The Fourth Industrial Revolution

by Klaus Schwab

  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.

  Many of our intractable health challenges, from heart disease to cancer, have a genetic component. Because of this, the ability to determine our individual genetic make-up in an efficient and cost-effective manner (through sequencing machines used in routine diagnostics) will revolutionize personalized and effective healthcare. Informed by a tumour’s genetic make-up, doctors will be able to make decisions about a patient’s cancer treatment.

  While our understanding of the links between genetic markers and disease is still poor, increasing amounts of data will make precision medicine possible, enabling the development of highly targeted therapies to improve treatment outcomes. Already, IBM’s Watson supercomputer system can help recommend, in just a few minutes, personalized treatments for cancer patients by comparing the histories of disease and treatment, scans and genetic data against the (almost) complete universe of up-to-date medical knowledge.11

  The ability to edit biology can be applied to practically any cell type, enabling the creation of genetically modified plants or animals, as well as modifying the cells of adult organisms including humans. 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. The list of potential applications is virtually endless – ranging from the ability to modify animals so that they can be raised on a diet that is more economical or better suited to local conditions, to creating food crops that are capable of withstanding extreme temperatures or drought.

  As research into genetic engineering progresses (for example, the development of the CRISPR/Cas9 method in gene editing and therapy), the constraints of effective delivery and specificity will be overcome, leaving us with one immediate and most challenging question, particularly from an ethical viewpoint: How will genetic editing revolutionize medical research and medical treatment? In principle, both plants and animals could potentially be engineered to produce pharmaceuticals and other forms of treatment. The day when cows are engineered to produce in its milk a blood-clotting element, which haemophiliacs lack, is not far off. Researchers have already started to engineer the genomes of pigs with the goal of growing organs suitable for human transplantation (a process called xenotransplantation, which could not be envisaged until now because of the risk of immune rejection by the human body and of disease transmission from animals to humans).

  In line with the point made earlier about how different technologies fuse and enrich each other, 3D manufacturing will be combined with gene editing to produce living tissues for the purpose of tissue repair and regeneration – a process called bioprinting. This has already been used to generate skin, bone, heart and vascular tissue. Eventually, printed liver-cell layers will be used to create transplant organs.

  We are developing new ways to embed and employ devices that monitor our activity levels and blood chemistry, and how all of this links to well-being, mental health and productivity at home and at work. We are also learning far more about how the human brain functions and we are seeing exciting developments in the field of neurotechnology. This is underscored by the fact that – over the past few years - two of the most funded research programs in the world are in brain sciences.

  It is in the biological domain where I see the greatest challenges for the development of both social norms and appropriate regulation. We are confronted with new questions around what it means to be human, what data and information about our bodies and health can or should be shared with others, and what rights and responsibilities we have when it comes to changing the very genetic code of future generations.

  To return to the issue of genetic editing, that it is now far easier to manipulate with precision the human genome within viable embryos means that we are likely to see the advent of designer babies in the future who possess particular traits or who are resistant to a specific disease. Needless to say, discussions about the opportunities and challenges of these capabilities are underway. Notably, in December 2015, the National Academy of Sciences and National Academy of Medicine of the US, the Chinese Academy of Sciences and the Royal Society of the UK convened an International Summit on Human Gene Editing. Despite such deliberations, we are not yet prepared to confront the realities and consequences of the latest genetic techniques even though they are coming. The social, medical, ethical and psychological challenges that they pose are considerable and need to be resolved, or at the very least, properly addressed.

  The dynamics of discovery

  Innovation is a complex, social process, and not one we should take for granted. Therefore, even though this section has highlighted a wide array of technological advances with the power to change the world, it is important that we pay attention to how we can ensure such advances continue to be made and directed towards the best possible outcomes.

  Academic institutions are often regarded as one of the foremost places to pursue forward-thinking ideas. New evidence, however, indicates that the career incentives and funding conditions in universities today favour incremental, conservative research over bold and innovative programmes.12

  One antidote to research conservatism in academia is to encourage more commercial forms of research. This too, however, has its challenges. In 2015, Uber Technologies Inc. hired 40 researchers and scientists in robotics from Carnegie Mellon University, a significant proportion of the human capital of a lab, impacting its research capabilities and putting stress on the university’s contracts with the U.S. Department of Defence and other organizations.13

  To foster both ground-breaking fundamental research and innovative technical adaptations across academia and business alike, governments should allocate more aggressive funding for ambitious research programmes. Equally, public-private research collaborations should increasingly be structured towards building knowledge and human capital to the benefit of all.

  2.2 Tipping Points

  When these megatrends are discussed in general terms, they seem rather abstract. They are, however, giving rise to very practical applications and developments.

  A World Economic Forum report published in September 2015 identified 21 tipping points – moments when specific technological shifts hit mainstream society – that will shape our future digital and hyper-connected world.14 They are all expected to occur in the next 10 years and therefore vividly capture the deep shifts triggered by the fourth industrial revolution. The tipping points were identified through a survey conducted by the World Economic Forum’s Global Agenda Council on the Future of Software and Society, in which over 800 executives and experts from the information and communications technology sector participated.

  Table 1 presents the percentage of respondents who expect that the specific tipping point will have occurred by 2025.15 In the Appendix, each tipping point and its positive and negative impacts are presented in more detail. Two tipping points that were not part of the original survey – designer beings and neurotechnologies – are also included but do not appear on Table 1.

  These tipping points provide important context as they signal the substantive changes that lie ahead - amplified by their systemic nature - and how best to prepare and respond. As I explore in the next chapter, navigating this transition begins with awareness of the shifts that are going on, as well as those to come, and their impact on all levels of global society.

  Table 1: Tipping points expected to occur by 2025

  Source: Deep Shift – Technology Tipping Points and Societal Impact, Global Agenda Council on the Future of Software and Society, World Economic Forum, September 2015.

  3. Impact

  The scale and breadth of the un
folding technological revolution will usher in economic, social and cultural changes of such phenomenal proportions that they are almost impossible to envisage. Nevertheless, this chapter describes and analyses the potential impact of the fourth industrial revolution on the economy, business, governments and countries, society and individuals.

  In all these areas, one of the biggest impacts will likely result from a single force: empowerment – how governments relate to their citizens; how enterprises relate to their employees, shareholders and customers; or how superpowers relate to smaller countries. The disruption that the fourth industrial revolution will have on existing political, economic and social models will therefore require that empowered actors recognize that they are part of a distributed power system that requires more collaborative forms of interaction to succeed.

  3.1 Economy

  The fourth industrial revolution will have a monumental impact on the global economy, so vast and multifaceted that it makes it hard to disentangle one particular effect from the next. Indeed, all the big macro variables one can think of – GDP, investment, consumption, employment, trade, inflation and so on – will be affected. I have decided to focus only on the two most critical dimensions: growth (in large part through the lens of its long-term determinant, productivity) and employment.

  3.1.1 Growth

  The impact that the fourth industrial revolution will have on economic growth is an issue that divides economists. On one side, the techno-pessimists argue that the critical contributions of the digital revolution have already been made and that their impact on productivity is almost over. In the opposite camp, techno-optimists claim that technology and innovation are at an inflection point and will soon unleash a surge in productivity and higher economic growth.

  While I acknowledge aspects of both sides of the argument, I remain a pragmatic optimist. I am well aware of the potential deflationary impact of technology (even when defined as “good deflation”) and how some of its distributional effects can favour capital over labour and also squeeze wages (and therefore consumption). I also see how the fourth industrial revolution enables many people to consume more at a lower price and in a way that often makes consumption more sustainable and therefore responsible.

  It is important to contextualize the potential impacts of the fourth industrial revolution on growth with reference to recent economic trends and other factors that contribute to growth. In the few years before the economic and financial crisis that began in 2008, the global economy was growing by about 5% a year. If this rate had continued, it would have allowed global GDP to double every 14-15 years, with billions of people lifted out of poverty.

  In the immediate aftermath of the Great Recession, the expectation that the global economy would return to its previous high-growth pattern was widespread. But this has not happened. The global economy seems to be stuck at a growth rate lower than the post-war average – about 3-3.5% a year.

  Some economists have raised the possibility of a “centennial slump” and talk about “secular stagnation”, a term coined during the Great Depression by Alvin Hansen, and recently brought back in vogue by economists Larry Summers and Paul Krugman. “Secular stagnation” describes a situation of persistent shortfalls of demand, which cannot be overcome even with near-zero interest rates. Although this idea is disputed among academics, it has momentous implications. If true, it suggests that global GDP growth could decline even further. We can imagine an extreme scenario in which annual global GDP growth falls to 2%, which would mean that it would take 36 years for global GDP to double.

  There are many explanations for slower global growth today, ranging from capital misallocation to over indebtedness to shifting demographics and so on. I will address two of them, ageing and productivity, as both are particularly interwoven with technological progress.

  Ageing

  The world’s population is forecast to expand from 7.2 billion today to 8 billion by 2030 and 9 billion by 2050. This should lead to an increase in aggregate demand. But there is another powerful demographic trend: ageing. The conventional wisdom is that ageing primarily affects rich countries in the West. This is not the case, however. Birth rates are falling below replacement levels in many regions of the world – not only in Europe, where the decline began, but also in most of South America and the Caribbean, much of Asia including China and southern India, and even some countries in the Middle East and North Africa such as Lebanon, Morocco and Iran.

  Ageing is an economic challenge because unless retirement ages are drastically increased so that older members of society can continue to contribute to the workforce (an economic imperative that has many economic benefits), the working-age population falls at the same time as the percentage of dependent elders increases. As the population ages and there are fewer young adults, purchases of big-ticket items such as homes, furniture, cars and appliances decrease. In addition, fewer people are likely to take entrepreneurial risks because ageing workers tend to preserve the assets they need to retire comfortably rather than set up new businesses. This is somewhat balanced by people retiring and drawing down their accumulated savings, which in the aggregate lowers savings and investment rates.

  These habits and patterns may change of course, as ageing societies adapt, but the general trend is that an ageing world is destined to grow more slowly unless the technology revolution triggers major growth in productivity, defined simply as the ability to work smarter rather than harder.

  The fourth industrial revolution provides us with the ability to live longer, healthier and more active lives. As we live in a society where more than a quarter of the children born today in advanced economies are expected to live to 100, we will have to rethink issues such the working age population, retirement and individual life-planning.16 The difficulty that many countries are showing in attempting to discuss these issues is just a further sign of how we are not prepared to adequately and proactively recognize the forces of change.

  Productivity

  Over the past decade, productivity around the world (whether measured as labour productivity or total-factor productivity (TFP)) has remained sluggish, despite the exponential growth in technological progress and investments in innovation.17 This most recent incarnation of the productivity paradox – the perceived failure of technological innovation to result in higher levels of productivity – is one of today’s great economic enigmas that predates the onset of the Great Recession, and for which there is no satisfactory explanation.

  Consider the US, where labour productivity grew on average 2.8 percent between 1947 and 1983, and 2.6 percent between 2000 and 2007, compared with 1.3 percent between 2007 and 2014.18 Much of this drop is due to lower levels of TFP, the measure most commonly associated with the contribution to efficiency stemming from technology and innovation. The US Bureau of Labour Statistics indicates that TFP growth between 2007 and 2014 was only 0.5%, a significant drop when compared to the 1.4% annual growth in the period 1995 to 2007.19 This drop in measured productivity is particularly concerning given that it has occurred as the 50 largest US companies have amassed cash assets of more than $1 trillion, despite real interest rates hovering around zero for almost five years.20

  Productivity is the most important determinant of long-term growth and rising living standards so its absence, if maintained throughout the fourth industrial revolution, means that we will have less of each. Yet how can we reconcile the data indicating declining productivity with the expectations of higher productivity that tend to be associated with the exponential progress of technology and innovation?

  One primary argument focuses on the challenge of measuring inputs and outputs and hence discerning productivity. Innovative goods and services created in the fourth industrial revolution are of significantly higher functionality and quality, yet are delivered in markets that are fundamentally different from those which we are traditionally used to measuring. Many new goods and services are “non-rival”, have zero marginal costs and/or harness highly
-competitive markets via digital platforms, all of which result in lower prices. Under these conditions, our traditional statistics may well fail to capture real increases in value as consumer surplus is not yet reflected in overall sales or higher profits.

  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 provide 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. It also suggests that we are actually producing and consuming more efficiently than our economic indicators suggest.21

  Another argument is that, while the productivity gains from the third industrial revolution may well be waning, the world has yet to experience the productivity explosion created by the wave of new technologies being produced at the heart of the fourth industrial revolution.

  Indeed, as a pragmatic optimist, I feel strongly that we are only just beginning to feel the positive impact on the world that the fourth industrial revolution can have. My optimism stems from three main sources.

  First, the fourth industrial revolution offers the opportunity to integrate the unmet needs of two billion people into the global economy, driving additional demands for existing products and services by empowering and connecting individuals and communities all over the world to one another.