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Adapting to the fourth industrial revolution

by Takamitsu Sawa

Hikone,

The term “industrial revolution” used to be a proper noun referring to a series of industrial transformations driven by technological innovations that took place mainly in Britain from the latter half of the 18th century to the 19th century and a resulting series of structural social changes.

Today, however, the original industrial revolution is referred to as the first industrial revolution. The current general consensus is that the world we live in is in the midst of a fourth industrial revolution, following the second and third industrial revolutions. Thus the term “industrial revolution” has changed from a proper noun into a more generic term. What it now means is transformations in the industrial and social structure brought about by technological innovations.

The first industrial revolution started in 1769 when James Watt invented the steam engine, which used coal as its fuel. Manually operated printing machines were replaced by steam-powered printers, enabling both the wide and speedy transmission of information in print. Steam locomotives and steamships dramatically increased the speed and distance of transportation of people and goods, ushering in the age of mass transportation. Couriers and horse-drawn carriages were replaced by railways while sailing ships gave way to steamers. It was indeed epoch-making that the power of humans and horses as the primary energy source was taken over by the steam engine.

The prime mover of the second industrial revolution, which took place from the second half of the 19th century to the early 20th century, was electricity and petroleum. The telephone and radio are the representative examples of a revolution in communication, which was made possible by the use of electricity. A large number of home electric appliances were invented, drastically increasing the convenience and comfort of people’s lives.

At the beginning of the 20th century, water and coal were the only energy sources to generate electricity. Petroleum, another principal energy source, was processed into gasoline, light oil and heavy oil to power such means of transportation as automobiles, propeller airplanes and ships.

The computer was the driving force of the third industrial revolution, which started in the 1960s. Computers were large mainframes in the 1960s and 1970s and developed into desktop personal computers in the 1980s and laptop PCs in the 1990s. This pursuit of downsizing served to lower the prices of computers without compromising their performance characteristics and speed, helping to rapidly increase their diffusion and availability.

In the latter half of the 1990s, internet search engines such as Yahoo and Google became available in Japan. This, in turn, meteorically expanded the use of e-mail and cellphones, thus bringing about a major revolution in communications.

The driving forces of the fourth industrial revolution, which started around 2005 and is still in progress, are artificial intelligence capable of deep learning, the “internet of things” and smartphones. Smartphones have given the internet mobility and are indispensable for anyone seeking to enjoy the benefits of the shared economy, like Uber’s taxi service and Airbnb’s reservation service.

A major revolution is also in progress in the transportation sector. It is said that Britain and France are studying the possibility of banning the sale of vehicles powered by internal combustion engines from 2040, China from 2030 and Norway from 2025. An electric vehicle is far superior to conventional automobiles in terms of both protecting the environment and reducing production costs. Thus the “century of oil” is nearing its end. Moreover, it seems that the commercial application of “level 5” fully autonomous, self-driving cars will come in the not-so-distant future.

Each of the past three industrial revolutions had the positive impact of contributing to dramatic economic growth and development, and drastically improving the convenience and comfort of daily life. An industrial revolution literally triggers violent changes in the industrial structure. As a result, industries divide into winners and losers. Similarly individuals split into those who benefit from the revolution and those who suffer from it.

Frictional bankruptcies and unemployment and economic disparities are negative effects of an industrial revolution, which are called “adjustment costs.” The government, businesses and individuals all have to bear their share of the adjustment costs to pay for the benefits accruing from macroeconomic growth and development. At least in the past three industrial revolutions, we have gained benefits that have far surpassed the adjustment costs we had to bear.

But a bright future is not talked about so much when it comes to the fourth industrial revolution. According to a joint study by Nomura Research Institute and the University of Oxford, AI and robots will replace the human workforce in greater numbers as time passes and 49 percent of Japanese workers will lose their jobs by around 2030. This prospect should cause everyone anxiety since production facilities will become unmanned and a majority of office work will be taken over by AI. Moreover, AI will likely carry out a majority of work now being done by professionals, such as making medical diagnoses and writing prescriptions on behalf of doctors or composing courtroom scenarios for lawyers.

In the past three industrial revolutions, the speed of expansion and deepening of technological innovations were fairly moderate, making it rather easy for people to adjust to the changes. But the fourth industrial revolution is different in that the speed of innovations is exceptionally high. Take the iPhone, for example. It was launched in 2007 but now nearly 3 billion units are in use in the world. It was only in 2010 that Google announced the world’s first fully autonomous motor vehicle. But such cars are now expected to be in wide use in the very near future.

The faster the speed of technological innovations, the higher the adjustment costs. In other words, a gigantic wave of corporate bankruptcies, unemployment and economic disparities will roll on at an incredible speed. But as an old Japanese proverb says, “You don’t have to worry if you are prepared.”

Now is the time for launching open discussions in earnest on how to wisely adapt to the changes that the fourth industrial revolution is expected to bring about. Such discussions are indispensable to prove wrong the pessimistic prediction that one out of every two persons will become unemployed.

Takamitsu Sawa is a distinguished professor at Shiga University.