I have been working on a project to identify the megatrends in 350 years. Wonderful exercise because one realizes that we routinely do not consider such time frames and much original thought is called for. Fortunately looking for the trends at the beginning of the current Fourth Industrial Revolution (4IR), with a time horizon of about sixty years, is less demanding but equally important. Since the late eighteenth century, there have been four major technologies or groups of related technology introduced that became the paradigms for innovation and entrepreneurship (industrial revolutions). As a result of these industrial revolutions, since 1800 worldwide per capita GDP has increased fourteen-fold with only a seven-fold increase in population.
The remainder of this article is an excerpt from a chapter in my new book tentatively titled “Investment and Entrepreneurship Opportunities in the 4IR.”
Before we can discuss the industries that represent the best opportunities, I think we need to first identify the important social, economic, political and environmental trends that will shape the 4IR. Those trends are:
1. The conflict between nature and man-made systems
2. The changing city in the context of its economic, social, political and environmental roles
3. The evolution of humanity
4. The emergence of platforms as the dominant business model.
Nature and Man-made Systems
The first trend is highlighted by the Club of Rome and shown below. The chart proposes that for mankind to survive we need to invert the current value system. Today we use the natural resources of the planet to drive economic development and wealth creation. The returns and wealth naturally flow to capital, the investors, in this system.
Nobel Laureate Elinor Ostrom describes this scenario as the “tragedy of the commons”. “What one can observe in the world…is that neither the state nor the market is uniformly successful in enabling individuals to sustain long-term, productive use of natural resource systems.” Never the less, in the 21st Century we probably face extinction if we do not change the model and the likely outcome is that we need to place the planet ahead of all other priorities. Historically, there has been little progress to make this change because of what we call in information theory a signaling problem. In this case, a signaling problem is the inability to foresee a future event. The original bushmen in Africa only needed about a ten-minute time horizon…to determine whether a lion would eat him. Fifty-year forecasts were not relevant, which also highlights the risk in human forecasting (keep that in mind as you read the remainder of this book).
So we face extinction, a problem we cannot see, and the economic system places the highest priority on return to investor. Now you know why Musk and Bezos are building rockets as a fallback strategy to evacuate earth.
Changing Role of the City
Cities are the modern manifestation of community, organized to provide a balance between social and economic advantages. Projections by the United Nations (UN) show that an additional 2.5 billion people will live in cities by 2050. Today 54 percent of the world’s population lives in urban areas, a percentage that is expected to increase to 66 percent by 2050, according to the UN[1]. With an estimated worldwide population of 9.9 billion in 2050[2], 6.5 billion will live in cities. Eight of the ten largest cities[3] are located on the coast. The need for economic viability explains why so many cities are located on the coastlines around the world. The historic and present-day success of cities revolves around their success as commercial and financial centers in global trade, which originated by sea. The viability of these coastal cities explains why an estimated 40–50 percent of the world’s population live within 100 kilometers of coastline.
As we look to the future we see a huge percentage of the worldwide population located in coastal cities and subject to sea level rise, extreme weather and flooding due to many factors. These risk factors explain why so many cities are focusing on their resilience. Carl Folkes, an academic authority on resilience, explains the term as:
“The resilience approach emphasizes non-linear dynamics, thresholds, uncertainty and surprise, how periods of gradual change interplay with periods of rapid change and how such dynamics interact across temporal and spatial scales.”
Resilience highlights the complexity of protecting cities in temporal and spatial terms subject at any time to the unpredictable “black swan”[4] events of both nature and society. The situation is made even more complex by the location of many cities by the coastline. Esko Kilpi, the Finnish sociologist, characterizes a successful approach to resilience as:
“In complex environments, the way to vitality and resilience is a continuous recombination of successful elements to create new versions, some of which may thrive.”
The question becomes whether cities could adopt such an iterative approach to problem-solving.
New approaches to problem-solving will be further complicated by the emergence of city-states. Today metropolitan areas surrounding Tokyo, Jakarta or Sao Paolo routinely exceed 30 million, roughly equivalent to the total population of Peru. This concentration of economic, social and political power by sheer numbers makes the largest cities capable of behavior as autonomous agents or city-states. The pressures of environmental issues will only motivate cities to take more control of their destiny.
Another factor that will encourage cities to take control is that I foresee a reduction in the span of control of the federal government. As mentioned earlier, today we live in a world of real-time information. Services and customer experience are defined in the moment and not two weeks later after a paper file is checked. The only level of government that has any chance to perform in this real-time scenario is city government. Federal and state governments could pre-position resources in anticipation of need, but this costly alternative is likely to be deemed impractical.
Encouraging this downsizing of federal and state government is the continuing emergence of the ever versatile network and the newer cyber secure Blockchain. These technologies make it possible for local residents to organize and enforce local regulations without the need for government involvement. This self-regulating, self-policing environment is an area that Elinor Ostrom explored in her work about self-governing communities. Motivated by the real ability to self-govern, citizens might expand their governance beyond local environmental projects to matters of state and global trade. Therein emerges the new city-state, a networked system of motivated and empowered individuals able to serve the self-interest of both the individual and the community on a worldwide scale.
Evolution of Humanity
Much of the story of the 4IR is the technology. Much of the risk of the 4IR is that we lose our humanity. The nature of the risk is complicated. On the one hand, we might fail to see the ethical issues in self-driving cars or in using bots to serve as directors of corporations. More subtle, we might fail to see the issue in having machine learning systems so well-tuned as to “control” purchases or recommend too expensive vacations. The status quo bias could also easily mask the recognition of certain social-biological trends. For example, “the U.S. Census Bureau first started allowing people to choose more than one racial category to describe themselves in 2000. Since then, the nation’s multiracial population has grown substantially. Between 2000 and 2010, the number of white and black biracial Americans more than doubled, while the population of adults with a white and Asian background increased by 87%. ”According to sociologists at UC Irvine, by 2050 mixed-race people could account for one in five Americans”[5]. Europe is experiencing a similar trend but the data is not readily available. As world power shifts to India and China, this multi-racial western population might be a more attractive partner in many ways.
Similar to changes in the racial mix, gender is undergoing a redefinition. Since the 1990s the term LGBTQ (Lesbian, Gay, Bi-sexual, Transgender, Queer) has been used to increase awareness of the diversity of sexuality and the related people that are not heterosexual. This diversity helps to frame a related question around reproduction. As women’s rights have evolved since the 1920s, female control of reproduction has increased. As sexuality is understood to be more diverse, perhaps the population will be categorized differently. Another possibility is that reproduction will be done with technologies that transfer the fetus to an external environment to grow and develop. In this consideration of reproduction, technology has reached the point where the human genome is now controllable. In this genome issue where we will tradeoff technology and morality, intervening in the human genome gives me the greatest concern. Given humanity’s horrible record in the stewardship of the environment, what makes one think we will do better with the genome. One might even ask if we should tamper with the genome. Many foresee this issue as alleviating the suffering of many children with all range of disability. Perhaps more likely it will be used to address the issues surrounding aging. For example, the percentage of Americans over 65 years old is approaching twenty percent. Americans now routinely live to be 100 and some futurists see life lasting to 140. This aging population, their care and quality of life, is another dimension to the issue of humanity in the 4IR. Genomic intervention might be used to address the issues of aging. I jokingly say I may be the “last generation to die”. As the resources of the planet become stretched to the breaking point by the sheer scale of the population and the environmental issues challenge man’s survivability as a species, genomic intervention may just be the issue that sinks the ship.
Emergence of Platforms
In the Chapter 4IR Technologies I discussed the importance of software designed networks and their three types of business model — platforms, marketplaces and social networks. As we look to the future, I see the technology creating a more egalitarian society that allows individuals to capture value for their information, services and lastly production. The most successful model will be the “platform”, where the value is largely shared by the suppliers and the customers rather than the platform owner. This set of characteristics will support the growth of micro-entrepreneurship and the outsourcing of functions traditionally kept in-house by large companies. The low cost, low barrier to entry features of networks will create economic productivity centered on the individual, similar to the economy pre-industrial revolution. At that time power and wealth were concentrated in the monarchies and everyone else lived in a scarcity that required individual attention to economic well being. Today, with wealth concentrated in the 1%, those in the 99% may have a scarcity similar to the 1700s or the 1400s. Today, the only difference will be that the micro-entrepreneurship will be supported by technology rather than manual labor.
This growth in micro-entrepreneurship through platforms explains in part the success of companies like Amazon and Alibaba. In a recent Harvard Business Review article, Alibaba employee Ming Zeng explains their success:
“Alibaba’s special innovation, we realized, was that we were truly building an ecosystem: a community of organisms (businesses and consumers of many types) interacting with one another and the environment (the online platform and the larger off-line physical elements). Our strategic imperative was to make sure that the platform provided all the resources, or access to the resources, that an online business would need to succeed, and hence supported the evolution of the ecosystem.”
The emphasis is mine and it highlights that the platform does not have to provide all resources directly. This approach provides additional flexibility for the platform to manage productivity, effectiveness and mix of services to maximize value creation and value capture for both the supplier micro-entrepreneurs and Alibaba.
The success of such a model(s) is borne out by the market valuations in the Chapter on Financial Analysis. Amazon ranks as number four in market valuation in 2017 and Alibaba is number seven. While one could argue that I have just shown the path to be part of the 1%, I prefer to think of all the micro-entrepreneurs that benefited from selling through the platforms.
With some perspective provided by the trends presented, we can now turn to the industries most likely to be affected by the 4IR.
The views expressed herein are my personal views and do not reflect the views of any organization or program with whom I am affiliated.
[1] http://www.un.org/en/development/desa/news/population/world-urbanization-prospects-2014.html
[2] http://www.un.org/en/development/desa/news/population/2015-report.html
[3] http://www.oceansatlas.org/subtopic/en/c/114/
[4] Black Swan is a term coined by Nassim Taleb in a book of the same name to describe large scale, random events such as the 2007–2008 financial crisis.
[5] https://www.forbes.com/2010/02/01/immigration-multiracial-superpower-opinions-columnists-joel-kotkin.html#657cc529316e