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The 4th Industrial Revolution - A Scenario Analysis on the Future of Production

How technology will transformation of production system drive innovation, sustainability and employment in 4 different scenarios

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The 4th Industrial Revolution - A Scenario Analysis on the Future of Production

  1. 1. July 05, 2017 The 4th Industrial Revolution How will technology transformation of production systems drive innovation, sustainability and employment in 4 different scenarios? Economic Environment II Group C: Antonio Auricchio | Barbara Fontela | Avaneesh Goel | Yuxiang He | Clemens Jungmair | Andrea Roa Modern Gilded Age Collaboration Age of Robots Innovation Constraint
  2. 2. 2Economic Environment II – 4th Industrial Revolution Agenda A Modern Gilded Age1 Age of Robots3 Collaboration for Sustainability2 Innovation Constraint4 4th Industrial Revolution
  3. 3. 3Economic Environment II – 4th Industrial Revolution 1. A Modern Gilded Age Technology transformation will slowly evolve and disrupt AD in the long term Digital 1 Physical 2 Biotech 3 Banned through internet policies High import tariffs Tariffs and limited growth Foreign Technologies (and goods) Aggregated Demand Domestic technologies will slowly continue to evolve and go through the 4 stages of technological development – from Emerging to Scaled-up. Protectionism of government would limit domestic companies’ opportunities and put burdens on foreign technologies: Domestic Technologies (and goods) Short Term Medium Term Long TermAD t Turning to a Modern Gilded Age, aggregated demand will first experience natural growth levels and new technological support, but will ultimately drop in the long term. SocietyEconomyTechnology
  4. 4. 4Economic Environment II – 4th Industrial Revolution ST MT LT 1. A Modern Gilded Age ProductionEmployment Imports & Net Trade Sustainability +4.80% 1995 ST MT LT2015 ST MT LTPP t The purchasing power of wages at the beginning will adapt to a higher inflation rate. Over time, due to the combined effect of real wages weakness and technological subsidization of workforce, countries will enter in a downward recession spiral. • No food security • Gap between social classes • Limited eco-friendly production technology • Increasing environmental damage • Supply < demand • Consumption of resources will be a threat to future generations SocietyEconomyTechnology $ t Real economy will increase in correlation with AD, but will drop in the LT as production is not efficient and resources are scarce. Financial economy will fall ST as volatility after protectionism will boost, shifting its focus to a trans-generational capital market in LT R F OECD Imports Net Trade
  5. 5. 5Economic Environment II – 4th Industrial Revolution 1. A Modern Gilded Age Consumption Investments Government Spending Import/ Exports Protectionism will eventually slow down economic growth GDP Reflects pattern of AD; grows in MT, but breaks down in LT As state turns shielded, investments from foreign investors and go down As imports decrease, government will have to subsidize the lack of factors of production. Increasingly negative net trade will cause GDP to significantly drop in the LT. Foundations of Wellbeing Environmental Quality: Suffers from inefficient use of natural resources while expending on new renewable sources of energy. Opportunity Personal Freedom: Restricted; especially less freedom over life choices as ownership of foreign goods. SocietyEconomyTechnology Basic Human Needs Water and Food Deficit: Further exploitation of resources will not guarantee coverage of basic human needs Social Progress Index Basic Human Needs Foundations of Wellbeing Opportunity 0 20,000 40,000 60,000 80,000 1960 1980 2000 2020 2040 2060 2080 2100 6% Historic OECD Forecast Assumption
  6. 6. 6Economic Environment II – 4th Industrial Revolution 2. Collaboration for Sustainability Technology transformation will presumably occur in the long term Digital 1 Physical 2 Biotech Development depends on resources and sustainability Aggregated Demand Government policies will eventually hamper technologies if production methods or consumption are unsustainable Sustainability affecting technology Short Term Medium Term Long TermAD t In collaboration for sustainability, aggregated demand continues to grow in natural terms, but will sharply revive in the long run when technologies reach maturity and scaled-up phases to get fully commercialized. Scaled-up 3 SocietyEconomyTechnology
  7. 7. 7Economic Environment II – 4th Industrial Revolution ProductionEmployment Imports & Net Trade Sustainability L t 2. Collaboration for Sustainability Aggregate Labor demand will experience three different phases over time: § ST: transition from the status quo to a tech-based manufacturing; § MT: adoption of new techs; § LT: evolution of the whole productive system (subsidization). +4.80% 1995 ST MT LT2015 • Cooperative environment will lead to tangible growth in common welfare • Renewable energy boom propels development and sustainability • Advancements in resources extraction through technology • Natural unemployment rate in the LT will shift to higher levels OECD Imports Net Trade ST MT LT Q Labor As technology evolves in the medium-run, the total product curve would shift from the traditional shape to a linear line. With the help of technology, labor would be very efficient and would directly reflect output. In the long-run, robots will substitute labor, which will be zero. TP1 TP2 TP3 SocietyEconomyTechnology ST MT LT
  8. 8. 8Economic Environment II – 4th Industrial Revolution 2. Collaboration for Sustainability Consumption Investments Government Spending Import/ Exports As AD and wealth increases, aggregate consumption level will rise Domestic investments will go up as country situation improves To incentivize sustainable technologies in private sector, public subsidies will be high Increasing exports and positive net trade balance Equal accessibility to education and room for develop a healthy living in a green environmental society with vast resources Society will empower every member towards self-fulfillment Technology will assure state-of-the art health care and access to basic resources SocietyEconomyTechnology Foundations of Wellbeing Opportunity Basic Human Needs Technology transformation will presumably occur in the long term Foundations of Wellbeing Opportunity Basic Human Needs Social Progress Index GDP Basic Human Needs Foundations of Wellbeing Opportunity 0 100,000 200,000 300,000 400,000 1960 1980 2000 2020 2040 2060 2080 2100 6% Historic OECD Forecast Assumption
  9. 9. 9Economic Environment II – 4th Industrial Revolution 3. Age of Robots Unemployment becomes irrelevant as high basic income will be redistributed Aggregated Demand The full exploitation, high adoption and full scale will achieve an ultimate robot society in which human labor is substituted by technology. Full Technology Transformation By substituting human labor, shareholders will be left as the only “workforce”. By redistributing part of the surplus, “non-workers” will be provided with high basic income, which will lead to high, stable levels of AD. Digital 1 Physical Biological 3 Robot Society 2 Short Term Medium Term Long TermAD t SocietyEconomyTechnology
  10. 10. 10Economic Environment II – 4th Industrial Revolution ProductionEmployment Imports & Net Trade Sustainability Counterintuitively, subsidizing workers with machines and redistributing wealth will cause unemployment to marginally decrease, as the subsidized workers would actually leave the workforce. Thus, in the utopic LT, the unemployment rate would be irrelevant from an economic standpoint. 3. Age of Robots ST MT LTu t +4.80% 1995 ST MT LT2015 • Welfare Society • In the long run, technology development finds sustainable ways of production • Cheap production costs and high purchasing power OECD Imports Net Trade Tax revenues Tax rate When workforce will be substituted by robots, personal income tax will not be applicable anymore. Tax will be taken from the higher surplus made by companies that will have no more incentives to evade taxation. Consequently, the Laffer curve will converge to the optimum. SocietyEconomyTechnology T* R* Optimum A B 0% 100% R´
  11. 11. 11Economic Environment II – 4th Industrial Revolution 3. Age of Robots Welfare Society in the LT will reach a Nash Equilibrium Society will reach status of maximum welfare, thus Consumption will balance at high levels in LT Domestic investments will go up as country gets more productive High subsidies for technology development. High unemployment benefits to create welfare Despite the openness of markets, production will happen locally in the LT Environmental Quality: Development of biology technology will increase sustainability Lack of incentives for professional development and social status improvement Society will progress towards common well-being without inequalities on the social structure SocietyEconomyTechnology Consumption Investments Government Spending Import/ Exports Social Progress Index GDP Basic Human Needs Foundations of Wellbeing Opportunity 0 20,000 40,000 60,000 80,000 1960 1980 2000 2020 2040 2060 2080 2100 6% Historic OECD Forecast Assumption Foundations of Wellbeing Opportunity Basic Human Needs
  12. 12. 12Economic Environment II – 4th Industrial Revolution 4. Innovation Constraint Economy is driven by natural growth but not by technological progress Aggregated Demand Regulations will limit 4th Industrial Revolution. Consequently, R&D and investments will stop and technologies will never become viable. Technologies not being developed Natural growth of the economy is driving slight increases of aggregated demand over time. A 4th industrial revolution is not spreading through society, as government regulations will protect nations from its inherent dangers. Digital 1 Physical Biological 3 2 Short Term Medium Term Long TermAD t Regulations prohibit development Constrained AD Potential AD ( not costrained ) SocietyEconomyTechnology
  13. 13. 13Economic Environment II – 4th Industrial Revolution ProductionEmployment Imports & Net Trade Sustainability Wages would mirror the non- competitive situation of the labor market. In fact, technology would be abandoned by all industrial sectors, leading to both a commodification of low-skilled workers (stagnant wages) and an incremental divide with highly specialized employees. 4. Innovation Constraint ST MT LTwg t • Technology will not dominate social interactions • Human capital is key • Traditional production systems continue emission growth • No improvement of resource management +4.80% 1995 ST MT LT2015 OECD Imports Net Trade Q Labor TP Output increases as input increases, then experiences constant returns until law of diminishing returns kicks in and firm reaches maximum output. Beyond that, increases of input diminish and gives negative returns. SocietyEconomyTechnology
  14. 14. 14Economic Environment II – 4th Industrial Revolution 0 100,000 200,000 300,000 400,000 1960 1980 2000 2020 2040 2060 2080 2100 6% 4. Innovation Constraint Economy is driven by natural growth but not by technological progress Constraint progress leads to stagnant growth rates Low domestic investments due to better foreign opportunities Low government spending as only the status-quo is to be preserved Imports and exports grow at normal historic rates Access to Communications and Information: limited access to global new trends will avert society to become modernized. Personal freedom: outdated system at social, economic and environmental levels Nutrition and Basic Medical Care: traditional methods incapable of handling population aging SocietyEconomyTechnology Consumption Investments Government Spending Import/ Exports Potential (no constrain) Social Progress Index GDP Basic Human Needs Foundations of Wellbeing Opportunity Historic OECD Forecast Assumption Foundations of Wellbeing Opportunity Basic Human Needs
  • kamruzzamanMonir

    Apr. 6, 2019
  • liaoyong412

    Jul. 6, 2018

How technology will transformation of production system drive innovation, sustainability and employment in 4 different scenarios

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