How will we work in the post industrial world?
The Fourth Industrial Revolution, as described in a recent book, The Fourth Industrial Revolution by Prof. Klaus Schwab (Chairman of the World Economic Forum), “is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres”. Artificial intelligence, Nanotechnologies, Biotechnologies, 3d Printing, Robots, and the Internet are the main drivers of this new moment that is disrupting almost all job positions.
According to a study from Oxford University entitled The future of employment, about 47% of total US employment is at risk: “... there is a current trend towards labour market polarization, with growing employment high-income cognitive jobs and low-income manual occupations, accompanied by a hollowing-out of middle-income routine jobs.”
Inequality: only the tip of the iceberg
As the economists Erik Brynjolfsson and Andrew McAfee have pointed out, “this new revolution could yield greater inequality, particularly in its potential to disrupt labor markets. As automation substitutes labor across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns to capital and returns to labor.”
In this must read article from The Guardian: 4th Industrial Revolution brings promise and peril for humanity, Prof. Schwab compares “Detroit in 1990 with Silicon Valley in 2014. In 1990 the three biggest companies in Detroit had a market capitalisation of $36bn (£25bn), revenues of $250bn and 1.2 million employees. In 2014, the three biggest companies in Silicon Valley had a considerably higher market capitalisation ($1.09tn) generated roughly the same revenues ($247bn) but with about 10 times fewer employees (137,000).
It is easier to make money today with fewer workers than it was a quarter of a century ago. Setting up and running a car company was an expensive business and required a lot of workers. A company that makes its money out of a smart apps requires less capital, doesn’t have to pay for storage or transport in the way that car companies do and incurs virtually no extra costs as the number of users increases. In the jargon of economics, the marginal costs per unit of output tends towards zero and the returns to scale are high. This explains why tech entrepreneurs can get very rich very young.”
The main forces and characteristics that will drive this high-productivity, highly-cognitive-skilled jobs with less job positions are:
- Interoperability: Networked Cyber-Physical Systems (NCPS - Fancy name for Robots and the sorts), that connect, work and communicate with each other via the Internet of Things and the Internet of Services.
- Decentralization: the ability of NCPS to make smart decisions on their own.
- Real-Time Capability: the capability to collect and analyse data and provide the derived insights immediately to the whole network.
- Modularity: flexible adaptation of this networked systems to changing requirements by replacing or expanding individual modules.
Reading those main drivers one may ask himself a proper question: Who will we work for? Robots, platforms or nobody?
The twilight of the middle class?
These disruptive transformations are beginning to affect developed countries and it will affect even more, at an exponential increasing speed in this next 10 years. But what about underdeveloped regions such as Latin America, Africa and a great part of underdeveloped Asia? That’s a major social-economical challenge the world economy will face, due to the fact that in these countries the workforce education pace is not evolving as fast as these technologies, and we will probably see a major crisis of underemployment and a greater gap on income inequality. Those trends will give rise to a job market increasingly segregated into “low-skill/low-pay” and “high-skill/high-pay” segments, which in turn will lead to an increase in social tensions.
As shown in this 2013 Harvard Business Review’s study on wages x productivity in the US: “workers across the income spectrum, not counting those at the very top, have been stuck in neutral regarding their wage for a while. Except for a brief uptick during the dot-com era, labor’s share of income has been on a steady decline since the early 1970s.”
The problem on income inequality is driven basically by a simple observable market logic: the more capital you have, the more technology you can acquire, the more technology you have, greater productivity and thus profit you get. This might be an awful vicious circle
CEO-to-Worker Pay Ratios
Regarding income inequality, quoting Peter Drucker, a gentlemen who built most of the knowledge we apply in business administration: “the ratio of CEO’s salary to average worker salary should be capped at 25 to 1, and that greater disparity on this rate would lead to employee resentment and decreased morale, negatively affecting company performance. In the same Harvard Business School article: Paying Up for Fair Pay: Consumers Prefer Firms with Lower CEO-to-Worker Pay Ratios “A recent investigation conducted by the New York Times estimates that the pay ratio of total CEO compensation to median employee wage at a public company was as high as 2,238 to 1 in 2014, unbeknownst to investors (Morgensen 2015). While pay ratios are of direct material interest to investors and employees, we explore the effects of high pay ratios in a different context: the relationship between firms and customers. In fact, a “natural experiment” offers initial evidence that pay ratios are of interest not only to investors and employees, but also consumers.”
Attention to wages must be a major theme in this new economy which should be more fair. Recently in Israel, for example, the payment of a CEO, is now tied to the pay of his workers: as explained in this article on The Guardian: “Israel has introduced one of the world’s toughest restrain on bank executives’ salaries in an effort to narrow a big pay gap between bosses and workers.”
Making sense of technology
In the end, neither the technology nor the disruption that comes with it is a magical force over which humans have no control. All of us are responsible for guiding its evolution, in the decisions we make on a daily basis, we all are economical agents as citizens, consumers, producers, investors, educators and entrepreneurs. Yes, people can use business as a force for good as said in the “moto” of the growing global movement of B Corps, and we have the potential to make this fourth industrial revolution work for our well-being.
As Esko Kilpi Ouisharefest speaker points towards a proper direction:
“Work that humans do used to be a role, now it is a task, but it is going to be a relationship: work is interaction between interdependent people. The really big idea of 2016 is to reconfigure agency in a way that brings relationships into the center. The mission is to see action within relationships."