PROTON: The National Albatross


March 30, 2017

PROTON: How long more can Malaysian Taxpayers bear the Burden of this National Albatross

by P. Gunasegaram@www.malaysiakini.com

Proton is a clear case of how a wrong policy – producing our own national car – can cost the consumer hundreds of billions of ringgit over the decades of its implementation. Enough has been wasted with the government already giving out some RM15 billion in grants and the latest loan. If Proton can’t find a foreign partner, it is best to let it simply go under.–P. Gunasegaram

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Mahathir masih belum terima realiti bahawa Projek PROTON idaman beliau itu gagal

PROTON, both car and company, have been a problem from day one. It should have been resolved three decades ago but has been allowed to snowball to epic proportions. Even the current search for a foreign strategic partner (FSP) appears bogged down.

That’s because till today, in the midst of negotiations to find a FSP, there is an ingrained reluctance to surrender control to bring in the technological expertise, business acumen and international standing to turn Proton around. If this transigence does not evaporate, then Proton will not have a deal.

That prolongs the suffering of Malaysians who since 1985, when the first Proton Saga rolled off the plant in Shah Alam, are paying much higher prices for cars, sometimes two or three times the price in other countries, because of protective barriers. According to my calculations, this could have amounted to as high as RM360 billion that car buyers have sacrificed in duties to the government and subsidies to manufacturers.

I have used estimated sales of some 12 million vehicles between 1985 and 2016 of which some four million vehicles sold were Protons. I have estimated, conservatively, that the average price per vehicle was RM30,000 higher because of protective barriers. Multiply this by 12 million vehicles for RM360 billion. You may disagree with the exact figure but there can be little doubt that the order of magnitude is in the hundreds of billions of ringgit.

If it was purely a question of business, Proton would have been sorted out a long time ago. But like many things in this country, it became an issue of national and even Malay pride, local capability and capacity, and one man’s plain old-fashioned stubbornness in the face of overwhelming evidence that it could not work.

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Najib is afraid to shut down PROTON

Proton, then controlled by sovereign fund Khazanah Nasional Bhd, was about to sign a deal with Germany’s Volkswagen in 2007 when the deal was jettisoned days before the signing by intense lobbying to then Prime Minister Abdullah Ahmad Badawi. Among the lobbyists were said to be then International Trade and Industry Minister Rafidah Aziz and those associated with former Prime Minister Dr Mahathir Mohamad, whose “brainchild” Proton is.

Then as now, Proton’s problems are well-known — lack of technical knowhow to produce reliable vehicles cheaply and insufficient production to benefit from economies of scale and develop new, viable models – two factors which feed off each other to make things progressively worse.

The only thing which helped to produce profit in the past were high tariff barriers and rebadged vehicles from manufacturers such as Mitsubishi in the early years and Honda in the later years with little more than assembly involved.

What has Proton to offer? Mainly two things. One, excess production capacity which means there is little lead time to production. Two, access to the 10-member 623-million-people Asean market whose member nations have largely dismantled discriminatory tax barriers for cars among themselves – except for Malaysia which imposes a thinly disguised discriminatory excise duty based on “local” content.

The solution is simple and straightforward. Give a competent foreign partner majority stake and control of the manufacturing operations at a reasonable price. Try and maintain control of domestic sales and marketing. That is as much as one can hope for – the operation is losing money by the bucketloads and the outlook is ominous to say the least.

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 The Clear Winner is Produa, thanks to Daihatsu Technology combined with savvy sales and marketing owned by local interests

Failed Proton’s arch rival Perodua, also a national car project, is succeeding. Why? Perodua has access to technology from Daihatsu which in turn is owned by Toyota – its cars are therefore much more reliable than Proton’s. Not many people know this but Perodua’s manufacturing is majority foreign-owned while sales and marketing is majority owned by local interests.

But even now, when it has its back against the wall and some RM1.5 billion in support loans from the federal government to keep it going meantime, Proton is balking.

Geely pulls out

According to an article in the South China Morning Post, China’s successful home-grown auto manufacturer Geely Automobile Holdings has withdrawn from a bid to acquire a controlling stake. It quoted Geely’s President An Conghui.

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Geely Chairman  Billionaire Li Shufu

An did not elaborate on the reasons for the decision, but Li Shufu, its chairperson, had previously indicated the Malaysian firm had been “uncertain” about what it wanted from an overseas partner, in an interview with Bloomberg earlier this month, the report said.

Why the uncertainty?

However, listed DRB-Hicom, Proton’s shareholder and eventually majority owned by prominent businessman Syed Mokhtar AlBukhary, denied Friday that Geely has pulled out. Proton has reportedly lost RM2.5 billion since DRB-Hicom took it over in 2012.

That takeover represents a series of musical chairs when different companies were left holding the parcel as this article I wrote for The Star in 2012 explains. It passed from the government’s Heavy Industries Corp of Malaysia or Hicom to Diversified Resources Bhd or DRB, later renamed DRB-Hicom, to national oil corporation Petronas when DRB-Hicom was rescued and then to Khazanah Nasional which sold it back to DRB-Hicom, now controlled by Syed Mokhtar. DRB founder, Yahya Ahmad who was well-regarded by Mahathir – was killed in a helicopter crash in 1997 before Proton was sold to Petronas.

Geely, the owner of the Swedish Volvo brand, was considered the favourite to acquire a controlling stake in Proton although Europe’s second-largest carmaker Groupe PSA, which owns the Citroen, Peugeot, and DS brands was still in the running.

If indeed Geely has pulled out, and it seems rather likely it has, that will leave Groupe PSA as the sole contender for Proton, giving Proton very little room to bargain.

There is no choice but for Proton to get an FSP. That should have been done 10 years ago. As time passes on, there is less and less reason for companies to set up manufacturing here. They can simply go to Thailand which is already a manufacturing hub. Or Indonesia.

Once Proton is taken over, then all that’s left to do is to set a timetable to dismantle the high tariffs for cars and put everyone on a level-playing field. And finally enable Malaysians to benefit from reasonable car prices. Presumably, with the FSP, Proton will have no more need for protection because it will have scale and technological expertise, becoming a regional manufacturer for the FSP.

Proton is a clear case of how a wrong policy – producing our own national car – can cost the consumer hundreds of billions of ringgit over the decades of its implementation. Enough has been wasted with the government already giving out some RM15 billion in grants and the latest loan. If Proton can’t find a foreign partner, it is best to let it simply go under.

Over the decades, Malaysians have paid hundreds of billions more ringgit for cars. Our calculations indicate RM360 billion. How much more do we have to pay before this long, sorry, sad saga is finally brought to an end?


P GUNASEGARAM says: “The government never pays the price of protecting local industry, the consumer always does.” E-mail: t.p.guna@gmail.com.

APSIA Conference 2017 Keynote Address by Singapore’s DPM


March 5, 2017

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APSIA Conference 2017 Keynote Address by Singapore’s DPM Tharman Shanmugaratnam at LKY School of Public Policy

COMMENT:

Geo-Politics, Disruptive Social Developments and Technological Change: Has the Game Changed? Yes, that is easy part of the answer.  How we wish that life is simple and outcomes are predictable. But it is not. I  have been grappling a few questions. I asked myself questions like What has changed? How it has changed?  What is driving the change?What this change means to us in Asia.

China, North Korea, Islamic and Christian evangelism, terrorism and so on are making the headlines.I  also see increasing polarisation and the need for understanding and rebuilding trust. I expect our politicians to reconnect with people they are mandated to serve and  want leaders to lead with integrity, honesty and hope. Listen to DPM Tharman Shanmugaratnam for some insights.–Din Merican

 

 

Remembering Herman Kahn–A Pioneer in Future Studies–Thinking the Unthinkable


February 6, 2017

Remembering Herman Kahn–A Pioneer in Future Studies

In Defense of Thinking

by Herman Kahn

Social inhibitions which reinforce natural tendencies to avoid thinking about unpleasant subjects are hardly uncommon.–Herman Kahn

https://hudson.org/research/2211-in-defense-of-thinking

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Futurist Herman Kahn with President Gerald Ford and Donald Rumsfeld

Seventy-five years ago white slavery was rampant in England. Each year thousands of young girls were forced into brothels and kept there against their will. While some of the victims had been sold by their families, a large proportion were seized and held by force or fraud. The victims were not from the lower classes only; no level of English society was immune to having its daughters seized. Because this practice continued in England for years after it had been largely wiped out on the Continent, thousands of English girls were shipped across the Channel to supply the brothels of Europe. One reason why this lasted as long as it did was that it could not be talked about openly in Victorian England; moral standards as to subjects of discussion made it difficult to arouse the community to necessary action. Moreover, the extreme innocence considered appropriate for English girls made them easy victims, helpless to cope with the situations in which they were trapped. Victorian standards, besides perpetuating the white slave trade, intensified the damage to those involved. Social inhibitions which reinforce natural tendencies to avoid thinking about unpleasant subjects are hardly uncommon.

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A Message  for Donald J. Tump

The psychological factors involved in ostrich-like behavior have parallels in communities and nations. Nevertheless, during the sixty years of the twentieth century many problems have come increasingly into the realm of acceptable public discussion. Among various unmentionable diseases, tuberculosis has lost almost all taint of impropriety; and venereal disease statistics can now be reported by the press. Mental illness is more and more regarded as unfortunate instead of shameful. The word “cancer” has lost its stigma, although the horror of the disease has been only partially abated by medical progress.

Despite the progress in removing barriers in the way of discussing diseases formerly considered shameful, there are doubtless thousands going without vital medical treatment today because of their inhibitions against learning, thinking, or talking about certain diseases. Some will not get treatment because they do not know enough to recognize the symptoms, some because they are consciously ashamed to reveal illness, and some because they refuse to think about their condition it seems too horrible to think about. It may now be possible to condemn unequivocally the extremes of Victorian prudery, but less doctrinaire forms of ostrichism must be considered with more care; they are, after all, often based on healthy instincts.

Everyone is going to die, but surely it is a good thing that few of us spend much time dwelling on that fact. Life would be nearly impossible if we did. If thinking about something bad will not improve it, it is often better not to think about it. Perhaps some evils can be avoided or reduced if people do not think or talk about them. But when our reluctance to consider danger brings danger nearer, repression has gone too far.

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In 1960 I published a book (pic above) that attempted to direct attention to the possibility of a thermonuclear war, to ways of reducing the likelihood of such a war, and to methods for coping with the consequences should war occur despite our efforts to avoid it. The book was greeted by a large range of responses, some of them sharply critical. Some of this criticism was substantive, touching on greater or smaller questions of strategy, policy, or research techniques. But much of the criticism was not concerned with the correctness or incorrectness of the views I expressed.

It was concerned with whether any book should have been written on this subject at all. It is characteristic of our times that many intelligent and sincere people are willing to argue that it is immoral to think and even more immoral to write in detail about having to fight a thermonuclear war.

By and large this criticism was not personal; it simply reflected the fact that we Americans and many people throughout the world are not prepared to face reality, that we transfer our horror of thermonuclear war to reports about the realities of thermonuclear war. In a sense we are acting like those ancient kings who punished messengers who brought them bad news. This did not change the news; it simply slowed up its delivery. On occasion it meant that the kings were ill informed and, lacking truth, made serious errors in judgment and strategy. In our times, thermonuclear war may seem unthinkable, immoral, insane, hideous, or highly unlikely, but it is not impossible.

To act intelligently we must learn as much as we can about the risks. We may thereby be able better to avoid nuclear war. We may even be able to avoid the crises that bring us to the brink of war. But despite our efforts we may some day come face to face with a blunt choice between surrender or war. We may even have war thrust upon us without being given any kind of choice. We must appreciate these possibilities. We cannot wish them away. Nor should we overestimate and assume the worst is inevitable. This leads only to defeatism, inadequate preparations (because they seem useless), and pressures toward either preventive war or undue accommodation.

Many terrible questions are raised when one considers objectively and realistically the problems created by the cold war and the armaments race. For some years I have spent my time on exactly these questions both in thinking about ways to prevent war, and in thinking about how to fight, survive, and terminate a war, should it occur. My colleagues and I have sought answers to such questions as these: How likely is accidental war? How can one make it less likely? How dangerous is the arms race today? What will it be like in the future? What would conditions be if a nuclear attack leveled fifty of America’s largest cities? Would the survivors envy the dead? How many million American lives would an American President risk by standing firm in differing types of crises? By starting a nuclear war? By continuing a nuclear war with the hope of avoiding surrender? How many lives would he risk? How is it most likely to break down? If it does break down, what will be the consequence? Are we really risking an end to all human life with our current system? If true, are we willing to risk it? Do we then prefer some degree of unilateral disarmament? If we do, will we be relying on the Russians to protect us from the Chinese? Will the world be more or less stable? Should we attempt to disarm unilaterally? If the answers to these last questions depend on the degree of damage that is envisaged, are we willing to argue that it is all right to risk a half billion or a billion people but not three billion?

There seem to be three basic objections to asking these types of questions:

1. No one should attempt to think about these problems in a detailed and rational way. 2. What thinking there is on these problems should be done in secret by the military exclusively, or at least by the government. 3. Even if some of this thinking must be done outside the government, the results of any such thought should not be made available to the public.

It is argued that thinking about the indescribable horror of nuclear war breeds callousness and indifference to the future of civilization in our planners and decision makers. It is true that detailed and dispassionate discussion of such questions is likely to look incredibly hard-hearted. It should also be clear, at least to thoughtful readers, that such questions must be considered. The reality may be so unpleasant that decision makers would prefer not to face it; but to a great extent this reality has been forced on them, or has come uninvited.

Thanks to our ever-increasing technology, we are living in a terrible and dangerous world; but, unlike the lady in the cartoon we cannot say, “Stop the world, I want to get off. We cannot get off. Even the most utopian of today’s visionaries will have to concede that the mere existence of modern technology involves a risk to civilization that would have been unthinkable twenty-five years ago. While we are going to make major attempts to change the nature of this reality, accepting great risks if necessary, most of us are unwilling to choose either a pronounced degree of unilateral disarmament or a preventive war designed to “settle” our problems one way or another. We therefore must face the facts that thermonuclear bombs now exist [and that] unless we are willing to abdicate our responsibilities, we are pledged to the maintenance of terrifying weapon systems with known and unknown, calculable and incalculable risks, unless and until better arrangements can be made.

If we are to have an expensive and lethal defense establishment, we must weigh all the risks and benefits. We must at least ask ourselves what are the likely and unlikely results of an inadvertent war, the possibilities of accident, irresponsibility, or unauthorized behavior on the other side as well as on our own.

A variation of the objection to careful consideration of these problems focuses on the personality of the thinker. This argument goes: Better no thought than evil thought; and since only evil and callous people can think about this, better no thought. Alternatively, the thinker’s motives are analyzed: This man studies war; he must like war much like the suspicion that a surgeon is a repressed sadist. Even if the charge were true, which in general it is not, it is not relevant. Like the repressed sadist who can perform a socially useful function by sublimating his urges into surgery, the man who loves war or violence may be able to successfully sublimate his desires into a careful and valuable study of war. It does indeed take an iron will or an unpleasant degree of detachment to go about this task. Ideally it should be possible for the analyst to have a disciplined empathy. In fact, the mind recoils from simultaneously probing deeply and creatively into these problems and being conscious at all times of the human tragedy involved.

This is not new. We do not continually remind the surgeon while he is operating of the humanity of his patient. We do not flash pictures of his patient’s wife or children in front of him. We want him to be careful, and we want him to be aware of the importance and frailty of the patient; we do not want him to be distracted or fearful. We do not expect illustrations in a book on surgery to be captioned: “A particularly deplorable tumor,” or “Good health is preferable to this kind of cancer.” Excessive comments such as, “And now there’s a lot of blood,” or “This particular cut really hurts,” are out-of-place although these are important things for a surgeon to know. To mention such things may be important. To dwell on them is morbid, and gets in the way of the information. The same tolerance needs be extended to thought on national security.

Some feel that we should consider these problems but view them with such awe and horror that we should not discuss them in normal, neutral, professional everyday language. I tend to disagree, at least so far as technical discussions and research are concerned. One does not do research in a cathedral. Awe is fine for those who come to worship or admire, but for those who come to analyze, to tamper, to change, to criticize, a factual and dispassionate, and sometimes even colorful, approach is to be preferred. And if the use of everyday language jars, that is all the more reason for using it. Why would one expect a realistic discussion of thermonuclear war not to be disturbing?

The very complexity of the questions raised is another reason why many object to their consideration. There is no doubt that if we reject hard thinking about alternatives in favor of uncritical acceptance of an extreme position we make the argument simpler and most of us prefer simple arguments.

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To summarize: Many people believe that the current system must inevitably end in total annihilation. They reject, sometimes very emotionally, any attempts to analyze this notion. Either they are afraid of where the thinking will lead them or they are afraid of thinking at all. They want to make the choice, between a risk and the certainty of disaster, between sanity and insanity, between good and evil; therefore, as moral and sane men they need no longer hesitate. I hold that an intelligent and responsible person cannot pose the problem so simply.

The last objection to detailed thought on thermonuclear war rests on the view that the subject is not only unpleasant but difficult. Many people feel that it is useless to apply rationality and calculation in any area dominated by irrational decision makers. This is almost comparable to feeling that it would be impossible to design a safety system for an insane asylum by rational methods, since, after all, the inmates are irrational. Of course, no governor or superintendent would consider firing the trained engineer, and turning the design over to one of the lunatics. The engineer is expected to take the irrationality of the inmates into account by a rational approach. Rational discussions of war and peace can explicitly include the possibility of irrational behavior.

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The Danger for America Today–The Unthinkable is Thinkable under Donald J. Trump  45th  POTUS

Of course, analysts may be misled by oversimplified models or misleading assumptions, and their competence readily attacked. However, except for irrelevant references to game theory and computers, such attacks are rare, and are usually so half-hearted that it is clear that their main motivation is not to expose incompetency. Given the difficulty of the problems, one would expect the critics to work more effectively on the obvious methodological problems and other weaknesses of present-day analysts.

Critics frequently refer to the icy rationality of the Hudson Institute, the Rand Corporation, and other such organizations. I’m always tempted to ask in reply, “Would you prefer a warm, human error? Do you feel better with a nice emotional mistake?” We cannot expect good discussion of security problems if we are going to label every attempt at detachment as callous, every attempt at objectivity as immoral. Such attitudes not only block discussion of the immediate issues, they lead to a disunity and fragmentation of the intellectual community that can be disastrous to the democratic dialogue between specialist and layman. The former tends to withdraw to secret and private discussions; the latter becomes more and more innocent, or naive, and more likely to be outraged if he is ever exposed to a professional discussion.

Finally, there is the objection that thermonuclear war should not, at least in detail, be discussed publicly. Even some who admit the usefulness of asking unpleasant questions have advocated raising them only in secret. One objector pointed out to me that if a parent in a burning building is faced with the problem of having to save one of two children, but not both, he will make a decision on the spur of the moment; it wouldn’t have made any difference if the parent had agonized over the problem ahead of time, and it would have been particularly bad to agonize in the presence of the children. This may be true, but other considerations dominate our nation’s choices; our capabilities for action and the risks we are assuming for ourselves and thrusting on others will be strongly influenced by our preparations both intellectual and physical.

Other reasons for this objection to public discussion range all the way from concern about telling the Soviets too much, and a fear of weakening the resolve of our own people, through a feeling that public discussion of death and destruction is distastefully comparable to a drugstore display of the tools, methods, and products of the mortician. Perhaps some or all of these objections to public discussion are well taken. I do not know for sure, but I think they are wrong.

They are wrong if we expect our people to participate rationally in the decision-making process in matters that are vital to their existence as individuals and as a nation. As one author has put it: “In a democracy, when experts disagree, laymen must resolve the disagreement.” One issue is whether it is better that the lay public, which will directly or indirectly decide policy, be more or less informed. A second issue is whether the discussion itself may not be significantly improved by eliciting ideas from people outside of official policy-making channels.

There are in any case at least two significant obstacles to full public debate of national security matters. The first, of course, is the constantly increasing problem of communication between the technologist and the layman, because of the specialization (one might almost say fragmentation) of knowledge. The other lies in the serious and paramount need to maintain security. Technical details of weapons’ capabilities and weaknesses must remain classified to some degree. Nonetheless, technical details may be of vital importance in resolving much broader problems. (For instance, who can presume to say whether the military advantages of atomic weapons testing outweigh the obvious political and physical disadvantages unless he knows what the military advantages are.) Moreover, those who feel that in some areas “security” has been unnecessarily extended must concede that in certain areas it has its place. To that extent the functioning of the democratic processes must be compromised with the requirements of the cold war and modem technology. Fortunately, non-classified sources often give reasonable approximations to the classified data. I would say that many of the agonizing problems facing us today can be debated and understood just about as easily without classified material as with provided one carefully considers the facts that are available.

It is quite clear that technical details are not the only important operative facts. Human and moral factors must always be considered. They must never be missing from policies and from public discussion. But emotionalism and sentimentality, as opposed to morality and concern, only confuse debates. Nor can experts be expected to repeat, “If, heaven forbid. ….,” before every sentence. Responsible decision makers and researchers cannot afford the luxury of denying the existence of agonizing questions. The public, whose lives and freedom are at stake, expects them to face such questions squarely and, where necessary, the expert should expect little less of the public.

*Herman Kahn, Founder, Hudson Institute

January 1st, 1962 Adapted from Thinking About the Unthinkable (Horizon Press), © Hudson Institute

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A History of U.S. Foreign Affairs in Which Grandiose Ambitions Trump Realism


January 2, 2017

A History of U.S. Foreign Affairs in Which Grandiose Ambitions Trump Realism

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


August 25, 2015

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…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.

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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.

Joseph Stiglitz: Creating a Learning Society


February 9, 2016

Joseph Stiglitz: Creating a Learning Society

 

Calculus on a blackboard

(pic) Financial market liberalisation may undermine countries? ability to learn another set of skills that are essential for development: how to allocate resources and manage risk. Photograph: Image Source / Alamy/Alamy

by Joseph E.  Stiglitz

http://www.theguardian.com/business/2014/jun/09/why-learning-matters-innovation-joseph-stiglitz

Citizens in the world’s richest countries have come to think of their economies as being based on innovation. But innovation has been part of the developed world’s economy for more than two centuries. Indeed, for thousands of years, until the Industrial Revolution, incomes stagnated. Then per capita income soared, increasing year after year, interrupted only by the occasional effects of cyclical fluctuations.

The Nobel laureate economist Robert Solow noted some 60 years ago that rising incomes should largely be attributed not to capital accumulation, but to technological progress – to learning how to do things better. While some of the productivity increase reflects the impact of dramatic discoveries, much of it has been due to small, incremental changes. And, if that is the case, it makes sense to focus attention on how societies learn, and what can be done to promote learning – including learning how to learn.

A century ago, the economist and political scientist Joseph Schumpeter argued that the central virtue of a market economy was its capacity to innovate. He contended that economists’ traditional focus on competitive markets was misplaced; what mattered was competition for the market, not competition in the market. Competition for the market drove innovation. A succession of monopolists would lead, in this view, to higher standards of living in the long run.

Schumpeter’s conclusions have not gone unchallenged. Monopolists and dominant firms, like Microsoft, can actually suppress innovation. Unless checked by anti-trust authorities, they can engage in anti-competitive behavior that reinforces their monopoly power.

Moreover, markets may not be efficient in either the level or direction of investments in research and learning. Private incentives are not well aligned with social returns: firms can gain from innovations that increase their market power, enable them to circumvent regulations, or channel rents that would otherwise accrue to others.
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But one of Schumpeter’s fundamental insights has held up well: conventional policies focusing on short-run efficiency may not be desirable, once one takes a long-run innovation/learning perspective. This is especially true for developing countries and emerging markets.

Industrial policies – in which governments intervene in the allocation of resources among sectors or favour some technologies over others – can help “infant economies” learn. Learning may be more marked in some sectors (such as industrial manufacturing) than in others, and the benefits of that learning, including the institutional development required for success, may spill over to other economic activities.

Such policies, when adopted, have been frequent targets of criticism. Government, it is often said, should not be engaged in picking winners. The market is far better in making such judgments.

But the evidence on that is not as compelling as free-market advocates claim. America’s private sector was notoriously bad in allocating capital and managing risk in the years before the global financial crisis, while studies show that average returns to the economy from government research projects are actually higher than those from private-sector projects – especially because the government invests more heavily in important basic research. One only needs to think of the social benefits traceable to the research that led to the development of the internet or the discovery of DNA.

But, putting such successes aside, the point of industrial policy is not to pick winners at all. Rather, successful industrial policies identify sources of positive externalities – sectors where learning might generate benefits elsewhere in the economy.

Viewing economic policies through the lens of learning provides a different perspective on many issues. The great economist Kenneth Arrow emphasised the importance of learning by doing. The only way to learn what is required for industrial growth, for example, is to have industry. And that may require either ensuring that one’s exchange rate is competitive or that certain industries have privileged access to credit – as a number of East Asian countries did as part of their remarkably successful development strategies.

There is a compelling infant economy argument for industrial protection. Moreover, financial market liberalisation may undermine countries’ ability to learn another set of skills that are essential for development: how to allocate resources and manage risk.

Likewise, intellectual property, if not designed properly, can be a two-edged sword when viewed from a learning perspective. While it may enhance incentives to invest in research, it may also enhance incentives for secrecy – impeding the flow of knowledge that is essential to learning while encouraging firms to maximise what they draw from the pool of collective knowledge and to minimise what they contribute. In this scenario, the pace of innovation is actually reduced.

More broadly, many of the policies (especially those associated with the neoliberal “Washington Consensus”) foisted on developing countries with the noble objective of promoting the efficiency of resource allocation today actually impede learning, and thus lead to lower standards of living in the long run.

Virtually every government policy, intentionally or not, for better or for worse, has direct and indirect effects on learning. Developing countries where policymakers are cognisant of these effects are more likely to close the knowledge gap that separates them from the more developed countries. Developed countries, meanwhile, have an opportunity to narrow the gap between average and best practices, and to avoid the danger of secular stagnation.

• Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University. His most recent book, co-authored with Bruce Greenwald, is Creating a Learning Society: A New Approach to Growth, Development, and Social Progress.

Copyright: Project Syndicate, 2014.