The history of mankind has been marked on some occasions by technological bounds, spectacular at that time, which radically changed the way society functioned. Most studies referring to these milestones tend to see 3 technological waves, 3 industrial revolutions.
The first industrial revolution is thought to have been triggered towards the end of the 18th century by the advent of the steam engine which made it possible to transition from manual labor to machinery, first in the textile industry to later spill over into other industries.
The second industrial revolution started early in the 20th century and brought about assembly lines which allowed for mass production. The pioneer of the revolution was Henry Ford, in the car industry.
The third industrial revolution pointed out by Alvin Toffler in his celebrated the “Third Wave” marks the switch at the end of the 20th century from the industrial society to the information society. That was a paradigm shift which fundamentally changed the way we collect and process information by using the advances in electronics. But, more than any other previous revolutions, it made it possible to enhance human intelligence to levels hard to foresee.
This particularity was an amazing opportunity for the countries with huge financial capital and industrial capacity deficits, but with access to highly-skilled labor forces. Intelligence was starting to become a very valuable commodity, a trump in international competitions. So much so that Alvin Toffler suggested that some countries were able to make the leap from an agriculture-based economy to an information economy skipping industrialization altogether.
For a while many emerging countries became famous in the IT area through their skilled workers and their achievements which were not constrained by a lack of large financial or industrial capital reserves. Romania, too, entered this class and the thriving IT industry and the many companies in the area stand proof of the way the third wave swept over the country. The businesses were set up by smart young people to be either sold to large multinationals or left to grow.
In this context, the fact that the only international Romanian business is Bitdefender, an IT company, is a foregone conclusion. This may be the only area where a country like Romania stands any chance of producing a world leading company. It is based on sheer intelligence and to a lesser extent on financial and industrial capital.
What`s next? Will it suffice to replicate Bitdefender`s success nationally so as to be deemed to be a successful country? This is where it all becomes complicated. And here is why.
When assessing the future society changes there are two opinion trends. One considers the digital revolution which is growing everywhere around us, as the natural extension of the third revolution which moved up to the next level.
I beg to differ and for this reason I belong with those who consider that we are witnessing a new industrial revolution. First I see some major differences from the third revolution which will lead to substantially other consequences.
The main feature of the digital revolution which likens it to the previous, information revolution is that it is based on enhancing human intelligence to the fullest. Creating new IT apps, expert systems, and robots will be unthinkable without taking human creativity and intelligence to another level. It will still be people who will be making the difference and that could make us more upbeat about the likely impact of the fourth revolution on emerging countries. Two main characteristics will make all the difference, however, and might complicate the fate of these countries.
Let us round up. The effect of the first industrial revolution was that the low-skilled workforce, the manual labor was replaced by machines. The second ended up increasing the efficiency, by making specialized items on the conveyor belt. The third saw the automation of industrial processes and thus the replacement of some medium skilled workers paving the way for highly-skilled jobs.
The “some” in “some workers” is important as it suggests that automation increased the productivity of some job categories and access to information was made faster without significantly taking the human component out of the industrial processes.
The fourth industrial revolution, however, brings about a radical change as it makes it possible to completely replace the human resource. Artificial intelligence and the high sophistication of equipment will allow for the full substitution of certain categories of jobs. To put it differently, in some industries it will drive the human workforce to extinction.
The impact on the labor market is going to be severe and there are already many studies in this area which I selectively quoted in my other comments. The World Economic Forum (WEF), the organization best known for the Davos Forum annual meeting, estimates in one of its surveys that by 2020 around 7 million jobs will be lost to the digital revolution for only 2 million of new jobs.
A dynamic that comes as no surprise. At the end of the day, it only takes just tens of IT programmers to completely robotize a plant of some hundred employees. But the medium and low-skilled workers will not be the only ones affected. The highly-skilled jobs will very likely be hit as well, as expert systems will make their way into medicine, the judiciary, engineering, financial services, and so on.
Under these circumstances, a correction is paramount, and will put a lot of responsibility on the shoulders of education systems. The WEF also expects that 65% of the children entering school today will end up in jobs that do not currently exist. This means that now more than ever the education systems have to get tuned into the changing business environment and prove the flexibility required for adjusting to new trends as they go.
The challenge is greater still for the emerging economies which for the past decades drew investments by providing cheap workers willing to do low value-added activities for low wages. The prospects for these countries are extremely worrying.
A recent Citi Bank and Oxford University study estimates that 77% of Chinese jobs are at risk of automation. A World Bank study, much along the same line, estimated in 2016 that 2/3 of the jobs in the emerging economies risk to be replaced by automation. And automation will not only cause jobs in emerging countries to disappear, but, very likely also see businesses relocate to the countries where capital originated. This will probably mean that the emerging countries will have more job-seekers, but also less budget revenue from the private sector.
Moreover, there is still another difference between the third and the fourth revolution that risks sinking the ship. The fourth industrial is much more dependent on capital (it is capital intensive).
This is why we are no longer talking just about software, intelligent programming and automation, but also about investing heftily in research, machinery and equipment. They are so expensive that large private companies pool their resources in order to co-fund such projects, while some programs enjoy government funding.
Such a need for massive funds will be a major hurdle for countries which, for historical reasons, have been unable to accumulate sufficient private local capital. For this reason, countries with high financial/industrial and highly-skilled human capital resources will be the first winners.
Romania does not and will not be able to have a developed financial/industrial capital basis any time soon, which means that, to avoid joining the list of losers, it only stands one chance: to have a very well-trained population, able to do the highly qualified jobs of the future. It will be the well-educated who will find it easier to adjust as education will help them adapt faster to the labor market changes.
The question is: What about the rest of them?
Have a nice weekend!
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