Obama’s Trickle-Up Economics


September 17, 2016

by Dr. Paul Krugman

Only serious nerds like me eagerly await the annual Census Bureau reports on income, poverty and health insurance. But the just-released reports on 2015 justified the anticipation.

We expected good news; but last year, it turns out, the economy partied like it was 1999. And this tells us something very important — namely, that a government that wants to can make American society more equitable, improving the quality of life for ordinary families.

Image result for Paul Krugman

The reports showed strong progress on three fronts: rapid growth in the incomes of ordinary families — median income rose a remarkable 5.2 percent; a substantial decline in the poverty rate; and a significant further rise in health insurance coverage after 2014’s gains. It was a trifecta that we haven’t hit since, yes, 1999.

It’s true that the surge in median income comes after years of disappointment, and even now the typical family’s income, adjusted for inflation, is slightly lower than it was before the financial crisis. But the percentage of Americans without health insurance is now at a record low. And the overall performance of the Obama economy has given the lie to much of the criticism leveled at President Obama’s policies.

Think back to the 2012 election campaign. There were already signs of the conspiracy-theory, bigotry-driven politics of this year’s election; Donald Trump was loudly proclaiming that Mr. Obama’s birth certificate was fake, and Mitt Romney eagerly accepted Mr. Trump’s endorsement.

But there was also something of a policy debate. Republicans accused Mr. Obama of being a “redistributionist,” taking money away from “job creators” to give free stuff to the 47 percent. And they claimed that these socialistic policies were destroying incentives and blocking economic recovery.

There was, in fact, a grain of truth in the first part of this accusation. Mr. Obama is no socialist, but since his re-election he has presided over a significant rise in taxes on high incomes. In fact, the top one percent is now paying about the same share of its income in federal taxes as it did in 1979, before Ronald Reagan began the era of big tax cuts for the rich. And some of the increased tax take is being used to subsidize health insurance for middle- and lower-income families.

Conservatives predicted disaster from these initiatives. Tax hikes on the rich, they insisted, would stall the economy. Obamacare’s combination of regulation and subsidies, they declared, would kill millions of jobs without increasing the number of Americans with insurance.

What happened instead after Mr. Obama was re-elected was the best job growth since the 1990s. But family incomes, at least as estimated by the Census, continued to lag. So there was still some statistical basis for the right’s Obama-bashing. Now that statistical basis is gone.

You might ask whether these numbers reflect reality. It’s often claimed that Americans aren’t feeling any economic recovery — and if anyone were to ask Mr. Trump, he would no doubt claim that the Census numbers, like every number he doesn’t like, are cooked.

But be wary of polling on this issue. When Americans are asked how the economy is doing, many of them just repeat what they think they heard on Fox News: By large margins, Republicans say that unemployment is up and the stock market is down under Mr. Obama, the opposite of the truth. On the other hand, when you ask people how well they personally are doing, the Obama years have been marked by large improvements — a sharp increase in the percentage of Americans who see themselves as thriving.

So the good news is real. And it should (but won’t) finally break the grip of trickle-down ideology on much of our political class.

You know how the argument goes: Any attempt to help working families directly, we’re told, will backfire by hurting the economy as a whole. So we must cut taxes on those “job creators” instead, counting on a rising tide to raise all boats.

It would be an exaggeration to say that the Obama administration has done the reverse, but there definitely was an element of trickle-up economics in its response to the Great Recession: Much of the stimulus involved expanding the social safety net, not just to protect the vulnerable, but to increase purchasing power and sustain demand. And in general Obama-era policies have tried to help families directly, rather than by showering benefits on the rich and hoping that the benefits trickle down.

Now the results of this policy experiment are in, and they’re not bad. They could have been better: The stimulus should have been bigger and more sustained, and Republican opposition hamstrung the administration’s economic policy after the first two years. Still, progressive policies have worked, and the critics of those policies have been proved wrong.

A version of this op-ed appears in print on September 16, 2016, on page A27 of the New York edition with the headline: Obama’s Trickle-Up Economics.

The tide of globalisation is turning


September 9, 2016

The tide of globalisation is turning

Trade liberalisation has stalled and one can see a steady rise in protectionist measures. 

by Martin Wolf

Image result for The Tide of Globalisation is turning

Has the tide of globalisation turned? This is a vitally important question. The answer is closely connected to the state of the world economy and the west’s politics.

Migration raises quite specific issues. The era of globalisation was not accompanied by a general commitment to liberalising flows of people. So I will focus here on trade and capital flows. The evidence in these areas seems quite clear. Globalisation has reached a plateau and, in some areas, is in reverse.

An analysis from the Peterson Institute for International Economics argues that ratios of world trade to output have been flat since 2008, making this the longest period of such stagnation since the second world war. According to Global Trade Alert, even the volume of world trade stagnated between January 2015 and March 2016, though the world economy continued to grow. The stock of cross-border financial assets peaked at 57 per cent of global output in 2007, falling to 36 per cent by 2015. Finally, inflows of foreign direct investment have remained well below the 3.3 per cent of world output attained in 2007, though the stock continues to rise, albeit slowly, relative to output.

Thus, the impetus towards further economic integration has stalled and in some respects gone into reverse. Globalisation is no longer driving world growth. If this process is indeed coming to an end, or even going into reverse, it would not be the first time since the industrial revolution, in the early 19th century. Another period of globalisation, in an era of empires, occurred in the late 19th century. The first world war ended this and the Great Depression destroyed it. A principal focus of US economic and foreign policy after 1945 was to recreate the global economy, but this time among sovereign states and guided by international economic institutions. If Donald Trump, who has embraced protectionism and denigrated global institutions, were to be elected president in November, it would be a repudiation of a central thrust of postwar US policy.

Given the historical record and the current politics of trade, notably in the US, it is natural to ask whether the same could happen to the more recent era of globalisation. That requires us to understand the drivers.

Read more:https://www.ft.com/content/87bb0eda-7364-11e6-bf48-b372cdb1043a

Grain Prices: Four hundred years of free fall


September 8, 2016

Grain Prices: Four hundred years of free fall

by Jim Plamondon

Image result for Rice Fields of Cambodia

Image result for Rice Fields of Cambodia

A four centuries long downward trend means grain prices aren’t set to soar any time soon, writes Jim Plamondon.

A decade ago, when grain prices spiked sharply upwards, many were convinced that rising grain prices were the ‘new normal.’ Influenced by new factors such as the economic emergence of China, global climate change, population growth, water shortages, and more, surely the price of grain (and especially rice) would continue to rise… right? Wrong.

Grain prices have been on a downward trend for over four-hundred years. Recent research suggests that this centuries-long downward trend is likely to continue until at least 2050.

Let’s start by skimming four-hundred years of history in just a few charts.

Figure 1 below (from Hearfield 2009) shows the cost of a loaf of bread (and hence of grain) in Britain from 1575 to 1825 (250 years). It shows the cost decreasing in “real” terms (as a percentage of wages, on the left-hand scale) by approximately 75% (from 27% to 7%). The red arrow (added by me, in this and all subsequent figures) emphasises this downward trend.

Figure 1: The cost of a loaf of bread in Britain, 1575-1825.

Figure 1: The cost of a loaf of bread in Britain, 1575-1825.

In 1575, Britain was an entirely agrarian island nation of approximately four million people. But by 1825, it was the industrial leader of a global empire, with approximately 10 million in the same area. In between, the Little Ice Age froze the Thames solid at its peak in the 1600s, followed by global warming (relatively speaking) in Figure 1’s latter centuries.

In short, this centuries-long period included social, economic, and climatic changes that are similar to those that today’s world faces in the next few decades. Despite these dramatic changes, the wage-adjusted cost of a loaf of bread – and hence, the price of grain – fell by approximately 75%.

The downward trend in grain prices accelerated in the 20th century, as seen in Figure 2 below (USDA), falling by approximately 75% in a single century. Inflation-adjusted prices peaked upwards briefly during world wars and, more recently, following spikes in the price of oil, including the 1970s OPEC embargo and the 2007-8 oil price shock. Each grain price spike was followed by a downward over-correction that was deeper than the long-term trend.

Figure 2: The price of grain in the USA, 1912-2014.

Figure 2: The price of grain in the USA, 1912-2014.

The data from the USDA chart ends in 2014. What has happened since then? Figure 3 below (Bloomberg) shows a reversion to the centuries-long downward trend.

Figure 3: The price of commodity rough rice globally, 2014-Present.

Figure 3: The price of commodity rough rice globally, 2014-Present.

Clearly, the historical trend has been downward for more than 400 years. One might agree that this was true, and yet argue that “this time it’s different,” perhaps due to global climate change, population increases, changing dietary habits, the end of the Green Revolution’s productivity gains, water shortages, and the economic rise of rice-loving Asians, among many factors.

Baldos et. al. studied that question in detail, publishing a working paper in 2014 and a follow-up in 2016, provocatively titledDebunking the ‘new normal’: Why world food prices are expected to resume their long run downward trend.

They built a historically-predictive model of grain price influences, and then added to it all of the potential new influences that might make it “different this time.” Then, they ran the model repeatedly, varying the inputs. The results were clear (see Figure 4 below).

Figure 4: Global commodity grain prices projected through 2050. The trend is more than twice as likely to be down than flat or up.

Figure 4: Global commodity grain prices projected through 2050. The trend is more than twice as likely to be down than flat or up.

According to their research, grain prices have a 72% chance of returning to their historically-downward trend, and only a 28% chance of rising or remaining flat, between now and 2050. That is, between 2015 and 2050, the price trend is more than twice as likely to be down than flat or up.

The OECD and FAO recently concurred. Their July 2016 publication, the OECD-FAO Agricultural Outlook 2016-2025, states that grain prices are likely to fall, and includes Figure 5 below (for rice, see the right-most chart in Figure 5). Notice that the real (that is, inflation-adjusted) price of rice is expected to fall more steeply than the other grains.

Figure 5: OECD-FAO projects falling grain prices, 2016-2025.

Figure 5: OECD-FAO projects falling grain prices, 2016-2025.

With all that in mind, what’s a decision-maker to do? There’s a financial rule called the Kelly Criterion which states that, all else being equal, you should divide your investments according to the likelihood that they will pay off.

Knowing this (and all else being equal), the wise investor – including aid agencies, development organisations, government ministries – would invest 72% of their available funds into proposals that would prosper despite commodity rice prices declines, while putting only 28% into proposals that would prosper only if commodity rice prices were flat or rising.

Taking the profitability of the different investments into account might skew the investments even further towards investments that would prosper when commodity grain prices fell.

Image result for Harvesting in Cambodia

Harvesting in Cambodia–The Best Time of the Year

The bottom line — hedge your bets. The “safe” path of simply increasing the production of commodity rice isn’t safe anymore… because after 400 years, prices are still trending down.

Formerly a high-tech marketer with Microsoft and Rackspace, Jim Plamondon now lives in a rural Cambodian village. There, he’s exploring ways to help Cambodia profit from its rice industry, of which his company, AwardBest, is a very small part.

BREXIT– A Reminder to ASEAN


August 28, 2016

BREXIT– A Reminder to ASEAN

by Dr. Munir Majid

http://www.thestar.com.my

Image result for ASEAN and BREXIT

WHILE the close British decision to get out of the European Union (EU) – BREXIT – was made in a referendum over two months ago, there is still the feeling in the country: “What have we done?”

Where do we go? How do we get there? Questions that should have been asked at the referendum, rather than after it. But there you are. When raw emotions and shallow arguments reign, profound decisions are made without proper reflection or preparation.

Since then the question has also been raised in our neck of the woods, whether or not such a thing could occur in ASEAN. It won’t, but then again it may.

Image result for theresa may

Good Luck to Cameron’s Successor

First of all, let’s be clear. It is not likely there will ever be such a surplus of democracy in ASEAN, whether among individual member states or as a group, that there could be an “In or Out” referendum, such as on the EU, that has resulted in BREXIT.

Such democracy as there is in ASEAN is a pale reflection of the European model. Perhaps five ASEAN states, at a pinch, could be called democracies. They are, at most, mixed democracies, with varying control-freak tendencies. In one of them, there is new leadership, with Trump-like populism, perhaps a precursor of what a President Donald Trump would be like in America – a loose cannon.

Perhaps in that member state – the Philippines – there could be a Phixit referendum in a state of pique although, as shown in the handling of the July 12 arbitral tribunal award on the South China Sea dispute against China, there can be underlying realism after hyperbolic madness, like riding a water scooter into the Chinese navy.

Image result for Rodrigo Duterte

Then again, President Rodrigo Duterte’s recent threat to leave the United Nations after heavy criticism of extrajudicial killings in the drug war, points to some uncertainty over what the Philippines under Duterte might do.

One ASEAN state is an absolute monarchy (founded on Sharia Law–DM). Two are communist states and another a dictatorial democracy, if that is not a contradiction in terms. Making an imperfect ten is a state – through a referendum no less – which is set to become a militarily managed democracy, as the referendum indeed was.

The upshot is that there will not be in ASEAN a “In or Out” referendum of the British kind – free, open and all too easy.

With none of the regimes in ASEAN is there likely be such a reckless gamble as to leave an existential decision with the people. Not that there is everywhere in ASEAN always a high degree of leadership responsibility.

It is just that the people are not invited to make too many decisions once Governments are in power. So, from very different starting points, ASEAN will not be so people-centric as to give its citizens such a choice.

Britain – specifically David Cameron – screwed up. There was a rather careless Oxford Union debate approach by him in the referendum campaign. This was quite irresponsible when BREXIT is a highly complicated matter. Even Brexiteers – like Boris Johnson (now Foreign Secretary) – looked numb on the morning after the night before, like theirs was a Pyrrhic victory.

Some experts are now saying divorcing the EU may take 10 years. Britain will have to negotiate at least six major deals to re-establish its place in the world after BREXIT. For instance, among the six deals, Britain has to regain full membership of the WTO, not necessarily a straightforward thing, where the EU is the representative body.

While ASEAN  is no way as close and intricate as the EU’s and, in the instance of the WTO, ASEAN countries are individual members of the trade organisation, the important point is the need to think through any decision to break away from any association or organisation.

It is not a simple in or out matter to be decided on the basis of emotions alone. There are a lot of knotty issues, especially relating to the economy, trade and free trade agreements (FTAs). There can be unintended consequences.

With respect to ASEAN, it will not be lost on member states that there is no need to make any grand gesture of walking out, or threatening to do so, especially as commitment to ASEAN’s so-called rules-based regime is not so onerous anyway. So why rock the boat when there is promise of great potential benefit and any present problems can be treated in a let sleeping dogs lie fashion?

We have noted also the wide divergence in the political models in the EU and ASEAN. Indeed ASEAN may think its democratic deficit is a blessing in disguise.

Such parsimony however should not be represented as wisdom among ASEAN leaders. Cynicism and realism are two different things that might yet come out of the ASEAN bag. If leadership and wisdom are required, for instance, to hold the association together against present and future challenges, ASEAN leaders could equally blunder.

Image result for chinese navy in the south china sea

The most critical test of ASEAN unity today is over what position to take on Beijing’s South China Sea claims and assertive behaviour. Again and again ASEAN – including its four South China Sea claimant states – fails to take a collective stand as China, through land reclamation and militarisation, as well as naval support of its fishing fleets, achieves de facto control over almost all of the disputed atolls and waters.

The arbitral tribunal under the United Nations Convention on the Law of the Sea ruling on July 12, that there is no basis in international law for most of China’s assertions and actions, has only accentuated the division rather than help form a common front. The cracks have become clearer.

Yet China is able to entice ASEAN Member States with possibilities, over which it would be up to ASEAN to keep united or not. On August 17, China Daily reported there is agreement to negotiate the code of conduct in the South China Sea by mid-2017. There is also a deal in the making on a code of unplanned encounters at sea (CUES).

All this to go to the ASEAN-China summit just two weeks away. All very good news indeed.

On the other hand, Singapore – the ASEAN coordinator of relations with China until 2018 when the island republic takes the chair of ASEAN – has been receiving some stick on Chinese social media, with Global Times castigating it as the “little red dot.”

Like with all ASEAN countries, but more so with Singapore, the tricky test is how to navigate the Sino-US rivalry in South-East Asia. China can blow hot and cold, and keep ASEAN states responding every which way.

At the heart of this lack of unity is not just that not all ASEAN members are claimant states in the South Chine Sea, but rather more so their economic dependence on China. All ASEAN states have significant interest in the economic relationship with the rising giant that has grown tremendously in the last couple of decades which, to a greater or lesser extent, they do not wish to disturb. Indeed which they wish, with many Chinese blandishments, to see grow.

A couple of ASEAN member states depend on China for their economic life. They will never cross Beijing. There is a soft middle who are careful not to antagonise China even if they feel they are being dragged to the limit. Only one among them appears to have drawn a line in the sand and is clear on the equal sovereign rights of all states big or small. And then there is a sharp and hard outer edge comprising two Asean members although the hardest, now with new leadership, is softening its stand.

ASEAN, in other words, is totally disunited over the South China Sea and China’s absolute claim to it. It needs to show unity to negotiate effectively with China but different economic and national interests are pulling it apart.

On a more general plane, while the EU has been wedded to principles – like the free movement of people – ASEAN has always been flexible and diverse about these things.

With immigration and the deluge of refugees caused by principled commitment being identified as the prime reason leading to Brexit,

ASEAN may feel it has bragging rights with its flexible and realistic approach to integration and human rights issues. But there is no cause for celebration in ASEAN. Certainly, in respect of not taking a principled stand on China’s assertive sovereign – and suzerain – claims in the South China Sea, the future could come to haunt ASEAN in some unintended ways.

Even if the calculation is that China’s regional dominance is inevitable, the nature of ASEAN state relationship with Beijing is still something that can be fashioned short of total subservience. Full capitulation now will guarantee a future as vassal states.

There is value in principles. There are options that can be exercised. In the very first year of the so-called ASEAN community, the path to greater integration, including in the Asianholic economic field, could get even slower as divergence on the South China Sea issue sours political relationships among member states.

There are also dangers of total dependence on economic expansion without sufficient attention being given to the social issues of growth.

Social services, equitable distribution of income and wealth are critical if ASEAN countries are not to be confronted by the ferment and discord of economic denial – which could then so easily be attributed to ASEAN integration rather than to bad and unjust national governance.

More than immigration, which was the symptom, the underlying cause of the Brexit vote was the anger of the social underclass denied economic justice, who attributed their condition to foreigners. Narrow and nationalistic jingoism is something politically easy to whip up when there is such anger. It is not something ASEAN should not anticipate.

So beneath the tranquillity of the ASEAN way, the smiles and linking of arms are many issues that cannot always be kept there. They should be addressed. They could cause discord, disunity and tumult. If not exactly the break-up of Asean, they could make Asean meaningless and lead to the regional organisation not being taken seriously.

Tan Sri Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB ASEAN Research Institute.

 

Mahathir: Climate Change and The End of Man


August 27, 2016

Mahathir: Climate Change and The End of Man

chedet.cc

Image result for Climate Change and End of Man

We now admit that the climate is changing. But we must also be aware that the so-called natural disasters are happening more frequently, and are more violent. And these cataclysms are happening in more places than before.

We see floods in New York, tsunamis in Sumatera and Fukushima, non-active volcanoes erupting, repeated volcanic eruptions in the same location, prolonged winters, high temperatures for months in many countries, tornadoes which wreck whole countries, typhoons of unprecedented strength and huge forest fires which consume parts of towns.

Is it just climate change which we hope will come to an end. Can we expect to go back to the years when the weather behaves in predictable cycles, i.e in the regularity of the seasons, the levels of the seas, the rise and fall of the tides, and the habitability of this planet we call Earth.

Image result for Climate Change and End of Man

We now accept that the Earth is much older than we use to think. We also know that it was not always like what it is now. We know that the human race appeared probably only a few hundred thousand years ago.

We know that there was a time when dinosaurs inhabited the earth. They disappeared but they left their skeletons so that we cannot deny that they existed even though they were strange creatures unlike the animals we see today. Perhaps the crocodile is the only surviving species from the age of the dinosaurs.

We know that there were at least two ice ages, when the whole world was covered with a thick layer of ice. Life as we know today could not have survived the cold. Nothing could grow on the ground covered with the thick layer of ice. Even dinosaurs could not have survived, as there was no vegetation for them to feed on.

Image result for The Oceans

The ice melted to form oceans. The oceans and the seas receded and land masses appeared. We know the land masses grow and sundered, drifting apart to form continents. We are told the Himalaya is still growing taller. The process is very slow, but it is growing if we compare heights over the years.

The land masses too change in shape so that the shorelines change even during our times. We have found sea-shells on land very far from the sea, on mountains even.

We know all these had happened in the past. It cannot be that all these changes and processes stopped because civilised man now occupy this earth.

Image result for The Oceans

The process of change on this earth must be continuous. It must be continuing.Men have always believed in the end of the world. Almost every religion talks of the Last Day of the earth. But we really do not know when it will happen. Could it be that we are progressing towards it even now.

It may take a hundred thousand years. But can we expect the changes to cease. Can we expect the volcanoes and the quakes, the violent storms, tsunamis and tornadoes, the floods and landslides etc to remain mild or benign as they used to be. I should think not.

Instead we must expect increasing frequency and violence of the natural cataclysms. The world may become so hot that living things cannot survive. The world may become so cold, the third Ice Age, that living things cannot thrive either.

For humanity it can mean the end of their world.So it is true, what the religions warn us about. For Muslims there has never been any doubt. There will be kiamat. Perhaps the scientists too will finally admit that for men the world has come to an end.But  whether they do or not the end will come.

 

The Fourth Industrial Revolution– What It Means and How to Respond


August 25, 2015

Image result for klaus schwab fourth industrial revolution

…we must develop a comprehensive and globally shared view of how technology is affecting our lives and reshaping our economic, social, cultural, and human environments. There has never been a time of greater promise, or one of greater potential peril. Today’s decision-makers, however, are too often trapped in traditional, linear thinking, or too absorbed by the multiple crises demanding their attention, to think strategically about the forces of disruption and innovation shaping our future. –Professor Klaus Schwab, Chairperson, World Economic Forum

https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/

The Fourth Industrial Revolution– What It Means and How to Respond

By Klaus Schwab

We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before. We do not yet know just how it will unfold, but one thing is clear: the response to it must be integrated and comprehensive, involving all stakeholders of the global polity, from the public and private sectors to academia and civil society.

Image result for klaus schwab fourth industrial revolution

The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.

There are three reasons why today’s transformations represent not merely a prolongation of the Third Industrial Revolution but rather the arrival of a Fourth and distinct one: velocity, scope, and systems impact. The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.

Already, artificial intelligence is all around us, from self-driving cars and drones to virtual assistants and software that translate or invest. Impressive progress has been made in AI in recent years, driven by exponential increases in computing power and by the availability of vast amounts of data, from software used to discover new drugs to algorithms used to predict our cultural interests. Digital fabrication technologies, meanwhile, are interacting with the biological world on a daily basis. Engineers, designers, and architects are combining computational design, additive manufacturing, materials engineering, and synthetic biology to pioneer a symbiosis between microorganisms, our bodies, the products we consume, and even the buildings we inhabit.

Challenges and Opportunities

Like the revolutions that preceded it, the Fourth Industrial Revolution has the potential to raise global income levels and improve the quality of life for populations around the world. To date, those who have gained the most from it have been consumers able to afford and access the digital world; technology has made possible new products and services that increase the efficiency and pleasure of our personal lives. Ordering a cab, booking a flight, buying a product, making a payment, listening to music, watching a film, or playing a game—any of these can now be done remotely.

In the future, technological innovation will also lead to a supply side miracle, with long-term gains in efficiency and productivity. Transportation and communication costs will drop, logistics and global supply chains will become more effective, and the cost of trade will diminish, all of which will open new markets and drive economic growth.

HUBO, a multifunctional walking humanoid robot performs a demonstration of its capacities next to its developer Oh Jun-Ho, Professor at the Korea Advanced Institute of Science and Technology (KAIST) during the annual meeting of the World Economic Forum (W

At the same time, as the economists Erik Brynjolfsson and Andrew McAfee have pointed out, the revolution could yield greater inequality, particularly in its potential to disrupt labor markets. As automation substitutes for labor across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns to capital and returns to labor. On the other hand, it is also possible that the displacement of workers by technology will, in aggregate, result in a net increase in safe and rewarding jobs.

We cannot foresee at this point which scenario is likely to emerge, and history suggests that the outcome is likely to be some combination of the two. However, I am convinced of one thing—that in the future, talent, more than capital, will represent the critical factor of production. This 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.

In addition to being a key economic concern, inequality represents the greatest societal concern associated with the Fourth Industrial Revolution. The largest beneficiaries of innovation tend to be the providers of intellectual and physical capital—the innovators, shareholders, and investors—which explains the rising gap in wealth between those dependent on capital versus labor. Technology is therefore one of the main reasons why incomes have stagnated, or even decreased, for a majority of the population in high-income countries: the demand for highly skilled workers has increased while the demand for workers with less education and lower skills has decreased. The result is a job market with a strong demand at the high and low ends, but a hollowing out of the middle.

Given the Fourth Industrial Revolution’s rapid pace of change and broad impacts, legislators and regulators are being challenged to an unprecedented degree and for the most part are proving unable to cope. This helps explain why so many workers are disillusioned and fearful that their own real incomes and those of their children will continue to stagnate. It also helps explain why middle classes around the world are increasingly experiencing a pervasive sense of dissatisfaction and unfairness. A winner-takes-all economy that offers only limited access to the middle class is a recipe for democratic malaise and dereliction.

Discontent can also be fueled by the pervasiveness of digital technologies and the dynamics of information sharing typified by social media. More than 30 percent of the global population now uses social media platforms to connect, learn, and share information. In an ideal world, these interactions would provide an opportunity for cross-cultural understanding and cohesion. However, they can also create and propagate unrealistic expectations as to what constitutes success for an individual or a group, as well as offer opportunities for extreme ideas and ideologies to spread.

The Impact on Business

An underlying theme in my conversations with global CEOs and senior business executives is that the acceleration of innovation and the velocity of disruption are hard to comprehend or anticipate and that these drivers constitute a source of constant surprise, even for the best connected and most well informed. Indeed, across all industries, there is clear evidence that the technologies that underpin the Fourth Industrial Revolution are having a major impact on businesses.

On the supply side, many industries are seeing the introduction of new technologies that create entirely new ways of serving existing needs and significantly disrupt existing industry value chains. Disruption is also flowing from agile, innovative competitors who, thanks to access to global digital platforms for research, development, marketing, sales, and distribution, can oust well-established incumbents faster than ever by improving the quality, speed, or price at which value is delivered.

Major shifts on the demand side are also occurring, as growing transparency, consumer engagement, and new patterns of consumer behavior (increasingly built upon access to mobile networks and data) force companies to adapt the way they design, market, and deliver products and services.

A key trend is the development of technology-enabled platforms that combine both demand and supply to disrupt existing industry structures, such as those we see within the “sharing” or “on demand” economy. These technology platforms, rendered easy to use by the smart phone, convene people, assets, and data—thus creating entirely new ways of consuming goods and services in the process. In addition, they lower the barriers for businesses and individuals to create wealth, altering the personal and professional environments of workers. These new platform businesses are rapidly multiplying into many new services, ranging from laundry to shopping, from chores to parking, from messages to travel.

On the whole, there are four main effects that the Fourth Industrial Revolution has on business—on customer expectations, on product enhancement, on collaborative innovation, and on organizational forms. Whether consumers or businesses, customers are increasingly at the epicenter of the economy, which is all about improving how customers are served. Physical products and services, moreover, can now be enhanced with digital capabilities that increase their value. New technologies make assets more durable and resilient, while data and analytics are transforming how they are maintained. A world of customer experiences, data-based services, and asset performance through analytics, meanwhile, requires new forms of collaboration, particularly given the speed at which innovation and disruption are taking place. And the emergence of global platforms and other new business models, finally, means that talent, culture, and organizational forms will have to be rethought.

Overall, the inexorable shift from simple digitization (the Third Industrial Revolution) to innovation based on combinations of technologies (the Fourth Industrial Revolution) is forcing companies to reexamine the way they do business. The bottom line, however, is the same: business leaders and senior executives need to understand their changing environment, challenge the assumptions of their operating teams, and relentlessly and continuously innovate.

The Impact on Government

As the physical, digital, and biological worlds continue to converge, new technologies and platforms will increasingly enable citizens to engage with governments, voice their opinions, coordinate their efforts, and even circumvent the supervision of public authorities. Simultaneously, governments will gain new technological powers to increase their control over populations, based on pervasive surveillance systems and the ability to control digital infrastructure. On the whole, however, governments will increasingly face pressure to change their current approach to public engagement and policy making, as their central role of conducting policy diminishes owing to new sources of competition and the redistribution and decentralization of power that new technologies make possible.

Ultimately, the ability of government systems and public authorities to adapt will determine their survival. If they prove capable of embracing a world of disruptive change, subjecting their structures to the levels of transparency and efficiency that will enable them to maintain their competitive edge, they will endure. If they cannot evolve, they will face increasing trouble.

This will be particularly true in the realm of regulation. Current systems of public policy and decision-making evolved alongside the Second Industrial Revolution, when decision-makers had time to study a specific issue and develop the necessary response or appropriate regulatory framework. The whole process was designed to be linear and mechanistic, following a strict “top down” approach.

But such an approach is no longer feasible. Given the Fourth Industrial Revolution’s rapid pace of change and broad impacts, legislators and regulators are being challenged to an unprecedented degree and for the most part are proving unable to cope.

How, then, can they preserve the interest of the consumers and the public at large while continuing to support innovation and technological development? By embracing “agile” governance, just as the private sector has increasingly adopted agile responses to software development and business operations more generally. This means regulators must continuously adapt to a new, fast-changing environment, reinventing themselves so they can truly understand what it is they are regulating. To do so, governments and regulatory agencies will need to collaborate closely with business and civil society.

A robotic arm by Mitsubishi Electric assembles a toy car at the System Control Fair SCF 2015 in Tokyo, Japan December 2, 2015.

The Fourth Industrial Revolution will also profoundly impact the nature of national and international security, affecting both the probability and the nature of conflict. The history of warfare and international security is the history of technological innovation, and today is no exception. Modern conflicts involving states are increasingly “hybrid” in nature, combining traditional battlefield techniques with elements previously associated with non-state actors. The distinction between war and peace, combatant and non combatant, and even violence and nonviolence (think cyber warfare) is becoming uncomfortably blurry.

As this process takes place and new technologies such as autonomous or biological weapons become easier to use, individuals and small groups will increasingly join states in being capable of causing mass harm. This new vulnerability will lead to new fears. But at the same time, advances in technology will create the potential to reduce the scale or impact of violence, through the development of new modes of protection, for example, or greater precision in targeting.

The Impact on People

The Fourth Industrial Revolution, finally, will change not only what we do but also who we are. It will affect our identity and all the issues associated with it: our sense of privacy, our notions of ownership, our consumption patterns, the time we devote to work and leisure, and how we develop our careers, cultivate our skills, meet people, and nurture relationships. It is already changing our health and leading to a “quantified” self, and sooner than we think it may lead to human augmentation. The list is endless because it is bound only by our imagination.

I am a great enthusiast and early adopter of technology, but sometimes I wonder whether the inexorable integration of technology in our lives could diminish some of our quintessential human capacities, such as compassion and cooperation. Our relationship with our smartphones is a case in point. Constant connection may deprive us of one of life’s most important assets: the time to pause, reflect, and engage in meaningful conversation.

One of the greatest individual challenges posed by new information technologies is privacy. We instinctively understand why it is so essential, yet the tracking and sharing of information about us is a crucial part of the new connectivity. Debates about fundamental issues such as the impact on our inner lives of the loss of control over our data will only intensify in the years ahead. Similarly, the revolutions occurring in biotechnology and AI, which are redefining what it means to be human by pushing back the current thresholds of life span, health, cognition, and capabilities, will compel us to redefine our moral and ethical boundaries.

Shaping the Future

Neither technology nor the disruption that comes with it is an exogenous 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 as citizens, consumers, and investors.

We should thus grasp the opportunity and power we have to shape the Fourth Industrial Revolution and direct it toward a future that reflects our common objectives and values.

To do this, however, we must develop a comprehensive and globally shared view of how technology is affecting our lives and reshaping our economic, social, cultural, and human environments. There has never been a time of greater promise, or one of greater potential peril. Today’s decision-makers, however, are too often trapped in traditional, linear thinking, or too absorbed by the multiple crises demanding their attention, to think strategically about the forces of disruption and innovation shaping our future.

In the end, it all comes down to people and values. We need to shape a future that works for all of us by putting people first and empowering them. In its most pessimistic, dehumanized form, the Fourth Industrial Revolution may indeed have the potential to “robotize” humanity and thus to deprive us of our heart and soul. But as a complement to the best parts of human nature—creativity, empathy, stewardship—it can also lift humanity into a new collective and moral consciousness based on a shared sense of destiny. It is incumbent on us all to make sure the latter prevails.

In the end, it all comes down to people and values. We need to shape a future that works for all of us by putting people first and empowering them. In its most pessimistic, dehumanized form, the Fourth Industrial Revolution may indeed have the potential to “robotize” humanity and thus to deprive us of our heart and soul. But as a complement to the best parts of human nature—creativity, empathy, stewardship—it can also lift humanity into a new collective and moral consciousness based on a shared sense of destiny. It is incumbent on us all to make sure the latter prevails.