The Fourth Industrial Revolution

by Klaus Schwab

  Second, the democratization of information and transparency that comes from digitized assets gives new powers to citizens to hold companies and countries accountable. Technologies such as blockchain will help make this information more trustworthy, for example by capturing and certifying satellite monitoring data on deforestation in a secure format to hold landholders to account more closely.

  Third, new information flows and increasing transparency can help shift citizen behaviour on a large scale, as it becomes the path of least resistance within a new set of business and social norms for a sustainable circular system. Fruitful convergence between the fields of economics and psychology has been producing insights into how we perceive the world, behave and justify our behaviour, while a number of large-scale randomized control trials by governments, corporations and universities have shown that this can work. One example is OPower, which uses peer-comparison to entice people into consuming less electricity, thereby protecting the environment while reducing costs.

  Fourth, as the previous section detailed, new business and organizational models promise innovative ways of creating and sharing value, which in turn lead to whole system changes that can actively benefit the natural world as much as our economies and societies. Self-driving vehicles, the sharing economy and leasing models all result in significantly higher asset utilization rates, as well as making it far easier to capture, reuse and “upcycle” materials when the appropriate time comes.

  The fourth industrial revolution will enable firms to extend the use-cycle of assets and resources, increase their utilization and create cascades that recover and repurpose materials and energy for further uses, lowering emissions and resource loads in the process. In this revolutionary new industrial system, carbon dioxide turns from a greenhouse pollutant into an asset, and the economics of carbon capture and storage move from being cost as well as pollution sinks to becoming profitable carbon-capture and use-production facilities. Even more importantly, it will help companies, governments and citizens become more aware of and engaged with strategies to actively regenerate natural capital, allowing intelligent and regenerative uses of natural capital to guide sustainable production and consumption and give space for biodiversity to recover in threatened areas.

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  3.3 National and Global

  The disruptive changes brought by the fourth industrial revolution are redefining how public institutions and organizations operate. In particular, they compel governments – at the regional, national and local levels - to adapt by reinventing themselves and by finding new ways of collaboration with their citizens and the private sector. They also affect how countries and governments relate to each other.

  In this section, I explore the role that governments must assume to master the fourth industrial revolution, while recognizing the enduring forces that are changing the traditional perceptions of politicians and their role in society. With growing citizen empowerment and greater fragmentation and polarization of populations, this could result in political systems that make governing more difficult and governments less effective. This is particularly important as it occurs at a time when governments should be essential partners in shaping the transition to new scientific, technological, economic and societal frameworks.

  3.3.1 Governments

  When assessing the impact of the fourth industrial revolution on governments, the use of digital technologies to govern better is top-of-mind. More intense and innovative use of web technologies can help public administrations modernize their structures and functions to improve overall performance, from strengthening processes of e-governance to fostering greater transparency, accountability and engagement between the government and its citizens. Governments must also adapt to the fact that power is also shifting from state to non-state actors, and from established institutions to loose networks. New technologies and the social groupings and interactions they foster allow virtually anyone to exercise influence in a way that would have been inconceivable just a few years ago.

  Governments are among the most impacted by this increasingly transient and evanescent nature of power. As Moisés Naím puts it, “in the 21st century, power is easier to get, harder to use, and easier to lose.”41 There is little doubt that governing is tougher today than in the past. With a few exceptions, policymakers are finding it harder to effect change. They are constrained by rival power centres including the transnational, provincial, local and even the individual. Micro-powers are now capable of constraining macro-powers such as national governments.

  The digital age undermined many of the barriers that used to protect public authority, rendering governments much less efficient or effective as the governed, or the public, became better informed and increasingly demanding in their expectations. 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.

  It would take a book dedicated to the subject alone to explore all the multifaceted impacts of the fourth industrial revolution on governments, but the key point is this: Technology will increasingly enable citizens, providing a new way to voice their opinions, coordinate their efforts and possibly circumvent government supervision. I say “possibly”, because the opposite might just as well be true, with new surveillance technologies giving rise to all-too-powerful public authorities.

  Parallel structures will be able to broadcast ideologies, recruit followers and coordinate actions against – or in spite of – official governmental systems. Governments, in their current form, will be forced to change as their central role of conducting policy increasingly diminishes due to the growing levels of competition and the redistribution and decentralization of power that new technologies make possible. Increasingly, governments will be seen as public-service centres that are evaluated on their abilities to deliver the expanded service in the most efficient and individualized ways.

  Ultimately, it is the ability of governments to adapt that will determine their survival. If they embrace a world of exponentially disruptive change, and if they subject their structures to the levels of transparency and efficiency that can help them maintain their competitive edge, they will endure. In doing so, however, they will be completely transformed into much leaner and more efficient power cells, all within an environment of new and competing power structures.

  As in previous industrial revolutions, regulation will play a decisive role in the adaptation and diffusion of new technologies. However, governments will be forced to change their approach when it comes to the creation, revision and enforcement of regulation. In the “old world”, decision-makers had enough time to study a specific issue and then create the necessary response or appropriate regulatory framework. The whole process tended to be linear and mechanistic, following a strict top-down approach. For a variety of reasons, this is no longer possible.

  With the rapid pace of change triggered by the fourth industrial revolution, regulators are being challenged to an unprecedented degree. Today’s political, legislative and regulatory authorities are often overtaken by events, unable to cope with the speed of technological change and the significance of its implications. The 24-hour news cycle puts pressure on leaders to comment or act immediately to events, reducing the time available for arriving at measured, principled and calibrated responses. There is a real danger of loss-of-control over what matters, particularly in a global system with almost 200 independent states and thousands of different cultures and languages.

  In such conditions, how can policymakers and regulators support technological developments without stifling innovation while preserving the interest of the consumers and the public at large? Agile governance is the response (see Box C: Agile Governance Principles in an Age of Disruption).

  Many of the technological advances we currently see are not properly accounted for in the current regulatory framework and might even disrupt the social contract that governments have established with
their citizens. Agile governance means that regulators must find ways to adapt continuously to a new, fast-changing environment by reinventing themselves to understand better what they are regulating. To do so, governments and regulatory agencies need to closely collaborate with business and civil society to shape the necessary global, regional and industrial transformations.

  Agile governance does not imply regulatory uncertainty, nor frenetic, ceaseless activity on the part of policymakers. We should not make the mistake of thinking that we are caught between two equally unpalatable legislative frameworks – outdated but stable on one hand, or up-to-date but volatile on the other. In the age of the fourth industrial revolution, what is needed is not necessarily more or faster policy-making, but rather a regulatory and legislative ecosystem that can produce more resilient frameworks. This approach could be enhanced by creating more space for stillness in order to reflect on important decisions. The challenge is to make this deliberation far more productive than is currently the case, infused with foresight to create maximum space for innovation to emerge.

  In summary, in a world where essential public functions, social communication and personal information migrate to digital platforms, governments – in collaboration with business and civil society – need to create the rules, checks and balances to maintain justice, competitiveness, fairness, inclusive intellectual property, safety and reliability.

  Two conceptual approaches exist. In the first, everything that is not explicitly forbidden is allowed. In the second, everything that is not explicitly allowed is forbidden. Governments must blend these approaches. They have to learn to collaborate and adapt, while ensuring that the human being remains at the centre of all decisions. This is the challenge for governments, which have never been more necessary than in this fourth industrial revolution: they must let innovation flourish, while minimizing risks.

  To achieve this, governments will need to engage citizens more effectively and conduct policy experiments that allow for learning and adaptation. Both of these tasks mean that governments and citizens alike must rethink their respective roles and how they interact with one another, simultaneously raising expectations while explicitly acknowledging the need to incorporate multiple perspectives and allow for failure and missteps along the way.

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  Box C: Agile Governance Principles in an Age of Disruption

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  Job market

  Digital technologies and global communication infrastructure significantly change the traditional concepts of work and pay, enabling the emergence of new types of jobs that are extremely flexible and inherently transient (the so-called on-demand economy). While these new jobs allow for people to enjoy more flexible working hours and might unleash a whole new wave of innovation in the job marketplace, they also raise important concerns with regard to the reduced degree of protection in the context of the on-demand economy, where every worker has essentially become a contractor, who no longer benefits from job security and longevity.

  Money and taxation

  The on-demand economy is also raising serious issues with regard to tax collection, as it becomes much easier and attractive for transient workers to operate in the black market. While digitally mediated payment systems are making transactions and micro-transactions more transparent, new decentralized payment systems are emerging today, which could significantly hinder the ability for public authorities and private actors to trace the origin and destination of such transactions.

  Liability and protection

  Government-issued monopolies (e.g. the taxi industry, medical practitioners) have long been justified on the grounds that certain types of high-risk professions require a higher degree of scrutiny and should only be performed by licensed professionals so as to ensure a proper degree of safety and consumer protection. Many of these government-issued monopolies are now being disrupted by technological advances which enable people to interact with one another on a peer-to-peer basis and by the emergence of novel intermediaries in charge of coordinating peers and facilitating their interactions.

  Security and privacy

  Despite the transnational character of the internet network and the growing global economy, data rights and data protection regulations are still heavily fragmented. Rules around the collection, processing and reselling of personal data are well defined in Europe but are still weak or entirely lacking in many other jurisdictions. The aggregation of large datasets is making it possible for large online operators to deduce more information than was actually provided (either implicitly or explicitly) by users. User profiling through big-data analysis and inference techniques is opening the way for new, much more customized and personalized services, which can benefit users and consumers, but which also raise important concerns when it comes to user privacy and individual autonomy. Given increased concerns around cyber crime and identity theft, in many jurisdictions, the balance between surveillance and freedom is rapidly tipping towards increased monitoring, as shown by revelations brought to light by Edward Snowden, the American intelligence analyst who leaked documents relating to US national security operations.

  Availability and inclusion

  As the global economy increasingly moves into the digital realm, the availability of reliable internet infrastructure becomes a crucial prerequisite for a flourishing economy. Governments need to understand the potential provided by these technological advances. Not only do they need to adopt these technologies to optimize their internal operations, they also need to promote and support their widespread deployment and use to move forward towards a globally connected information society. The issue of digital exclusion (or digital divide) becomes ever more pressing, as it is increasingly difficult for people to participate in the digital economy and new forms of civic engagement without proper internet access and/or without access to a connected device or sufficient knowledge to use that device.

  Power asymmetries

  In today’s information society, asymmetries of information might lead to significant asymmetries of power, since whoever has the knowledge to operate the technology also has the power to do so. An entity with root access is almost omnipotent. Given the complexity of fully grasping the potential and underlying technicalities of modern technologies, however, increasing inequalities might emerge between tech-savvy individuals, who understand and control these technologies, and less knowledgeable individuals, who are passive users of a technology they do not understand.

  Source: “A call for Agile Governance Principles in an Age of Disruption”, Global Agenda Council on Software & Society, World Economic Forum, November 2015

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  3.3.2 Countries, Regions and Cities

  Because digital technology knows no borders, there are many questions that come to mind when considering the geographic impact of technology and the impact of geography on technology. What will define the roles that countries, regions and cities play in the fourth industrial revolution? Will Western Europe and the US lead the transformation, as they did the previous industrial revolutions? Which countries will be able to leapfrog? Will there be greater and more effective collaboration for the bettering of society, or will we see increased fragmentation not only within countries but also across countries? In a world where goods and services can be produced almost everywhere, and where much of the demand for low-skilled and low-wage work is overtaken by automation, will those who can afford it congregate in countries with strong institutions and proven quality of life?

  Innovation-Enabling Regulation

  In trying to answer these questions, one thing is clear and of great importance: 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.42

  As previously mentioned, the broad issue of legislation and compliance at the national or regional level will play a determining role in shaping the ecosystem in which disruptive companies operate. This sometimes leads countries to lock horns with each other. A good case in point is the October 2015 decision by the European Court of Justice (ECJ) to invalidate the safe-harbour agreement that guided the flow of personal data between the United States and the European Union. This is bound to increase the costs of compliance that companies incur when doing business in Europe and has become a transatlantic issue of contention.

  This example reinforces the increasing importance of innovation ecosystems as a key driver of competitiveness. Looking ahead, the distinction between high- and low-cost countries, or between emerging and mature markets, will matter less and less. Instead, the key question will be whether an economy can innovate.

  Today, for example, 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.