BILL Gates made headlines earlier this year when he argued that robots taking away human jobs should be taxed. His argument is that governments have a responsibility to intervene in order to slow down the proliferation of automation, as it has the potential of creating mass unemployment. It is a sign of the times that the person who has made his fortune because of technological innovation is now arguing for the curtailment of coming technologies. Welcome to The Fourth Industrial Revolution.
The world has seen three such revolutions in the past: the first began in 1784 when humans harnessed mechanical power and systematically shifted away from animals. The second came about in the late 19th and early 20th century, as new forms of power generation, electricity, and division of labour brought about mass production of industrial products. Digital systems, modern communications, and the advent of the modern computers ushered in the third industrial revolution, bringing to us products such as the smartphone and social media.
Each revolution built on the progress made in the previous era and the fourth industrial revolution is no different. During the current revolution we can expect existing and future technologies to become fully embedded in societies and humans. Advances in robotics and automation, artificial intelligence, nanotechnology, and material sciences will fuel this era and fundamentally change the functions of the modern economy. The effects of the fourth industrial revolution are expected to be far more profound, for better and for worse, than what we have ever seen. To put things into context, the third industrial revolution led to more people having access to a mobile phone than basic sanitation, a fundamental human need.
The effects are already being witnessed in the form of weak job growth and stagnant wages in traditional sectors juxtaposed with the dazzling fortunes of technology unicorns (startups valued at over $1 billion) and their founding members. The benefits are accruing to those who are literate and capable of taking advantage of emerging technologies. These people reside in and around high-wealth, high-income innovation hubs such as Silicon Valley. On the flipside, the core of industrialised economies where millions of blue-collar jobs have historically resided has hollowed out, leading to an erosion of prosperity.
A report suggests that two-thirds of all jobs in the developing world are at risk of being lost through automation.
Automation and robots have led to much of the gloom in industrialised economies. At the beginning of this century the US employed over 15 million people in the manufacturing sector. In the 17 years since, the country has lost close to 3m manufacturing jobs while manufacturing output has increased by almost 30pc. This has transpired during a period in which the US underwent its worst economic crisis since the Great Depression.
New research by Daron Acemoglu of M.I.T. and Pascual Restrepo of Boston University concludes that that there are “large and robust negative effects of robots on employment and wages” and that the adoption of a robot for every 1,000 workers decreased employment by 6.2 workers and wages by 0.7 per cent in the US. These industrials robots have destroyed jobs in sectors that have traditionally created millions of blue-collar jobs such as the manufacturing of cars, electronics, metals, plastics, and chemicals.
Economies that have not yet become fully industrialised are also undergoing similar changes. China’s manufacturing base is rapidly evolving and the country has purchased more than 25pc of the 248,000 industrial robot units sold around the world in 2015. Foxconn, a company that manufactures core components for Apple in China and employs an army of workers, recently replaced over 60,000 workers with robots at a single factory.
While industrialised economies are already losing jobs, the risk to developing economies is far greater: a World Bank report suggests that two-thirds of all jobs in the developing world are at risk of being lost through automation. This is because developed economies have wealth, institutions capable of implementing forward-looking policies, and a historic track record of successfully dealing with the industrial revolutions of the past.
For emerging economies, the risks, if they materialise, can upend the economic and social gains they have made in recent years. A number of emerging economies witnessed high levels of growth by utilising their cheap labour to manufacture goods for the rest of the world. The expectation was that these economies would follow a growth trajectory similar to that followed by industrialised economies. As millions of people are put to work to manufacture exports, countries would fully realise their demographic dividend. Export-oriented industrialisation would increase incomes and wealth, thereby increasing consumption expenditure in the economy. Ultimately the country would transition to a consumer- and service-oriented economy. A country like South Korea was the blueprint for this type of growth, and China is, in many ways, undergoing a similar evolution.
Technologies of the fourth industrial revolution have the potential to make this development model defunct before most of its benefits are realised by the rest of the world. While industrial robots are already replacing blue-collar workers, automation through artificial intelligence is beginning to replace service-sector jobs as well. A report discussed at Davos suggested that over 5m mostly white-collar jobs will be destroyed by this revolution in 15 industrialised and developing economies by 2020. JPMorgan Chase & Co., for example, recently deployed a programme called COIN which automated 360,000 hours of work conducted by lawyers every year to review and interpret commercial-loan agreements.
These technological advances could also eliminate the benefits of wage-arbitrage that attracted manufacturing companies to developing economies where labor was relatively cheaper. As industrial robots become ever-cheaper and advances in material sciences enable 3-D printing of products, companies would not stand to gain as much by moving their manufacturing to developing economies. In fact, they would be attracted to setting up manufacturing in industrialised economies due to the availability of skilled labour capable of using these technologies.
If developing economies are to grow, they must implement policies that equip people with the skills required to operate and develop new technologies. Basic reading and writing skills will not be enough: the workforce of the fourth industrial revolution must know how to write and read computer code and work in conjunction with sophisticated hardware and software. The fourth industrial revolution is like a bullet train coming and it is up to policymakers to prepare and enable the masses to either get on board or risk being a casualty in its path.
The writer is a South Asia analyst at Albright Stonebridge Group in Washington D.C.