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How will new technologies impact our government and economy?

What to expect in terms of the next phase of technological change in government and the economy? The transition into a so-called 4IR can only take place in a co-evolutionary manner between technology and institutions. Governments will have to strike a balance between data-driven innovation and intelligence and citizens-centric innovation and intelligence. And a new economic geography is emerging with different comparative advantages, ways of thinking and business models, rendering some traditional paradigms obsolete.

There is a lot of enthusiasm about the prospect and potential of innovation stemming from big data and blockchain to artificial intelligence, the internet of things and cryptocurrencies. These technologies are seen by many as the pillars of a Fourth Industrial Revolution (4IR) that is set to transform our governments, businesses and lives. It is difficult to foresee with any degree of accuracy how fast will various societies be in developing socioeconomic systems around these new technologies.

The transition into a so-called 4IR can only take place in a co-evolutionary manner between technology and institutions. As businesses adapt technology to accommodate users’ tastes and needs, governments will accompany the process with the introduction of policy and regulation to steer technological developments in a socially optimal direction. It would be impossible today for example to imagine road, air, or maritime transports technologies without government regulation. For example, even small drones today cannot be flown without special licences. The same can be said about almost any technology from telecommunications to food and medicine.

The most transforming technologies are therefore those that require and superimpose new systems on business-as-usual routines and even more so those that necessitate new thinking about long term held beliefs about the economy and society. In this respect, I would like to make a series of observations here on what to expect in terms of the next phase of technological change in government and the economy. I will first begin with government.

Impacts on government

Increased digitalisation of government will have the positive effect of shielding and mitigating political interference as well as bad governance in the delivery of public services to the citizens. More precisely, with the “technologisation” of service-delivery, public services become less prone to disruptions from the political side of government or from senior level of administration. Technology, especially automation, will make it easier to bring accountability, transparency and predictability to public administration, making it more immune to politics.

However, we can expect this benefit to be limited to public service areas characterised by low conflict and high level of consensus. Politically sensitive public domains with ambiguous technical solutions (aka. wicked problems) will remain difficult to automate or relegate to an AI device.

For example, these can be policy and service issues within education, childcare, healthcare, security, etc. that would vary from country to another in terms of level of political consensus and public sensitivities towards proscribed technological solutions.

Thus, a full technology-driven transformation of government will be ultimately driven by political windows of opportunity. It is only through the emergence of political windows of opportunities to tackle certain wicked policy areas that certain technological solutions can be promoted and graduated into acceptable solutions. Buying-in from key stakeholders and community groups will be essential for the eventual emergence of new socio-economic systems that embrace new technological systems.

Citizens value stability, transparency, and efficacy of government operations and services and it is therefore imperative that innovating government departments undertake the necessary proof-of-concept activities, pilots and experimentation and eventually create new institutions to design, develop and deliver new technological systems. As they move into a 4IR mode, governments will have to strike a balance between data-driven innovation and intelligence and citizens-centric innovation and intelligence. This important to continue be able to introduce solutions that address users’ needs and to subsequently secure the public and political support necessary for embracing innovation.

The beauty of such developments is that they make successful government experiences increasingly transferable and interoperable. A city introducing a full electronic service system for its visitors or citizens can transfer – even sell- its model to a different city within the same country or beyond. Such projects are almost always undertaken in partnership with private sector commercial partners who themselves will act as the conduits of technology transfer.

It is not far-fetched though to imagine one or more successful cities (say Dubai, San Francisco, or Singapore) would set up a commercial arm to market, sell and transfer their operating systems. Some cities may become the gold standards for certain public services, certifying the quality of operations of other cities. In this regard, we expect technology to transform government services into public-private sector ventures joined in new business models.

Impacts on economy

This leads me to my second set of observations about the economic challenges and opportunities brought by new technological trends. In my book Black Swan Start-ups: Understanding the Rise of Successful Technology Businesses in Unlikely Places, I showed how 11 technology start-ups managed to grow and scale despite being in the wrong place at the wrong time. Re-visiting the 11 cases, I noticed that one critical common factor between 10 out of the 11 was the fact they were all based on digital platforms. True that, Sofizar, a search engine optimization company, had to deal with all the shortcomings of a place like Lahore in Pakistan (and to do so voluntarily as the founder relocated there from the US), the fact that the business could be run entirely over the Internet has meant that many of the problems associated with the location have disappeared. For Zafar Khan- the founder- Lahore had several comparative advantages over California, where the founder was previously based. It was a lot cheaper and offered him the time and space to build and sustain his business without the resource and time pressure of California. It also had high caliber IT workers. Sofizar needed the US market to grow and could access that market entirely via the Internet.

The morale of the story is that digital platforms have changed what gives a place a comparative advantage over another place business specific and varies from one business to another. Cities, regions and countries now afford to ignore the lack of certain resources and capabilities compared with the top performing places, and focus instead on the resources and capabilities which will give them advantage over other locations only with regards to certain types of businesses.

In this regard, digital platforms, such as Apple Store, Google Play, Google, Amazon, Instagram, Kiva, Facebook, Snapchat, Skype, Uber, Airbnb and others are rendering the traditional rural-urban, centre-periphery dualisms obsolete. What is emerging is a new economic geography that distinguishes between five different types of comparative advantage, which I coined: Cost, caliber, convenience, creativity, and community. Certain cities, regions, and countries provide a “surplus” for businesses in terms one of these five Cs or a combination of two or three. It is almost impossible for a place to maintain a comparative advantage in all five.

Another observation is the eventually changing relationship between demographic change and the economy. It has been long understood that a growing population yields a demographic dividend and that a shrinking population leads to a shrinking economy.

But today with automation, economies can grow with less or little increase in labour. In fact, this one of the main challenges of automation today. Businesses can make use of AI and robots in general to automate production. But the silver lining for this development is that economies can continue to grow while populations in the West decline and governments can still afford to increase its tax revenue and support the pension and healthcare cost of an aging population.

This is not the case in countries with a steady population growth where automation will indeed decrease their economic prospect until new forms of economic activities are figured out. Here, the traditional perspective on growth and employment will have to be revisited in light of the 4IR. New technological trends are deviating the rate of economic growth from that of employment growth. New thinking will be required about what constitutes economic activity and about new forms of work under the new emerging technological regime.

For instance, the so-called “gig economy”, the “sharing economy” and the “circular economy” among others are providing new forms of economic activity that are still short of being jobs per se but are in the process of being regulated to gain more formal status like traditional jobs.

New business models have emerged on the back of new technology platforms (e.g. two-sided markets, shared economy, block-chain etc.) to create new forms of economic activities and with them new forms of jobs. This requires adopting and adapting to new forms of economic activity organized outside the realm of nine-to-five industrial organization.

Together with the developments mentioned earlier, some countries -e.g. Finland- are experimenting with new citizen-social-state contracts where it is perfectly OK for citizens to receive a minimum wage without having to be engaged in an economic activity. A prosperous society where technology is constantly creating new value may indeed not require a majority of its citizens to take part in economic activity.

This could be the beginning of a new world where economic activity is the occupation of a small fraction of society at any given period of time where people go in and out of it at their moment of choice.


Escrito por Sami Mahroum, Academic & Executive Director at INSEAD.
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