The big buzz at the World Economic Forum (WEF) in Davos this year is about the ‘Fourth Industrial Revolution’, described by the founder and executive chairman of WEF, Klaus Schwab, as a “technological revolution that will fundamentally alter the way we live, work and relate to one another”.
The fourth industrial revolution is conceptualised as an upgrade on the third revolution — and is marked by a fusion of technologies straddling the physical, digital and biological worlds. In a paper on The Fourth Industrial Revolution: what it means, how to respond, Schwab says that three things about the ongoing transformation mark it out as a new phase rather than a prolongation of the current revolution — velocity, scope, and systems impact. The speed of change is utterly unprecedented, it is disrupting almost every industry in every country, and it heralds “the transformation of entire systems of production, management, and governance”.
Case of India:-
In 1750 AD, India’s share of global industrial output was 25%; by 1900, this had declined to 2%. The reasons were the chaos triggered by the decline of the Mughal empire, colonization by Britain and the first industrial revolution.
Like China, India missed out on the industrial revolution which saw the invention of the steam engine and powered looms and unleashed a productivity revolution. As a result, our handloom industry was decimated; India became deindustrialized and fell into abject poverty. China has re-industrialized with a vengeance, while India is still struggling to catch up.
This bit of history is more relevant than ever. The industrial revolution was a massive disruption. Countries that drove it or embraced it went from rags to riches, while those that missed out went from riches to rags.
Today, we are in the midst of the fourth industrial revolution that promises to be profoundly more disruptive. The question is whether India is positioning itself to ride this tidal wave or whether once again we will be swept away by it.
The world is at the beginning of a revolution where there are huge advances in genomics, artificial intelligence, materials and manufacturing technologies. Machines are closing in on human ability with astonishing speed. Robots are replacing humans not just on factory floors but in homes too. Reusable rockets promise to make space travel and colonies on Mars and the moon a reality.
Possibly in our own lifetime, we will reach a point called “singularity” where machines become as smart as humans and then keep getting smarter. We will soon be able to edit genes to create favourable traits and new life forms. Science fiction is becoming reality.
As with previous industrial revolutions, new technologies will create new jobs and simultaneously destroy many old ones. The rise of machines, from robots to smart software, threatens to impact not just low-skilled factory workers, but everyone including software engineers, stock traders and taxi drivers.
Even chief executive officers are not exempt; a recent McKinsey study estimates that half the tasks done by CXOs can be automated. While in the long run, it is possible that more jobs will be created than are destroyed; in the medium term, the opposite will be true.
An Oxford study estimates that 47% of the jobs in the US, 69% of the jobs in India and 77% of the jobs in China will not exist in 25 years. This is not conjecture. China’s factories are adding robots faster than they are hiring people. India’s information technology sector is already witnessing jobless growth and total employment may have peaked.
The really vital question is this. While lots of people will lose their jobs all over the world, where will the new jobs be?
Today, much of the world’s fundamental research and innovation is happening in the US. Disruption is being driven very disproportionately by American companies such as Google, Amazon, Tesla, Illumina or First Solar.
The chances are quite high therefore that the bulk of the new jobs will be created in the US. This is important. In the first industrial revolution, Britain and Europe were able to export the job losses created by machinery to colonies such as India. Productivity growth and trade eventually resulted in enormous job and wealth creation in Europe even as it resulted in famine and devastation in India, China and Africa.
Let us assume that all the new developments will create five new high-end jobs and destroy 10. Current trends would suggest two of these will be in the US, two in China and perhaps one in Europe. If this is true, do countries like India once again become colonies? Not of countries perhaps but of companies such as Google, Pfizer or Monsanto? Do we simply become markets for innovations developed elsewhere? Will the vast majority of our people then live on subsistence-wage service jobs? Is India doomed to remain a low-middle-income country?
India is already facing a severe jobs crisis. The consequences of the fourth industrial revolution are truly frightening unless, of course, we learn to ride this wave. But what exactly does that take?
People often wistfully wonder whether India will have its own Microsoft or Google. This is exactly like wondering when we will win an Olympic gold medal. If we win a gold medal, it will be because of a freak event—a person of extraordinary ability and tenacity—not because of the system.
What allowed Apple, Microsoft and Google to emerge is fundamental scientific research at world-class corporate labs such as Xerox PARC or Bell Labs and universities such as Stanford and Massachusetts Institute of Technology. The US government has played a vital role in underwriting high-risk, long-term research projects through institutions such as Defense Advanced Research Projects Agency and National Science Foundation; virtually all the technology in the iPhone was funded this way.
Sensible immigration policies attracted the brightest minds from India, China, Russia and Hungary to these labs. Finally, a vibrant entrepreneurial ecosystem allowed the commercialization of research.
The contrast could not be more stark. There is almost no understanding or discourse on these matters in India; our policymakers, scientists and business leaders are firmly stuck in the old paradigm.
Not one Indian university is ranked in the global top 300. It is hard to think of a single Indian company that is at the leading edge of any of the disciplines that matter to the future. To do cutting-edge work in most scientific and engineering disciplines, our finest minds have either to join the research and development centre of a multinational company or leave the country. Government funding for science-based technology research has been minuscule. It is no wonder that all our entrepreneurial activity is restricted to me-too businesses rather that game-changing ideas.
The fourth industrial revolution simultaneously poses the biggest opportunity and the largest threat to a prosperous future. India cannot afford to squander this moment. What we need urgently is a national mission like the Apollo space programme.
Receive Daily Updates
Recent Posts
Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.