The political economy of the fourth industrial revolution

There have been four waves of industrial revolution so far in the history of mankind. The first industrial revolution (from the mid-seventeenth century to the mid-eighteen century) took place in Europe and the United States. This revolution made a switch from hand-based to machine-based production processes and included the use of steam and water power, chemicals and iron manufacturing, and the development of mechanised factories.

The second industrial revolution (from the late nineteenth century to the early twentieth century) was a phase of rapid industrialisation. The technological revolution in the form of telegraph and rail networks, wider use of public utilities (gas, water and sewage system), and factory electrification featured the second industrial revolution.

The third industrial revolution had begun since the mid-twentieth century with the emergence of nuclear energy, the rise of electronics-based transistor and microprocessor, computer, telecommunication, biotechnology, and high level of automation in the production process.

The fourth industrial revolution, that has been taking shape since the late of the twentieth century, builds upon the third revolution and the digital innovation. Artificial intelligence, genome editing, augmented reality, robotics, Internet of things, and 3-D printing are the features of the fourth industrial revolution.

What makes the fourth industrial revolution different from past three industrial revolutions? The fourth industrial revolution is characterised by merging technology that is argued to obscure the lines between the physical, digital and biological spheres. It is commonly argued that the magnitude and intensity of these changes are leading to the transformation of the entire production, management and governance systems in ways which are unprecedented. It should, however, be mentioned that this is not a very new phenomenon. All industrial revolutions saw many “unprecedented” inventions compared to their immediate past periods. However, one should be careful while analysing the fourth industrial revolution so that the analysis doesn’t end up calling it as a “mystical” phenomenon—something which can’t even be explained properly due to its “unprecedented” velocity of change. At the core of all industrial revolutions is the political economy of the relationship between technological advancement and economic development. A better understanding of the fourth industrial revolution requires political economy analysis of the relationship between technology and development.

The relationship between technology and economic development has been complex. Under the free market economy, the demand for new technology is driven by the competition among firms in the production process to enjoy internal economies of scale and to become more competitive in terms of price and quality. At the industry level, the demand for new technology can be driven by the compulsion to generate external economies of scale. Also, the demand for new technology emerges from consumers’ evolving preferences and choices, and when some firms want to tap the new and emerging markets for goods and services based on the anticipation of the changes in consumer preferences. In contrast, the supply of technology is dependent on a variety of factors, which include the spending on research and development (R&D), both by the government and the private sector (at the firm or industry level), nature of value chain of any goods or services which encourages innovation, level of development of any economy (and it is obvious that major innovations take place in the more advanced countries while the majority of the developing countries remain at the recipient end), strategic vision of the government and the private sector, quality of human capital available in the economy, and the quality of research in the universities and research organisations. The supply of new technology, however, does not go hand-in-hand with the demand for new technology.

Like the past three other industrial revolutions, the fourth industrial revolution also has the promise of enhancing global production level and improving welfare and the quality of lives of the people across countries. The new opportunities include a dramatic reduction in the transaction costs in terms of accessing information, adopting new technology in the production process, availing services, consumption of goods, and trade within and between countries. Social sectors, like health and education, have already started seeing new approaches and potentials of benefits of the fourth industrial revolution. While there are fears of job losses due to automation, there is also scope for the creation of new jobs driven by the emergence of new production and supply processes of goods and services. The net effect on jobs in an economy is dependent on the success of the country in terms of economic diversification and development of the skill levels of the workforce.

However, while analysing the implications of the fourth industrial revolution for the people at the country or global level, it should be kept in mind that there are huge disparities, in terms of the access to the benefits of technological development, among the people within a country and between the countries. There exist multiple “worlds” of technological advancement within a country and at the global level. While it is highlighted that “technology” has a major “public-good” characteristic and, therefore, its “nonexcludable” feature should be promoted, the political economy dynamics behind the process of and entitlement to technology in most cases leads to the situation where the “non-exclusion” principle doesn’t hold. Given the nature of the fourth industrial revolution, which has a thrust reliance on artificial intelligence, in future, talent, merit, and intelligence will play a critical role in the distribution of the gains. The high degree of inequality in the access to quality education and health services in most of the developing countries is likely to lead to the situation where “intelligence” becomes the scarcest factor of production owned by a few in the society. At the global level too, the gap between countries capable of such continuous innovation and the countries at the periphery is likely to intensify.

Therefore, there is a need for concerted and strategic efforts made by governments in developing countries to face the challenges of the fourth industrial revolution. While countries prepare themselves for embracing the fourth industrial revolution through appropriate economic and labour market policies and strategies, the success will also depend on the “inclusiveness” of these strategic development efforts.

Dr Selim Raihan is Professor, Department of Economics, University of Dhaka, Bangladesh, and Executive Director, South Asian Network on Economic Modeling (SANEM). Email: selim.raihan@econdu.ac.bd