More regulations needed to make 4IR a success
The fourth industrial revolution (4IR) has started and promises to provide great benefits to governments, corporations, and people around the world.
However, it also has the great potential to disrupt the current established economies, policies, regulations, and people’s lives. Now is the time to not just develop a full understanding of the benefits and risks of the 4IR, but to establish the policies and regulations to mitigate them and stay ahead of developments.
Harnessing the power of the 4IR is no different than harnessing the power of nuclear energy. The only difference is that the 4IR has the potential to impact us globally in a much more profound way. Let me share with you several scenarios that explain this impact in three major areas: Financial systems, communication and wealth distribution, and economic sustainability.
In financial systems, government monetary policies and regulations depend on central banks managing the creation and flow of money (mainly fiat currencies since gold is no longer used to peg national currencies). Such financial controls allow governments to manage and protect their economies and provide stability even if financial crises hit other areas of the world. What happened in 2008 clearly showed that the globalization of financial innovation could lead to the globalization of a financial crisis. Government policymakers and central banks are always faced with a Catch-22: Should we adopt global financial innovations and reap the benefits? Any answer they have to this question carries substantial risks and benefits. Digital currencies and blockchains are all part of the 4IR. Adopting them carries the same risks and benefits to both governments and individuals. In recent years, substantial wealth has been transferred to digital currencies such as Bitcoin. Such wealth is outside the banking system and freely flows from one place to another with just one click. Governments have been trying to figure out what to do with it for a while, but still there is no consensus if it should be adopted in the future or banned.
A factory that relies on a large amount of cheap labor may be inefficient according to the 4IR standards, but it is highly efficient in creating jobs and wealth for workers who are also needed as customers.
The real challenge is if governments cannot “print” digital currencies, set interest rates, control money supply through market operations or set bank reserve rates, then they effectively have absolutely no control of money supply and flow. Monetary policies and strategies become obsolete, and a given economy becomes fully exposed to global financial volatility. This is the challenge that governments should think about now.
Never in the history of mankind have we reached such a level of connectedness in communication and the free flow of knowledge like today. The level of reach and speed of communication is mind-boggling. 5G is promising to make this even faster and Elon Musk’s Starlink promises to provide access to every corner of the world. No matter if you are in a city, in the desert, on top of a mountain or in the middle of the ocean, you will be connected to the rest of the world 24/7. This is all good news for progress until you start thinking about the downsides. Misinformation will travel as fast as information. Privacy can be compromised by hackers and people with ill intentions.
Wealth distribution and economic sustainability
When it comes to wealth creation, distribution and economic sustainability, the consecutive industrial revolutions have boosted the global economy and greatly improved the quality of living to unprecedented levels in the last two centuries. The 4IR is totally different from previous revolutions. Let me explain by painting a future scenario of the world if the 4IR is fully implemented.
Imagine that factories are fully automated with AI and robots. Raw materials are poured in at one end of the factory and products, be they cars or other consumer products, are made and packaged for shipment without any human involvement in the process.
Shopping for clothes is no different. Virtual reality will show you how you look in a dress or a suit and robots will handle your purchase and all your needs inside the shop. There will be similar experiences in other shops in the service sector. What is missing in all this amazing future? The WORKER is nowhere to be found.
This future scenario poses many challenges for consumption because the goods and services created by corporations are sold to people who have means of living (jobs). The ability of corporations to create both goods and jobs is the reason behind the sustained economic growth in previous industrial revolutions. That is the Catch-22 that the 4IR promises.
Understanding this potential scenario leads us to propose the following hypothesis, that the sustainability of economic growth requires the distribution of wealth through the inefficiencies of economic activities.
A factory that relies on a large amount of cheap labor may be inefficient according to the 4IR standards, but it is highly efficient in creating jobs and wealth for workers who are also needed as customers. Of course, some argue that the 4IR will create other new jobs like previous industrial revolutions.
What they fail to realize is that technologies created in previous revolutions had the objective of improving WORKER efficiency. The 4IR, however, is attempting to help the OWNER conduct economic activity without the WORKER. That’s a major difference that will lead to a higher rate of job destruction, far greater than the rate of job creation in my opinion. In fact, a recent report from McKinsey examined 46 nations and 800 job types and concluded that 800 million jobs would be lost to automation and the 4IR. Governments need to set policies and enhance training and education systems to help humans become more productive and creative, as well as upskilling them to meet future challenges.
• Dr. Mishal Al-Harbi is a senior executive and strategist at the Research Product Development Company, a subsidiary of the Saudi Technology Development and Investment Co. (TAQNIA). He has a doctorate from Texas A&M University and a master’s degree from Stanford University.