Why governments need to respond to the Fourth Industrial Revolution

Around the world, the ground appears to be shifting beneath our feet as we hurtle through a period of unnerving change, marked by disturbing weather patterns, xenophobic protectionism, mass migration, failed states, science denial, cyberterrorism, a loss of faith in institutions and many other factors.

What’s more, global energy markets are in flux. Supply chains are dauntingly complicated. And in most industrialized nations, societies are ageing, which raises tough questions about who will pay for the extended retirement of so many people.

At the same time, the power of technology, with its abundant promise, has accelerated due to dramatic gains in data storage, processing power and algorithm-driven analytics. Month after month, new systems, applications and business models surface and then explode into the market, offering radical new solutions in domains such as health and transport, even while disrupting long-established businesses and throwing countless people out of work.

In a fraught period that has been dubbed the Fourth Industrial Revolution, governments, civil society and the private sector have a duty to ensure that nations such as Canada are prepared for this new world and its dizzying challenges. Amid so much flux, one point is certain: we can either catch this competitive wave or be swamped by it. Because shift happens.

According to the World Economic Forum's Founder and Executive Chairman, Professor Klaus Schwab, the first three industrial revolutions set the stage for the fourth: the early 19th century era of rail, mechanization and steam; the electricity and mass production revolution in the late 19th and early 20th centuries; and the emergence of semiconductors, computers and networks since the 1960s. The exponential acceleration of computing technology that has marked this phase is inflicting massive change on long-established industries, professions and institutions, including the structures of government.

The technologies driving these changes - big data, machine learning, blockchain, the Internet of Things, advanced materials, quantum computing and 3D printing - are complex, esoteric and profoundly disruptive. To those of us operating in sectors being remade by these innovations, the pace can feel as if we’re perched on slippery stones in the middle of a rapidly moving river, looking for a way to cross.

Shift will happen everywhere, from routine shop floor work to the tasks performed by professionals such as doctors, lawyers, and accountants. Large companies will continue to find themselves toppled by fleet-footed start-ups that begin with little capital and few hard assets but plenty of technical savvy.

Historically, such periods of technology-driven upheaval have brought productivity gains, investment, growth, improvements in quality of life, and increases in longevity and health. There’s no reason to believe that the Fourth Industrial Revolution, like the three that preceded it, will fail to deliver these same long-term benefits, especially in a world where billions of people still don’t have electricity.

Yet some of these technologies, especially those that automate routine tasks, may trigger job losses. That future is around the corner, in fact. A recent McKinsey & Company study predicts that almost half the time workers spend on their jobs can already be replaced with existing technologies.

The transition period we’re entering is extremely fluid - and frankly, scary. Everyone needs that next paycheck, a safe place to sleep, money for groceries. If Fourth Industrial Revolution technologies yield chronic unemployment, will political and social unrest follow? We only have to look at disenfranchisement of un- or underemployed American blue-collar workers to understand why we’re living in a period of rising nationalism, xenophobia, and protectionism.

The alarming job-loss scenarios have also prompted warnings and calls for corrective policy. Tesla founder Elon Musk wants governments and civil society actors to ensure that machine learning systems are deployed ethically. Microsoft founder Bill Gates wants governments to tax robots to compensate for mass worker displacement.

Canada may be better positioned to weather the storms brought by the Fourth Industrial Revolution. Demand for Canada’s natural resources and its excellence in agriculture and mass manufacturing has kept the economy strong. The country’s financial institutions are stable. Its debt-to-GDP ratios are low by international standards. The public still embraces immigration and believes in both the need to reduce inequality and in trade as a means of building wealth. Unlike the US and the UK, Canada’s politics and public institutions aren’t under attack.

Yet in other ways, Canada may be vulnerable, with stubbornly low productivity and innovation lagging behind other industrialized countries. Right now, a group of Canadian start-ups are building world-class technology, but they are struggling to find the talent and capital necessary to scale internationally. To survive the Fourth Industrial Revolution, Canada will need to produce, retain and attract more of the right kinds of talent, incentivize corporate Canada to make the same kinds of investments in technology that they have long made in natural resources, and support these companies as they scale into globally competitive businesses. The ability of countries to produce and sustain national champions will be central to their ability to survive the shifts coming at them.

Our governments, in turn, must create the conditions that enable firms to bring these kinds of innovations to their customers. But they also have to internalize the lessons of shift by acknowledging the chasm between their own limitations and the dynamism of this emerging world.

Shift-minded policy-makers should borrow ideas and technologies from innovation-oriented companies to make government services as flexible, fast, and competitive as those offered by the private sector. They also have to develop new ideas for providing a safety net for those caught in the dislocation of shift.

So far, Canadian governments have embraced the rhetoric of innovation, and they’re investing tax dollars to that end. But more needs to happen for policy-makers to change how they operate and provide better services to citizens.

That transformation begins with trust. Currently, many industrialized nations are experiencing a decline in public confidence. Anti-government populism has its roots in the roiling forces that are flourishing around the world. In this climate, governments must rebuild their credibility before they can propose policies that will enable innovators to compete in a shift-driven world.

While regulators look for ways to enable instead of obstruct, public agencies should be strengthening the innovation ecosystem with their procurement dollars. Governments should modernize their operations so residents can interact with public services in ways that reflect the digitally driven economy. We badly need to marshal our innovative know-how to close the gap between what consumers can get in the marketplace and what they expect from their governments.

It’s crucial for innovators and investors to be at the centre of this global upheaval. It’s just as important for governments to set the conditions that will allow these players to compete and create wealth. When they do, everyone will realize benefits. These will come not just in the form of improved productivity and growth, but through the cultivation of globally oriented tech companies that are unleashed to generate new jobs, services and sources of wealth to sustain the societies finding their way through all the shift.

This post is adapted from Iain Klugman's chapter in Government Digital: The Quest to Regain Public Trust, to be released in October 2018.