarization in the labour market.
Employment will grow in high-income cognitive and creative jobs and low-income manual occupations, but it will greatly diminish for middle-income routine and repetitive jobs.

Impact on developing economies

One challenging scenario for low-income countries is if the fourth industrial revolution leads to significant “re-shoring” of global manufacturing to advanced economies, something very possible if access to low-cost labour no longer drives the competitiveness of firms.

The ability to develop strong manufacturing sectors serving the global economy based on cost advantages is a well-worn development pathway, allowing countries to accumulate capital, transfer technology and raise incomes.

If this pathway closes, many countries will have to rethink their models and strategies of
industrialization.

The danger is that the fourth industrial revolution would mean that a winner-takes-all dynamic plays out between countries as well as within them.

This would further increase social tensions and conflicts, and create a less cohesive, more volatile world, particularly given that people are today much more aware of and sensitive to social injustices and the discrepancies in living conditions between different countries.

The Nature of Work

The emergence of a world where the dominant work paradigm is a series of transactions between a worker and a company more than an enduring relationship was described by Daniel Pink 15 years ago in his book «Free Agent Nation».
This trend has been greatly accelerated by technological innovation.

Today, the on-demand economy is fundamentally altering our relationship with work and the social fabric in which it is embedded.
More employers are using the “human cloud” to get things done.

Professional activities are dissected into precise assignments and discrete projects and then thrown into a virtual cloud of aspiring workers located anywhere in the world.

This is the new on-demand economy, where providers of labour are no longer employees in the traditional sense but rather independent workers who perform specific tasks.

The advantages for companies and particularly fast-growing start-ups in the digital economy are clear.
As human cloud platforms classify workers as self-employed, they are – for the moment – free of the requirement to pay minimum wages, employer taxes and social benefits.

For the people who are in the cloud, the main advantages reside in the freedom (to work or not) and the unrivalled mobility that they enjoy by belonging to a global virtual network.

Some independent workers see this as offering the ideal combination of a lot of freedom, less stress and greater job satisfaction.

Although the human cloud is in its infancy, there is already substantial anecdotal evidence
that it entails silent offshoring (silent because human cloud platforms are not listed and do not have to disclose their data).

Business

One particular symptom of this phenomenon is the historical reduction in the average lifespan of a corporation listed on the S&P 500 has dropped from around 60 to approximately 18.
Another is the shift in the time it takes new entrants to dominate markets and hit significant revenue milestones.
Facebook took six years to reach revenue of $1 billion a year, and Google just five years.

Digitization also enables large incumbents to cross industry boundaries by leveraging
their customer base, infrastructure or technology.
The move of telecommunications companies into healthcare and automotive segments are examples.

Data-Enhanced Products

Analysis provided by sensors placed on assets enables their constant monitoring and proactive maintenance and, in doing so, maximizes their utilization.

It is no longer about finding specific faults but rather about using performance benchmarks (based on data supplied by sensors and monitored through algorithms) that can highlight when a piece of equipment is moving outside its normal operating window.

On aircrafts, for example, the airline control centres know before the pilots do if an engine is developing a fault on a particular plane.
They can therefore instruct the pilot on what to do and mobilize the maintenance crew in advance at the flight destination.

The ability to predict the performance of an asset enables new business models
to be established.
Asset performance can be measured and monitored over time – analytics provide insights
on operational tolerances and provide the basis for outsourcing products that are not core or strategic to the needs of the business.

The ability to predict the performance of an asset also offers new opportunities to price services.
Assets with high throughput such as lifts or walkways can be priced by asset performance, and service providers can be paid on the basis of actual performance against a threshold of 99.5% uptime over a given period.

Take the example of truck fleets.
Long-distance haulers are interested in propositions where they pay tire manufacturers by the 1,000 kilometres of road use rather than periodically buying new tires.
This is because the combination of sensors and analytics enables tire companies to monitor driver performance, fuel consumption and tire wear to offer a complete end-to-end
service.

Collaborative Innovation

Sometimes, such collaborations spawn entirely new business models such as city car-sharing schemes, which bring together businesses from multiple industries to provide an integrated customer experience.

New Operating Models

An important operating model enabled by the network effects of digitization is the platform.

While the third industrial revolution saw the emergence of purely digital platforms, a hallmark of the fourth industrial revolution is the appearance of global platforms intimately connected to the physical world.

Platform strategies, combined with the need to be more customer-centric and to enhance products with data, are shifting many industries from a focus on selling products to delivering services.

Once a customer has established a track record of trust and confidence on the platform, it becomes easy for the digital provider to offer other products and services.

Governments

The WikiLeaks saga – in which a tiny non-state entity confronted a mammoth state – illustrates the asymmetry of the new power paradigm and the erosion of trust that often comes with it.

Countries, Regions and Cities

The countries and regions that succeed in establishing tomorrow’s preferred international norms in the main categories and fields of the new digital economy (5G communications, the use of commercial drones, the internet of things, digital health, advanced manufacturing and so on) will reap considerable economic and financial benefits.

In contrast, countries that promote their own norms and rules to give advantages to their domestic producers, while also blocking foreign competitors and reducing royalties that domestic companies pay for foreign technologies, risk becoming isolated from global norms, putting these nations at risk of becoming the laggards of the new digital economy.

North American companies remain the most innovative in the world by virtually any measure.
They attract the top talent, earn the most patents, command the majority of the world’s venture capital, and when publicly listed, enjoy high corporate valuations.

This is further reinforced by the fact that North America remains at the cutting edge of four synergistic technology revolutions: technology-fuelled innovation in energy production, advanced and digital manufacturing, the life sciences, and information technology.

I am particularly concerned about the effect that automation will have on some countries and regions, particularly those in fast-growing markets and developing countries, where it could abruptly erode the comparative advantage they enjoy in producing labour-intensive goods and services.
Such a scenario could devastate the economies of some countries and regions that are currently thriving.

Inequality and the middle class

Today, a middle-class job no longer guarantees a middleclass lifestyle, and over the past 20 years, the four traditional attributes of middle-class status (education, health, pensions and house ownership) have performed worse than inflation.

Community

The notion of belonging to a community today is more defined by personal projects and individual values and interests rather than by space (the local community), work and family.

Digital media is connecting people one-to one and one-to-many in entirely new ways.

Counter-intuitively, the fact that there is so much media available through digital channels
can mean that an individual’s news sources become narrowed and polarised into what MIT clinical psychologist Sherry Turkle, a professor of the social studies of science and technology, calls a “spiral of silence”.
This matters because what we read, share and see in the context of social media shapes our political and civic decisions.

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