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The 4th industral revolution:Digital economy,disruption in business models and in the future of work

The debate around technological innovation is often polarized: some view technology as a solution for all of society’s problems (a utopian view) and others see technology as something that will destroy the foundation of a free society (a dystopian view). Within the dystopian camp some see this destruction be Technological (Societal control is maintained through computers, robots, or science), others Corporate (Society is controlled by one or more large corporations by way of products, advertising, or the media), Bureaucratic (People are restricted through unnecessary and relentless regulation) or Ideological or religious (A particular view is enforced across society). A closer analysis of the history of technological innovation and disruption leads to a more balanced, and often neutral, view of technology. Technological change can bring about positive and negative consequences, but this often depends on how effectively it is managed and how it serves human well-being and prosperity. Will it help to Democratize Society or Social inequalities will augment? Will Automation help Humans or replace them instead? Will Humans be de-humanized in the process?

The Fourth Industrial Revolution of the 21st Century is characterized by hyper-automation and hyper-connectivity. It is driven by advances in robotics and AI (which enables the processing of large volumes of data), and internet-related innovations such as 5G and the Internet of Things (IoT) (which enable the connection of homes and workplaces), cryptocurrency and blockchain (which enables decentralized transactions). Its characteristic is the speed of disruption. It takes very few years to change the market actors, habits and regulations.

Disruption of business models

However what seems already clear is that the way consumers interact with business and how businesses can create and deliver value to their customers in a Digital Society is changing. In a digital economy Value is proposed, captured, and delivered at different layers. First layer is Service where the value proposition is proposed. Digitization has made the relationship between businesses and customers more interactive. The 2nd layer is the platform where value capture occurs between different groups of platform users. The 3rd layer is Infrastructure, where value delivery occurs.

The consumers’ adoption of these disruptive technologies and the change in how businesses interact with the value layers is bringing the disruption of established business models and the rise to 2 new types :

1 Decentralized models which will create/ enable transactions without the need of a central intermediary thanks to IoT/blockchain environment. New companies will challenge the dominance of large digital companies imagine for example transaction without the need of a middleman(banks).

2 Mass platformisation models with the emergence of specialized ecosystems Platforms that create value through network effects. These network effects, namely “the incremental benefit gained by an existing user for each new user that joins the network” occur when a good or service becomes more valuable as more people use it. As a service increases in value more people in the same network find it valuable. This risks to develop market monopolies and support single firm dominance. Another characteristic of these platforms is the prevalence of zero-price markets; here the traditional indicator of market power (price) is not applicable, and this makes policy regulation not applicable. Finally, these markets are “multisided” which means that they are characterized by multiple groups of supply and demand having interaction in a platform; Its value proposition is to enable this connection, making it easier for them to find and relate to each other.

As we have seen the Centrality of innovation plays an important role in digital market so any Governemnt intervention in the market to limit it might cause a delay of innovation. This is the reason why regulators are shy to intervene right now but It is evident that these network effects can create concentrated markets or even a single-firm monopoly, a winner-takes-all dynamics, because these network effects make the growth of a platform increasingly dominant and resilient to challenges from competition. That is why the digital marketplace will also require the creation of new regulatory needs and competition laws.

The future of work

The digital tranformation/revolution is also causing profound tranformation in the job market (accellerated by the pandemics) and the future of work risks being different from the way we imagined.

All advanced economies have always experienced significant shifts in sectoral employment during the previous industrial revolutions. These shifts, such as the move from agriculture to industrial manufacturing during the First Industrial Revolution, and more recently from manufacturing to Services, can transform the structure of an economy ( for example, sectoral employment shifts can drive urbanization, which increases the demand for transport and infrastructure)

The threat to employment represented by the modern technologies (AI and automation) is no different. The fact that this wave of automation will bring negative consequences in the short term (some people’s jobs will become replaced by machines so they will become unemployed ) is widely accepted, but the net impact of new technologies on employment long term will likely depend on a variety of economic factors. Historically, large technological shifts have often been accompanied by fears of job displacement and increased social inequalities.

The displacement effect will be relevant in some industries (manufacturing, financial services ect) not so relevant in others (communication, IT, education, social work). What goes missing in the story is the positive income effect of AI . Companies implements AI because it reduces cost, increases productivity (the increase in the efficiency of work) and creates new task; then they have to pass on consumers some of these savings. The real income of consumers will increase (increased Demand) and the supply demand feedback loop will kick in (creating additional demand for new jobs). Additional benefit is the creation of new industries and occupations.

If this holds true, the mass technological unemployment scenario is not going to happen although AI will probably favor initially those who already have strong digital skills and are in the right industry. This will increase further income and wealth inequality. To mitigate displacement effect of AI, Corporations should invest more in ‘STEAM’ skills that will be most useful to people in the increasingly automated world of tomorrow. On the other hand, to maximize the income effect Government should instead create/favor an environment where competition thrives and consumers benefits through lower prices. Policies should also aim to target job creation. The real challenge related to unemployment will be the emergence of new occupations and a demand for different skill sets. Task automation and job automation are 2 different things; jobs are composed of many different tasks, and not all tasks related to a job can be automated.

What can be done about technological unemployment, and how can some of the negative effects of this structural change be mitigated ? There are 4 possible response strategies each with different costs and benefits to individuals, businesses, and society as a whole.

  1. Ensuring education and lifelong learning (what to teach, how to teach when to teach) .

Given that there will be a transformation of traditional job roles as various industries adopt new technologies upskilling (Learning new skills in order to meet changing requirements in an existing role, or adding certain skills to support career progression) and Reskilling (Learning a new skill-set to transition into a completely new role) will play an important role in ensuring a flexible and adaptable workforce, particularly in industries that are highly disrupted

2 Improving the flexibility of labor markets through increased labor mobility

With the increase of automation many functions will move online but other type of jobs depends on the physical location. Remote working is on the rise but only for some high skilled people

3 Providing fiscal support through mechanisms such as a universal basic income

To avoid the risks of Human Capital becoming less valuable the State will probably implement support strategies to avoid that.

4 Regulating or restricting technological innovations for fears of increased inequality

If this were to happen tech innovation, growth and employment will be slowed down. From a market perspective this is not a good idea but from a political perspective is not so obvious.

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