Editor's note

As a rule, Davos annual meetings provide a strong impetus for politicians, corporate leaders and global financial sector’s representative concerning new developmental trends in the world. This meeting was no exception; more than that, it proclaimed (so-to-say, officially) the “fourth industrial revolution” or FIR. The phenomenon has been known for some years, but comprehensive understanding was presented in Davos for the first time.

FIR’s main components & revolutions’ dynamics

The new “revolution” affects numerous socio-economic spheres. Suffice it to mention some FIR’s aspects dealing with convergence of the public, private and nonprofit sectors; challenging present ways of “doing business”, with a strong impact on governments, changing educational process, introducing robots, “big data -technique”, artificial intelligence, and so on and so forth.

The new revolution will affect the very foundations of modern societies: economic growth, education, financial systems, geo-security, global trade, health, poverty, and much more. Even the whole “capitalism’s concept” (see below) has been subject to deliberations in Davos… 

Our magazine will show the FIR’s effect on modern societies: in this lead I will touch upon only some of them and in a very sketchy form.

The dynamics of previous “revolutions” goes the following way (see table below): 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 and combines the whole spectrum of digital development 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. 

Table: Industrial revolutions’ dynamics

Fundamental changes are already a reality in the modern world. Revolutionary transformations in the civil society have helped individuals, communities and governments adapt to the new, unfamiliar challenges.

Much has been said about what the new revolution means for businesses, governments and citizens. Despite the lack of immunity to disruption, civil society, specifically nonprofit development organizations, have been absent from these considerations. A likely explanation for this oversight is civil society’s perceived intermediary role as a connector of governments, business and communities.

Public, private and nonprofit sectors: convergence

Already presently some fundamental changes are happening throughout the non-profit development sector with the emergence of what is known as the Fourth Sector. The changes have real and potential impact on the millions of people who are poor and marginalized around the world.

The Fourth Sector – a convergence of the public, private and nonprofit sectors – is changing the way society operates the approach development as well as relations to one another. The Accenture Development Partnerships’ report, “The Convergence Continuum towards a Fourth Sector in Global Development” has some ideas in that regard.   

During the course of the last five years, there has been a gradual shift in the business models of both commercial businesses and nonprofits. Traditionally income-driven businesses have progressed from donating money through corporate social responsibility programs to more substantive partnership roles with nonprofits.

Businesses are presently taking one step further towards integrating social impact into their business models, under the rubric of shared value, encompassing both earned income and some degree of social benefit into their business model.

On the other side of the spectrum, an altruistic non-profit sector adopts more traditional business-minded, private-sector characteristics. While income/grant-based work remains the core of business efforts, non-profits are exploring new market-based social enterprises and impact investment (e.g. return-seeking capital), which simultaneously maximize social benefit. Finding, implementing and advocating solutions to global challenges is still businesses’ main mandate; however, the way business goes around is fundamentally shifting.

In the middle of state management there are governments, which are accountable to citizens for providing for their basic needs, e.g. from health to security. Government models vary widely in Europe; however, they traditionally involve earnings from various taxes structures and fees, as well as foreign aid and other types of international financial support. While governments have a long history of working with nonprofits and the private sector, they are members of large-scale public-private partnerships and often look to the private sector to help solve problems from infrastructure to healthcare.

Digitalisation & artificial intelligence

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, nano-technology, bio-technology, materials science, energy storage, and quantum computing.

Already, artificial intelligence (AI) 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.

As to the digital agenda, recent World Bank report draws a conclusion similar to the Estonian experience: a trustworthy legal system and public sector, as well as legislation that supports enterprise and innovation, are necessary prerequisites for benefiting from digital development.

In order to reap the benefits of the digital era, people need to acquire new, modern technological skills because the digital economy cannot develop without skillful and smart users. So, everything starts with school and the key here is rethinking and reshaping education. 

Education

The complexity of the systems developed to meet the demands of the fourth industrial revolution necessitate interdisciplinary and collaboration as a precondition for innovation.

Although digital higher education can be more affordable compared to other education options, higher education institutions need to consider the best ways to reaching underserved populations where education can serve as a strong empowerment and change tool.

Massive Open Online Courses (MOOCs) are a potentially disruptive innovation. The number is increasing exponentially across the globe, making learning more accessible to people. According to the report (By the Numbers: MOOCS in 2015), the number of participants has doubled in 2015 from 16-18 million students to 35 million students across all MOOC providers; even universities are digitizing some of their courses.

Future of capitalism

Present World Economic Forum has witnessed intense debate about the future of capitalism. Many were asking whether capitalism, with all of its excesses, still has a place in today's world; some speculated that if even managers and bankers were raising doubts about the system's future, then perhaps capitalism had already been outdated.

The notions about capitalism's imminent demise may be somewhat exaggerated; in fact, the ideology of a free but socially committed and fairly regulated market economy was never questioned in Davos.

However, some ideas have been heard, e.g. as to whether capitalism in its present form either serves or undermines the free market economy. Thus, a clear distinction was made in this regard between the ideology of a social market economy based on individual responsibility on the one hand, and the capitalism as such on the other.

Over the course of the past 200 years a range of different interpretations of capitalism have emerged; some involved a reaction to industrialization. In historical terms, the transition from manual trades to machines required an ever increasing degree of investment, and therefore the provision of capital. In this sense, capitalism is not an ideology as such, but an applied theory of the creation and efficient deployment of capital as a factor of production. In its genuine sense, capitalism is therefore the component of an economic system that relates to the capital market, enshrined in the principles of a free market and guaranteed ownership. However, these principles are part of a more comprehensive ideology.

However, it seems fair to say that capital is losing its status as the most important factor of production in the modern economic system. Capital is being superseded by creativity and the ability to innovate (generally, by human talents) as the most important factors of production. If talent is becoming the decisive competitive factor, one can confidently assume that capitalism is being replaced by “talentism”.

Just as capital replaced manual trades during the process of industrialization, capital is now giving way to human talent. This process of transformation will also lead to new approaches within the field of economics. It is indisputable that an ideology founded on personal freedom and social responsibility gives both individuals and the economy the greatest possible scope to develop, underlined Forum’s president, Mr. Schwab.

Source: http://www.huffingtonpost.com/klaus-schwab/end-of-capitalism_b_1423311.html

To ensure that this capacity for development is fair, better regulation and safeguards are required (above all for capital markets), which also necessitate global coordination. In this sense, capitalism is now called upon to make the necessary adjustments for it to remain a key pillar of western free market economic system, but also for it to adapt to today's circumstances and to be the servant rather than the master of a socially responsible market economy.

Ultimately, it is a question of returning to the stakeholder principle, which is now undergoing a renaissance under the name of “shared value creation” thanks to Harvard professor Michael Porter.