Only government can ease the pain of industrial revolution

Society takes time to adjust to new technology, and rules must keep up, says Lisa Denny

WHAT is fuelling increasing discontent in Australian society? Why is it that we have such social and economic challenges as rising inequality, increasing housing stress, low wage growth, persistent under-employment and economic stagnation facing Australians today? Why are we pitting generations against each other?

Industrial revolution scholars argue that advanced nations globally are at the turning point in the threephase process of an industrial revolution, sandwiched in the adjustment phase between the first phase: job destruction and the third phase: job creation and widespread social prosperity. These scholars further argue that the adjustment period is not a passive process and cannot be left to the markets to determine.

Like history, the process of an industrial revolution repeats itself; a long-wave transformation that plays out over half a century, give or take a decade. Described by Carlotta Perez as “the vast diffusion of what was once an invention into a socioeconomic phenomenon”, to warrant revolutionary status new technologies must have the capacity and capabilities to profoundly transform the rest of the economy and, eventually, society. Think technological advancements associated with industrial revolutions such as the steam engine, railways or electricity.

The economic opportunities of each were adopted quickly and infiltrated the broader industrial base. However, the benefits to society took longer and required an adjustment phase in which a new institutional framework replaced the outdated regulatory system to ensure that society also benefited. Alongside new rules and legislation, newly accepted social and cultural norms were required before social transformation was possible.

The current industrial revolution is referred to as the Fourth Industrial Revolution (4IR), coined by Klaus

Schwab, founder of the World Economic Forum, and is an enduring one; the first phase beginning in the 1970s with the rise of information and communications technology.

Historically, the adjustment period has been characterised by unintended consequences such as increasing job and skill mismatches, obsoletion of qualifications and training, unemployment, income and wealth polarisation and jobless economic growth, as businesses and industries strive to increase productivity and maintain competitiveness, just as it is now.

The adjustment phase can be summed up as a process whereby the institutional framework becomes obsolete because it was designed around a previous technoeconomic paradigm and needs to be replaced with a relevant regulatory environment. It is further argued that application of obsolete regulatory systems can aggravate society and the economy contributing to a collapse, often in the form of a recession or financial market failure. It is often not until crisis point that reform eventuates. Think Paul Keating and “the recession we had to have”. This adjustment phase lasts as long as it takes to establish the institutional framework required to fully capture the potential of the new technology. To do that, it needs to be shaped by government-led intervention.

The level of political consensus, conflict or confusion strongly influences the speed and the ease or difficulty with which the phase

of job creation is established. Given that changes in an economy usually happen much faster than institutional reform, adjustment phases have historically been long and difficult — two to three decades — and accompanied by considerable social costs.

Importantly, the diffusion of new technology is subject to the values, principles and mechanisms of society so much so that the extent of diffusion is subject to the response by institutions, rules, laws, behavioural responses, rights and obligations associated with new technology and how society is socialised to use it. Think the current data-driven economy.

This requires unlearning, learning and relearning processes, new rules and regulations as well as new education, training and skill development.

Institutional reform mobilises support for change whereby a sense of justice is generated; that the distribution of gains and losses, the unintended consequences associated with the revolution, are considered fair. This has already been recognised by CEDA, the committee for economic development of Australia, in “Connecting people with progress: securing future economic development”, pointing out that while businesses adapt to the disruption new technologies create, “governments need to be identifying new regulations to be institutionalised to keep economies transparent and effective”. This includes maintaining trust in the institutional framework.

Trust that institutions will respond accordingly in times of systemic failings provides people, and society, with the confidence and security they need to continue on with their lives.

So, to answer the questions leading this article, it is our outdated, mismatched regulatory environment that is causing social dishevel in Australia today, and it is our sociopolitical choices which can determine whether we have a future of job scarcity, non-standard forms of work and inequality or job creation and quality work leading to widespread prosperity. Public policy development needs to shift to preventing the former and proactively facilitating the latter, or the collective framing of technological unemployment’associated with the Fourth Industrial Revolution is at risk of becoming a self-fulfilling prophecy.