by Klaus Schwab
World Economic Forum®
© 2016 – All rights reserved.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise without the prior permission of the World Economic Forum.
ISBN-13: 978-1-944835-01-9
ISBN-10: 1944835016
REF: 231215
World Economic Forum
91–93 route de la Capite
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Contents
Introduction
1. The Fourth Industrial Revolution
1.1 Historical Context
1.2 Profound and Systemic Change
2. Drivers
2.1 Megatrends
2.1.1 Physical
2.1.2 Digital
2.1.3 Biological
2.2 Tipping Points
3. Impact
3.1 Economy
3.1.1 Growth
3.1.2 Employment
3.1.3 The Nature of Work
3.2 Business
3.2.1 Consumer Expectations
3.2.2 Data-Enhanced Products
3.2.3 Collaborative Innovation
3.2.4 New Operating Models
3.3 National and Global
3.3.1 Governments
3.3.2 Countries, Regions and Cities
3.3.3 International Security
3.4 Society
3.4.1 Inequality and the Middle Class
3.4.2 Community
3.5 The Individual
3.5.1 Identity, Morality and Ethics
3.5.2 Human Connection
3.5.3 Managing Public and Private Information
The Way Forward
Acknowledgements
Appendix: Deep Shift
1. Implantable Technologies
2. Our Digital Presence
3. Vision as the New Interface
4. Wearable Internet
5. Ubiquitous Computing
6. A Supercomputer in Your Pocket
7. Storage for All
8. The Internet of and for Things
9. The Connected Home
10. Smart Cities
11. Big Data for Decisions
12. Driverless Cars
13. Artificial Intelligence and Decision-Making
14. AI and White-Collar Jobs
15. Robotics and Services
16. Bitcoin and the Blockchain
17. The Sharing Economy
18. Governments and the Blockchain
19. 3D Printing and Manufacturing
20. 3D Printing and Human Health
21. 3D Printing and Consumer Products
22. Designer Beings
23. Neurotechnologies
Notes
Introduction
Of the many diverse and fascinating challenges we face today, the most intense and important is how to understand and shape the new technology revolution, which entails nothing less than a transformation of humankind. We are at the beginning of a revolution that is fundamentally changing the way we live, work, and relate to one another. In its scale, scope and complexity, what I consider to be the fourth industrial revolution is unlike anything humankind has experienced before.
We have yet to grasp fully the speed and breadth of this new revolution. Consider the unlimited possibilities of having billions of people connected by mobile devices, giving rise to unprecedented processing power, storage capabilities and knowledge access. Or think about the staggering confluence of emerging technology breakthroughs, covering wide-ranging fields such as artificial intelligence (AI), robotics, the internet of things (IoT), autonomous vehicles, 3D printing, nanotechnology, biotechnology, materials science, energy storage and quantum computing, to name a few. Many of these innovations are in their infancy, but they are already reaching an inflection point in their development as they build on and amplify each other in a fusion of technologies across the physical, digital and biological worlds.
We are witnessing profound shifts across all industries, marked by the emergence of new business models, the disruption1 of incumbents and the reshaping of production, consumption, transportation and delivery systems. On the societal front, a paradigm shift is underway in how we work and communicate, as well as how we express, inform and entertain ourselves. Equally, governments and institutions are being reshaped, as are systems of education, healthcare and transportation, among many others. New ways of using technology to change behaviour and our systems of production and consumption also offer the potential for supporting the regeneration and preservation of natural environments, rather than creating hidden costs in the form of externalities.
The changes are historic in terms of their size, speed and scope.
While the profound uncertainty surrounding the development and adoption of emerging technologies means that we do not yet know how the transformations driven by this industrial revolution will unfold, their complexity and interconnectedness across sectors imply that all stakeholders of global society – governments, business, academia, and civil society – have a responsibility to work together to better understand the emerging trends.
Shared understanding is particularly critical if we are to shape a collective future that reflects common objectives and values. We must have a comprehensive and globally shared view of how technology is changing our lives and those of future generations, and how it is reshaping the economic, social, cultural and human context in which we live.
The changes are so profound that, from the perspective of human history, there has never been a time of greater promise or potential peril. My concern, however, is that decision-makers are too often caught in traditional, linear (and non-disruptive) thinking or too absorbed by immediate concerns to think strategically about the forces of disruption and innovation shaping our future.
I am well aware that some academics and professionals consider the developments that I am looking at as simply a part of the third industrial revolution. Three reasons, however, underpin my conviction that a fourth and distinct revolution is underway:
Velocity: Contrary to the previous industrial revolutions, this one is evolving at an exponential rather than linear pace. This is the result of the multifaceted, deeply interconnected world we live in and the fact that new technology begets newer and ever more capable technology.
Breadth and depth: It builds on the digital revolution and combines multiple technologies that are leading to unprecedented paradigm shifts in the economy, business, society, and individually. It is not only changing the “what” and the “how” of doing things but also “who” we are.
Systems Impact: It involves the transformation of entire systems, across (and within) countries, companies, industries and society as a whole.
In writing this book, my intention is to provide a primer on the fourth industrial revolution - what it is, what it will bring, how it will impact us, and what can be done to harness it for the common good. This volume is intended for all those with an interest in our future who are committed to using the opportunities of this revolutionary change to make the world a better place.
I have three main goals:
– to increase awareness of the comprehensiveness and speed of the technological revolution and its multifaceted impact,
– to create a framework for thinking about the technological revolution that outlines the core issues and highlights possible responses, and
– to provide a platform from which to inspire public-private cooperation and partnerships on issues related to the technological revolution.
Above all, this book ai
ms to emphasize the way in which technology and society co-exist. Technology is not an exogenous force over which we have no control. We are not constrained by a binary choice between “accept and live with it” and “reject and live without it”. Instead, take dramatic technological change as an invitation to reflect about who we are and how we see the world. The more we think about how to harness the technology revolution, the more we will examine ourselves and the underlying social models that these technologies embody and enable, and the more we will have an opportunity to shape the revolution in a manner that improves the state of the world.
Shaping the fourth industrial revolution to ensure that it is empowering and human-centred, rather than divisive and dehumanizing, is not a task for any single stakeholder or sector or for any one region, industry or culture. The fundamental and global nature of this revolution means it will affect and be influenced by all countries, economies, sectors and people. It is, therefore, critical that we invest attention and energy in multistakeholder cooperation across academic, social, political, national and industry boundaries. These interactions and collaborations are needed to create positive, common and hope-filled narratives, enabling individuals and groups from all parts of the world to participate in, and benefit from, the ongoing transformations.
Much of the information and my own analysis in this book are based on ongoing projects and initiatives of the World Economic Forum and has been developed, discussed and challenged at recent Forum gatherings. Thus, this book also provides a framework for shaping the future activities of the World Economic Forum. I have also drawn from numerous conversations I have had with business, government and civil society leaders, as well as technology pioneers and young people. It is, in that sense, a crowd-sourced book, the product of the collective enlightened wisdom of the Forum’s communities.
This book is organized in three chapters. The first is an overview of the fourth industrial revolution. The second presents the main transformative technologies. The third provides a deep dive into the impact of the revolution and some of the policy challenges it poses. I conclude by suggesting practical ideas and solutions on how best to adapt, shape and harness the potential of this great transformation.
1. The Fourth Industrial Revolution
1.1 Historical Context
The word “revolution” denotes abrupt and radical change. Revolutions have occurred throughout history when new technologies and novel ways of perceiving the world trigger a profound change in economic systems and social structures. Given that history is used as a frame of reference, the abruptness of these changes may take years to unfold.
The first profound shift in our way of living – the transition from foraging to farming – happened around 10,000 years ago and was made possible by the domestication of animals. The agrarian revolution combined the efforts of animals with those of humans for the purpose of production, transportation and communication. Little by little, food production improved, spurring population growth and enabling larger human settlements. This eventually led to urbanization and the rise of cities.
The agrarian revolution was followed by a series of industrial revolutions that began in the second half of the 18th century. These marked the transition from muscle power to mechanical power, evolving to where today, with the fourth industrial revolution, enhanced cognitive power is augmenting human production.
The first industrial revolution spanned from about 1760 to around 1840. Triggered by the construction of railroads and the invention of the steam engine, it ushered in mechanical production. The second industrial revolution, which started in the late 19th century and into the early 20th century, made mass production possible, fostered by the advent of electricity and the assembly line. The third industrial revolution began in the 1960s. It is usually called the computer or digital revolution because it was catalysed by the development of semiconductors, mainframe computing (1960s), personal computing (1970s and 80s) and the internet (1990s).
Mindful of the various definitions and academic arguments used to describe the first three industrial revolutions, I believe that today we are at the beginning of a fourth industrial revolution. It began at the turn of this century and builds on the digital revolution. It is characterized by a much more ubiquitous and mobile internet, by smaller and more powerful sensors that have become cheaper, and by artificial intelligence and machine learning.
Digital technologies that have computer hardware, software and networks at their core are not new, but in a break with the third industrial revolution, they are becoming more sophisticated and integrated and are, as a result, transforming societies and the global economy. This is the reason why Massachusetts Institute of Technology (MIT) Professors Erik Brynjolfsson and Andrew McAfee have famously referred to this period as “the second machine age”2, the title of their 2014 book, stating that the world is at an inflection point where the effect of these digital technologies will manifest with “full force” through automation and and the making of “unprecedented things”.
In Germany, there are discussions about “Industry 4.0”, a term coined at the Hannover Fair in 2011 to describe how this will revolutionize the organization of global value chains. By enabling “smart factories”, the fourth industrial revolution creates a world in which virtual and physical systems of manufacturing globally cooperate with each other in a flexible way. This enables the absolute customization of products and the creation of new operating models.
The fourth industrial revolution, however, is not only about smart and connected machines and systems. Its scope is much wider. Occurring simultaneously are waves of further breakthroughs in areas ranging from gene sequencing to nanotechnology, from renewables to quantum computing. It is the fusion of these technologies and their interaction across the physical, digital and biological domains that make the fourth industrial revolution fundamentally different from previous revolutions.
In this revolution, emerging technologies and broad-based innovation are diffusing much faster and more widely than in previous ones, which continue to unfold in some parts of the world. The second industrial revolution has yet to be fully experienced by 17% of the world as nearly 1.3 billion people still lack access to electricity. This is also true for the third industrial revolution, with more than half of the world’s population, 4 billion people, most of whom live in the developing world, lacking internet access. The spindle (the hallmark of the first industrial revolution) took almost 120 years to spread outside of Europe. By contrast, the internet permeated across the globe in less than a decade.
Still valid today is the lesson from the first industrial revolution – that the extent to which society embraces technological innovation is a major determinant of progress. The government and public institutions, as well as the private sector, need to do their part, but it is also essential that citizens see the long-term benefits.
I am convinced that the fourth industrial revolution will be every bit as powerful, impactful and historically important as the previous three. However I have two primary concerns about factors that may limit the potential of the fourth industrial revolution to be effectively and cohesively realized.
First, I feel that the required levels of leadership and understanding of the changes underway, across all sectors, are low when contrasted with the need to rethink our economic, social and political systems to respond to the fourth industrial revolution. As a result, both at the national and global levels, the requisite institutional framework to govern the diffusion of innovation and mitigate the disruption is inadequate at best and, at worst, absent altogether.
Second, the world lacks a consistent, positive and common narrative that outlines the opportunities and challenges of the fourth industrial revolution, a narrative that is essential if we are to empower a diverse set of individuals and communities and avoid a popular backlash against the fundamental changes underway.
1.2 Profound and Systemic Change
The premise of this book is that technology and digit
ization will revolutionize everything, making the overused and often ill-used adage “this time is different” apt. Simply put, major technological innovations are on the brink of fuelling momentous change throughout the world – inevitably so.
The scale and scope of change explain why disruption and innovation feel so acute today. The speed of innovation in terms of both its development and diffusion is faster than ever. Today’s disruptors – Airbnb, Uber, Alibaba and the like – now household names - were relatively unknown just a few years ago. The ubiquitous iPhone was first launched in 2007. Yet there were as many as 2 billion smart phones at the end of 2015. In 2010 Google announced its first fully autonomous car. Such vehicles could soon become a widespread reality on the road.
One could go on. But it is not only speed; returns to scale are equally staggering. Digitization means automation, which in turn means that companies do not incur diminishing returns to scale (or less of them, at least). To give a sense of what this means at the aggregate level, compare Detroit in 1990 (then a major centre of traditional industries) with Silicon Valley in 2014. In 1990, the three biggest companies in Detroit had a combined market capitalization of $36 billion, revenues of $250 billion, and 1.2 million employees. In 2014, the three biggest companies in Silicon Valley had a considerably higher market capitalization ($1.09 trillion), generated roughly the same revenues ($247 billion), but with about 10 times fewer employees (137,000).3
The fact that a unit of wealth is created today with much fewer workers compared to 10 or 15 years ago is possible because digital businesses have marginal costs that tend towards zero. Additionally, the reality of the digital age is that many new businesses provide “information goods” with storage, transportation and replication costs that are virtually nil. Some disruptive tech companies seem to require little capital to prosper. Businesses such as Instagram or WhatsApp, for example, did not require much funding to start up, changing the role of capital and scaling business in the context of the fourth industrial revolution. Overall, this shows how returns to scale further encourage scale and influence change across entire systems.