How robotics and AI may bring about the fourth Industrial Revolution

By Harris Parvaze

Recovery from the 2008 recession has been painful and one of the slowest, compared to any other post-recessionary era. The contributing factors to the sluggish growth are fundamental in nature and inconceivable to overlook. Population growth, one of the primary factors in economic growth, has been a drag. As per the latest World Bank data, population growth by the end of 2016 stood roughly at 1.2 percent, down from 1.7 percent in 1990 and 1.3 percent in 2000. The population of those aged 65 years and above stands at 8.5 percent of the total population in 2016, up from 6.2 percent in 1990 and 6.9 percent in 2000.

The role of technology

Over time, mankind has made technological advances that have facilitated convenience, made things inexpensive and provided more accessibility. Today, we can access movies on the internet at a low subscription cost and buy books online or read them on digital platforms. Even in today’s time, outdated resources are being utilised, and yet, things become cheaper as technology becomes more accessible. This has led to an incremental decrease in the global GDP growth. However, the current calculations fail to quantify the same amount of satisfaction we get from accessing newer technologies as we do by accessing orthodox resources. This implies that the world has not become less progressive or worse off. However, since the goal of analysing these metrics is to gauge progressiveness, these intangible metrics must be quantified in the future.

Robotics and AI

While the growth has remained slow amid the hype of automation stealing human jobs, overall unemployment has declined very strongly on a global level—especially in the developed world, where the investment in robotics and artificial intelligence remains the strongest.

Among the strongest performing countries in the labour market, Germany and Japan stand out, with Japan’s unemployment rate at 2.9 percent as per the latest available figures from 2017. Japan’s rate has been the lowest in close to 20 years and Germany’s unemployment rate at 3.8 percent, has been the lowest since 1981. Coincidently, these are the countries deploying some of the most advanced technologies in robotics. Additionally, emerging markets have also shown strong employment data. The unemployment rate in emerging markets at an aggregate level stood at 6.3 percent in 2010, which declined to 5.7 percent by the end of 2016.

The case of ‘technological unemployment’

To understand the current scenario, let us draw a leaf out of an essay by John Meynard Keynes—“Economic Possibilities for our Grandchildren”—in which he staggeringly explained the cause of Britain’s total value of foreign investment tallying at GBP 4 billion in 1930. He did it by tracing the beginnings of British foreign investment in 1580 and reiterated the power of compound interest. Not only was he an exceptional mind at work, he tended to be right about his predictions almost every time. In the essay, he briefly talked about technological unemployment, meaning“unemployment due to our discovery of means of economizing the use of labour outrunning the pace at which we can find new uses for labour. But this is only a temporary phase of maladjustment. All this means in the long run that mankind is solving its economic problem”.

This can be related to all the phases of the Industrial Revolution that have occurred historically, including the fourth phase of the Revolution taking place right now. During the historical phases of the Industrial Revolution, some sections of the society endured a painful period but this was accompanied by prosperity for some, followed by prosperity at an aggregate level. A working paper by Gregory Clark, an economic historian at the University of California explains how the Industrial Revolution in 1780 led to sustained growth levels for the first time in human history. Incomes per capita began to grow in a group of countries around 1820. Efficiency growth levels increased from close to zero percent to close to one percent per year instantly.

We are in a similar cycle where investment in robotics and artificial intelligence is peaking at an all-time high and there is fear of losing millions of jobs to machines that make work cheaper and faster. However, we need to be careful about extrapolating the outcome of next hundred years based on what happened a hundred years ago. We must not rule out any possibility since the technological advances and the current economic environment can be different from what it was, a century ago. However, countless times history has taught us that the way means of living and employment evolves cannot be easily predicted.

Economic prosperity through technological disruption

When industries evolve because of technological advances, people find ways to get employed in related or different industries. Take the typewriter industry, as an example, which saw a drastic decline when it was at its peak. However, skilled labour, such as specialised engineers, employed in the typewriter industry adapted to the evolving environment. Alpina Burkard Bovensiepen GmbH & Co. KG is an automobile manufacturing company based in Buchloe, in the Ostallgäu district of Bavaria, Germany. It develops and sells high-performance versions of BMW cars and was established on the 1st of January 1965, in Kaufbeuren, Bavaria. With eight employees, the company began by producing typewriters. The original Alpina ceased to exist at the end of the 1960s in their attempt to move into the textile industry. In 1965, Burkard established a BMW tuning business, following his success with investments in the stock market. He started the tuning business in an outbuilding of the original Alpina typewriter factory. The company worked on carburettors and revised cylinder heads. By 1970, the company had seventy employees. Now, such successes cannot be expected out of everyone rendered obsolete but one way or the other, some people always end up doing something significant.

If a transportation company replaces drivers with self-driven vehicles, the increase in efficiency and decrease in cost will lead to increase in the shareholder’s wealth, spurring investment and hence give rise to newer ventures. This aggregate increase in wealth at a macroeconomic level will lead to increase in economic activity, with increased participation from everyone. Such exponential technological advances could result in a decrease in economic growth if the current methods of calculating the growth rates remain constant. However, mankind will be closer to solving its economic problems and standards of living will increase—which ultimately is and will always remain the core objective of economic prosperity.

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