Microsoft is considering converting almost all of its brick and mortar stores into ‘experience centres’. Amazon is aiming to reimagine supermarkets by automating the entire process of shopping by eliminating all human contact. Fashion brands are experimenting with automated factories. And consumers across the world want to play a part in ensuring that production processes are ethical and sustainable. An optimist would be tempted to term technology as the holy grail of all problems of human civilization while a Luddite would prefer to reminisce in nostalgia. An academic would attempt to document the changes and predict the impact it might have on the society. The predictions may not be prophetic but will provide a useful template for the policy options available in the future.
The fourth industrial revolution combines physical with the digital creating new products, processes, and mechanisms of interaction between people. Technologies associated with 4IR have been known to the society for a long time; but twenty-first century is the period when these technologies are being scaled up powered by the digital revolution and connected infrastructure. Internet, coding, connectivity infrastructure, fibre-optic cables and human capital is what underlies this process of large-scale spread of these technologies. The speed of technological adoption is faster, and currently seems invincible. The policy makers also face specific challenges at the national and global levels, but the traditionally reactive nature of policy formulation could become the cause for negative ripple effects. Therefore, as far as conceivable, it is essential to debate and discuss the impact of the spread of such technology, the nature and ethics of the application of 4IR, and the adequate policy response that allows for maximum innovation with minimum butterfly effects in various sectors.
There are two levels at which such discussions need to be located. The first is the national level. The developed economies such as the USA, EU, Japan, and UK have taken the lead in research, development, experimentation, and innovation. They can afford to do so, but even they seem to be underprepared for 4IR. The developing countries have multiple paradoxes and binaries to incorporate in their response. First, not all developing nations can adopt a similar position or policy response. Even though they may be grouped under collectivised categories, their levels of development and socio-economic conditions vary. Second, for countries like India which have a service-sector led development model, running a twin deficit, with a woefully underprepared workforce; policy response will invariably focus on cushioning those who lose out because of 4IR. This may prompt countries to adopt protectionist policies in certain sectors. Third, the developing nations are yet to move up in the parameters of human development paradigm. The question that needs to be explored is in which sectors do the policy responses need to be located?
The education sector needs to be revolutionized. There is no developed or developing country that can lay claim to a perfect education system. The western world has high student debt while developing countries are still struggling with providing primary education in hitherto marginalized areas. There has been an unacceptable casualty, i.e. the content of education. In a world where skills are more essential than degrees, especially in an evolving scenario where certain skills in high demand today may become basic requirements (as with Office programmes) tomorrow; how should the community respond? The government response should allow for more autonomy and flexibility in skilling processes. Universities should remain vigilant towards changing trends and upgrade their course offerings and contents accordingly. The course offerings should be interdisciplinary allowing for a wider choice for the students to elect courses. The private sector in developing nations needs to start collaborating with universities in course offerings (perhaps offer electives). It also needs to recognize that process of skilling is going to change. The importance of degrees needs to be carefully considered and evaluated. Liberal arts need to be given more importance since the culture of innovation is fostered by the diversity that is an inherent part of liberal arts courses. The humanitarian and philosophical touch that makes life meaningful can only be incorporated in a person’s life by liberal arts programmes which may be combined with technical skills. A hybrid model of education needs to be adopted across the world.
The models of growth and development in developing nations need to be reconsidered. The export-oriented growth models that worked for South East Asian and East Asian countries may not be viable in an era where automated factories located closer to the consumer become the norm. Though this proposition is complicated by the existence of extensive value chains across the world (where making a shirt might involve products from forty countries), it will be prudent to focus on research, development, and innovation. This cannot be accomplished by over-stretched and understaffed governments alone; the private sector must invest in new products which are an innovation and not merely improvements or localized versions of global products. Innovation is what gives an actual competitive edge to any country. For developing nations to succeed in harvesting 4IR, a community-led model where everyone is an active participant is essential.
The second level at which these discussions need to occur is the global. We are living in a time of flux. The pandemic and the international sentiment against China, which had established itself at the centre of many value chains, is concerning for the future of international institutions. The Thucydides trap may be in operation, though not as violently. International trade and the institutions associated with it, especially the World Trade Organization, are in stormy waters. Trade is being weaponized using any and every exception that a country can find in the General Agreement on Tariffs and Trade. This will become more complicated in the future. The 4IR and the technologies associated with it change the nature of goods itself; process and inputs take precedence over the final product.
The institutional processes of the WTO require reform. The USA may be the biggest thorn in WTO’s functionality, but the problems associated with the institutional process at the WTO were known to the international community. The WTO works on a process of consensus where a ‘no’ by one country topples the entire process of discussion without the said country tabling an alternative. This has led to the proliferation of different forms of trade agreements and plurilateral arrangements that complicate an already convoluted process. The content of these trade agreements is also different as some countries adopt wider provisions associated with labour rights, environmental standards, and investor protection while others prefer to keep it limited. This is expected as trade agreements are a result of extensive domestic lobbying and different societies tend to have different priorities. But these differences may lead to a considerable loss of competitive edge in the case of developing nations. Until the WTO reform becomes a priority agenda for governments, the preferential trade agreements that allow for easier market access, standardization, customs procedures, and investor-protection may remain the norm.
The importance of such broad-based preferential trade agreements cannot be underestimated. In a world where ‘Made in..’ will be replaced by ‘Made by…’, market access and ease of procedure is what will drive trade creation. If a producer of fast-moving consumer goods were to make a sourcing decision, he would choose a country where he faces minimum costs of compliance which can only occur if there is an arrangement between the two countries. Similarly, investor protection should be ensured so that the vagaries of political instability and regulatory whimsies do not cause large scale capital flight. This capital could become a crucial source for transfer of technology, joint projects where patents are shared and developed under functional cooperation mechanisms by developed and developing country institutions, and domestic innovators in the field of science.
The priorities of the youth today are different and are not centred on the narrow parameter of GDP growth. Multilateral institutions such as the WTO need to listen to these voices where environmental sustainability, ethical trading practices, labour rights, and data privacy matter more than GDP growth. Does the WTO then need to expand its mandate? This has been a bone of contention at the WTO between negotiators for a long time. With the adoption of experiments in blockchain technology where each sourcing decision is recorded, the problems of rules of origin, major transformation etc may be resolved. But this may give rise to interesting paradoxes. For the ethically and environmentally conscious consumer of today, concerns of sustainability, ethical trading practices and labour rights may take primacy. This is ideal and blockchain efficiently addresses these concerns. But combined with automated factories located closer to the consumer, this may become the cause of a massive unemployment problem in the developing world. The environment and labour standards are not the same across the world. They are a result of deliberations within a country based upon its culture and historical context along with industrialization levels and standards. Therefore, negotiations at the WTO must focus on understanding these differences and reaching an appropriate consensus on interlined issues of environmental sustainability, labour standards, ethical trade, and production processes.
Interconnectivity and the increase in internet penetration have led to massive cross border data flows. Technologies associated with big data analytics can be used to process and structure this data to reap appropriate results. It is possible to decide where another Starbucks may be opened in New Delhi if you had appropriate data connected with travel data, consumer spending patterns, etc. With the digital revolution taking everything online, along with biometrics, we are perhaps reaching a world where information asymmetry may be reduced to the maximum possible extent. This puts developing nations at a considerable advantage due to demographics. Until the end of this century, Asia and Africa will remain at an advantage in the demographic domain. Therefore, data generated due to IoT and other forms of connectivity analysed using AI, will be a cherished commodity.
The sourcing, storage, application, and usage of the data and consequent analysis becomes contentious at the international level. The data is currently passed across jurisdictions with no standardized laws on data protection and privacy. This opens the possibility for data localisation/data nationalism becoming the norm which could lead to a ‘fragmented internet’. This is not a positive-sum solution. Data sourced from Paris about the need and demand for tribal coffee from India could be a potential source of income for marginalized populations. Similarly, trends in smart cities across the world could help in coordinating illegal activities. The potential value that can be generated from free flow of data is massive.
Trade negotiators from developing nations should obtain the first-mover advantage in agenda-setting for the global data economy after a thorough examination of the needs of the domestic market. This may entail bargaining across issue areas in the future, but since the speed of technological revolution is high, it would be prudent to be ready with position papers written with consensus derived from consultations with the private sector, academia, and the concerned ministries. This would be beneficial for the international expansion of domestic unicorns in the e-commerce division as well.
The multinational e-commerce/platform economy units are facing challenges across jurisdictions. The adaptability and acceptability of e-commerce is different across the world. The developing nations are the major source of data, and yet they are unable to reap the benefits derived from the processing of their data. The taxation of such units that derive profit out of data processing of this kind must be standardised to the maximum extent possible to avoid a race to the bottom phenomenon and tax evasion. It would be beneficial for corporates, consumers, and governments to settle such contentious issues at the international level to avoid repetitive litigation.
The evolution of the global economy is a dynamic process. Starting with the hydrocarbon revolution, the world has come a long way. The technologies of 4IR have the potential to solve pressing issues but they must only be a tool to ensure equitable development and not a holy grail. The WTO and other mechanisms that facilitate and promote free trade need to get a grip on their negotiating processes to ensure stability and predictability in international trade. The mandate of these institutions needs to be expanded to include issues associated with labour rights, data economy, environment, ethical trading practices, education, and skilling. Existing discussions associated with Doha development agenda and Singapore issues need to be resolved to move forward and adapt to the trends of the fourth industrial revolution. It is time to embrace the timelessness of international trade and evolve with changing circumstances.
IAIS Team