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Is it time for the rise of local currencies?

Prof. Murray Hunter

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It’s an almost long forgotten historical fact that most trade was undertaken by local based currencies right upto the 20th Century. Australia had a number of colonial currencies before federation in 1901. The United States of America had a number of currencies issued by private banks before the Federal Reserve Bank was formed in 1913, and individual states of the European Union had their own national currencies before the mega-currency, the Euro was launched in 1999.

However given the trend to larger and “stronger” currencies, the hype of the Euro, the protection of the US Dollar as the major trading currency, a very quiet trend has been going the other way. In contrast, more than 2,000 local currencies, in some form or the other, have been launched in various communities around the world.

Literature on the phenomenon of the local currency almost doesn’t exist in contemporary economic literature. Therefore the purpose of this article is to have a look at local currencies, and try and answer the following questions; Why do communities launch them? Do local currencies have any benefit to these communities?, and What is the real potential of these currencies?

A local currency, sometimes referred to as a community currency, is a means of exchange used by members of a community that have some common bonds. Local currencies are usually not backed by a national government, nor is it officially a legal tender within the region it circulates within. A local currency is usually intended for trade within a limited geographical area.

Money is essentially an agreement to use something as a means of exchange. Any local currency can be denominated by the prevailing national currency, or measured in any commodity, or even labor units to determine comparative unit value, so people know how to use it as a medium of exchange. This redemption measure, if realizable, is usually a major factor giving users confidence in its present and future value.

A local currency is a potential tool of monetarism, where it can help to define an economic boundary where certain groups readily accepts it as a medium of exchange.

Local currencies are usually created on the value judgment, supported by E.F. Schumacher’s ideas that there should be a focus on the development of local economy. The proponents of local currencies would usually aspire towards developing a diverse local economy full of diverse micro-activities which would promote local production, local self sufficiency, and the maintenance of profits within the local area by local businesses. They would hope that the local currency and the corresponding changing spending habits (use of a local rather than national currency) would promote a preference and loyalty to local products and businesses, rather than goods and businesses from outside.

The proponents of local currencies would also probably aspire towards developing personal relationships in trade and desire to get away from the “McDonalds landscape” where the same restaurants, stores, and service businesses exist in everyplace with an emerging mono-culture. Thus the introduction of a local currency would be seen as a method of encouraging the de-standardization of their local community through promoting the development of vibrant diverse community activities.

The success of any local currency depends upon the assumption that a single country may not be an optimum currency area, where different regions within a country may be better off with different currencies. This would allow the development of local comparative advantage over national comparative advantage. This is very much against the spirit and purpose of macro-economic policy during the development phase of most economies, which has generally promoted centralization, the growth of SMEs into larger corporations so that economies of scale are developed to the point where firms can exercise competitive advantage in the international market.

Even though local currencies worked extremely well in the 19th Century (remember they were most often redeemable in gold then), the track record of the contemporary local currencies hasn’t been good. The successful ones like the Berkshare have been proxy currencies with an a generally agreed par value with the national currency. In fact, it is only the Berkshare used in the Berkshire region of Massachusetts, that has been touted as the success story of local currencies. The Berkshire has a large number of users, which manages to keep the currency circulating within the local community. However in the Berkshire case, the community was already pre-disposed to producing local products for the local community. Many others have failed or ceased to exist through low levels of support within communities. While others like the Kelantan Dinar launched in 2006 was effectively sabotaged by the Malaysian Federal Government through repeated statements that the Dinar was not legal tender.

One of the impediments of any successful local currency is developing a critical mass of community support that would keep the circulation velocity high enough to maintain its perceived value.

A more notoriously use of a local currency was in the Cocoas Islands, where the Malay workers once ruled by the Clunies-Ross family were paid in Cocos Rupees, a currency John Clunies-Ross created and which could only be redeemed at the Clunies-Ross owned company store. Large retail corporations have successfully used forms of complementary local currencies as coupons, gift certificates, and point systems, to enlist customer loyalty.

Although there is scant evidence that any local currency to date has actually promoted local economic wealth, the mediocre track record of local currencies does not mean they don’t have great potential in the future as a means of achieving specific economic objectives needed in many economies today. From a macro-economic point of view, a local currency is a perfect tool for local micro-economic management, where the objective is to develop micro and SME industry to serve the immediate community. This will more and more become an important objective both in developing and developed economies around the world due to poor local enterprise diversity in many places.

A local currency, coupled together with a hybrid of crowd funding organized by local cooperative banks, would be a powerful alternative for providing credit to local enterprises that the conventional ‘big’ banks have been hesitant to service.

There may be another philosophical reason for adopting this approach as well. The banking sector has become so centralized, that most governments across the world have deemed their local banks ‘too big to fail”, where these privately owned institutions are almost above the law, or worse still, become a law unto themselves. All lending, trade, interest rates, and other credit facilities are controlled by these banks. No government took any great effort to regulate these institutions post 2008, because the job was too difficult and very few had the political will to do it.

The nature of a national currency has given banks great power to create money through debt creation. Most money that makes up the currency system is actually electronic. There are no notes or coins or supporting wealth to back up this money. It’s just a figure on a computerized ledger system where, if any bank was asked to produce the physical currency, it would be impossible. Technology has allowed this system to evolve, which arguably has been one of the underlying causes of financial crises i.e., electronic selling mortgages and derivatives etc. This is upsetting the balance of wealth in every country, where GINI indexes are actually widening.

Centralization has generally meant higher interest rates over time since single currencies and centralised banking came into existence. This suited government which found it easier to deal with a more centralised banking industry and fund economic activity. This also caused a rural crisis which was partly solved through the formation of specialized and subsidized rural banks in some cases.

One could also argue that the housing crisis was also caused by central currencies where investments made in land as a ledge against inflation of a national currency was encouraged and promoted.

However a local currency may be able to challenge the dominance of these banks, which impose their credit policies upon communities from outside. The local currency may help to provide some economic freedom from the interest rates banks apply to communities, and the prevailing inflation rates on the national scene.

This can be done by using local currencies to provide new means of obtaining credit and capital funding for businesses that banks won’t fund. It is here local currencies can help most, where governments all over the world have failed to influence the banking sector to step into the area of micro-finance. In this period, nearing on deflation, i.e., real wages are relatively decreasing, a local currency may enable local trades people to exchange labor for local goods much more effectively.

The means of trade is typically changing today where the traditional means of exchange with state currencies are being discarded for electronic and cyber alternatives. One thing is for certain is that national currencies will be weakened by the number of alternatives to currencies and banking that are springing up on the internet and social media today.

The potential of local currencies has become a forgotten tool of development. New employment in the future is likely to be created through small business with limited capital. Very few large corporations will dramatically increase employment as they are looking for ways to reduce employment.

Many multinationals open and shut in the developing world, and move on to places where they can make larger profits, leaving vacuums in employment. Therefore micro enterprise and SME development, as well as seeking to diversify local economies should be a major economic objective.

A local currency should go hand in hand with a local community banking system. Any local banking system should have a simple system that is easily understood, be consistent with existing system, be redeemers of currency (i.e., current currencies are not redeemable in anything, if a local currency is redeemable against a national currency gives it intrinsic value), provide a universal measurement of value to provide a sense of security, eliminate interest and install discount rates on loan repayments – i.e., voucher, and be organized at a local and community level.

Credit unions have existed for a long time and this is not far away from the concept espoused here. However governments through their support for ‘big’ banks, and banks through acquisitions and aggressive commercial practices have done their best to destroy this type of institution, which has stood in the way of banks taking over control of the economy, through central lending policies.

One must not forget that money is a social instrument. Local currencies are a ‘bottom-up’ approach to development rather than usual policy initiatives which come from a central government. Local currencies seem to have one thing in common, which may be the primary reason that promoters create them in the first place. That is the enhancement of local identity and sense of community within a region. Advocates of local currencies would argue that a local currency helps to form a sense of community which may lead to localized entrepreneurial start-ups in ventures that serve these communities. This would primarily be in specialized food businesses, etc. Thus local currencies could be seen as a source of social justice in helping to promote local entrepreneurial activities. Opportunity is also a human right.

A local currency, imaginably used, may be able to promote a micro-business sector to cover the local economic void that now exists in many communities. Local businesses can be nurtured through using hybrids of local currencies for alternative financing linking into variations of local crowd funding, and thus reflect local economic value better.

Local currencies may be more protective of international exchange rate fluctuation, thus protecting local economic buoyancy, which appears to be on the rise of late. A local currency may even be able to assist in lowering the high cost levels many developed economies, which has destroyed the simple economic model of local production to serve local communities. It is all about going back to the future in macro-economic policy to recreate local comparative advantage once again.

As pointed out by the author of Sacred EconomiesCharles Eisenstein, it was Taiwan, Japan, and South Korea, which fostered local production through import replacement protectionist policies in the 1980s that have prospering middle classes today. Compare this with Mexico which opened up free trade and openly allowing in foreign investors, gained very little in knowhow, technology, and permanent capital. Further, countries like Brazil and Thailand are taking measures to protect their economies from the flood of cheap US dollars buying up domestic assets. In both these cases the currency acted as a protection mechanism from the outside world in a form of economic sovereignty. Compare this to the situation in Greece which does not have its own currency.

Perhaps the real reasons why local currencies are introduced are non-economic. Local currencies are more about building community pride and developing ‘cultural capital’ against national and international trends.

The objective of a local currency and the attached value system to it, is to create or recreate a local community, product and service economy that meets the needs of local society from the local society itself. It aspires to develop a self financing community.

This is a very powerful tool for community development, to create micro-economic activity back in the communities that have become economically barren, and then to capture the value of local trade and hold it within the community.

As Bernard Lietaer said, ‘civilization needs a new operating system and fast’. This is indeed very relevant for many parts of the world today.

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Eurasian integration: From economics to creation of a center of power

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Russia’s President Vladimir Putin had every reason to congratulate his Armenian colleague Nikol Pashinyan with the outcome of the summit of Eurasian Economic Union (EAEU) leaders that was recently held in Yerevan, where many promising decisions were made, bringing Iran, Singapore and Uzbekistan closer to this international organization.
Creation of various economic associations amid the ongoing process of globalization and toughening competition is a global trend nowadays. And still, the reasons for this process in Eurasia are as much economic, as they are existential.

The “traitorous” decision by the Western Christian powers during the Crimean War to side with the Ottoman Empire, which was widely perceived as a force hostile to the Christian world, came as a shock for Russian society, and above all, for the elite of the Russian Empire, which, throughout the 18th and 19th centuries, had been working hard to expand “the window on Europe,” opened by Peter the Great. The Europeans’ deep-seated rejection of Russia as part of the European world, often spilled out into open hostility.

The Crimean War underscored Christendom’s split along ideological and political lines, which began with the separation of the Roman Catholic and Orthodox Churches in 1054. The rapprochement between Russia and the European powers during and immediately after the Napoleonic wars proved a rather short-lived (and atypical) episode in the history of East-West relations. Before very long, however, Russian society managed to develop an “antidote” that cured the psychological trauma caused by the war: “Russia has only two allies: its army and Navy,” as Emperor Alexander III famously said. Moreover, the complex of “otherness” vis-a-vis Europe quickly turned into a matter of pride for many Russian thinkers, such as Nikolai Danilevsky (“Russia and Europe”), Leo Tolstoy (“War and Peace”), Alexander Blok (“Scythians”), to name just a few. 

While Danilevsky presented Russia as the leader of the still emerging Slavic “cultural-historical type,” the classical “Eurasians” with their idea of “Russia-Eurasia” believed that the cultural code of the Russian people is closer to the Turkic than to the West-Slavic one. What the “Eurasians” failed to delve into, however, was religious difference between the Russian and Turkic peoples, most of the latter being Muslims.

The ambitious experiment of building communism on a planetary scale further alienated Russia from the West, but brought it closer to the countries of the “third world,” primarily those in Asia. During the 1990s, Russia once again reached out to the West, only to be cold-shouldered by it.

This is exactly the response the West gave Turkey at the turn of this century and, just like the Russians before them, the Turks transformed their own complex of rejection from the West into a matter of pride. Today, according to various polls, up to 94.5 percent of Turks view the United States a hostile country. Anti-Americanism (coupled with anti-Western sentiment) is similarly on the rise in much of the Eurasian continent – from China all the way to the Middle East.

Meanwhile, the “Eurasians” theorized about a fundamental idea the entire future of “Russia-Eurasia” was to be built on. Today, most of the Eurasian countries’ foreign policy paradigm is overshadowed by their postcolonial syndrome and their desire for a more equitable world economic order.

“The recurrence of arrogant neo-colonial approaches, where some countries have the right to impose their will on others, is rejected by an absolute majority of members of the world community,” who seek “a more meaningful role in taking key decisions,” Russian Foreign Minister Sergei Lavrov wrote in an article titled “The world at a crossroads, and the system of international relations of the future.”

This goal can only be achieved by joint efforts and closer integration in the Eurasian space, where complex supranational integration formats, such as ASEAN, SCO, the Customs Union and the Common economic space (Russia, Belarus, Armenia, Kyrgyzstan and Kazakhstan) are already being established. Despite the complexity of the search for a mutually acceptable combination of the interests of very dissimilar countries (unlike in the case of the European Union), which have different civilizational affiliations and some even have running conflicts, this process is still moving ahead.

And yet, despite all their specific features, these countries still have very much in common: as a rule, a powerful state (“public”) economic sector, a long tradition of statehood (unlike Europe, not necessarily national) and, as a consequence, a traditional view of state power as something bordering on sacrosanct. And also an inherent rejection of the Western worldview with its mass culture, “rational,” almost materialistic, religion, and the substitution of morality by the criminal code, as the harshest critics of the West claim. Comparing Russia and Europe, the Russian historian Mstislav Shakhmatov stated: “The state of truth and the state of law are two different worldviews: the former is characterized by religious pathos and the latter – by material aspirations (…). Almost a century later, this maxim still rings true with many Eurasian societies.

Integration in our pragmatic century should start with a search for shared economic interests (by the way, the European Union grew out of the European coal and steel association). Speaking at the 2016 international economic forum in St. Petersburg, President Vladimir Putin pitched the idea of creating a large Eurasian partnership which, besides the CIS countries, would also bring on board China, India, Pakistan, Iran, and other countries.

Russia, which is a melting pot of a plethora of ethnic groups and cultures, has every reason to claim the role of a “natural” driving force behind the process of Eurasian integration. According to Turkish political analyst Ferhan Bayir, today “even the ruling Justice and Development Party in Turkey, which is rooted in political Islam, is edging closer to Russia as it increasingly opposes the United States… Even more so Iran, which is not just getting closer to Russia, but is actually working together with it in many parts of the region.”

Europe became a self-sufficient (though flagging) power center even before it united politically, and Eurasia may well become another such center. Since political unity, including in future, is unlikely, the participants of this integration process could still learn how best to respond together to external challenges, just like Russia, Turkey and Iran managed to collaborate in the Syrian conflict. 

It would certainly be great if all countries of the continent (like just anyone else too) could learn to be friends and work together, but awareness of common interests (and, in the era of globalization, of destinies too), can hardly extend to all of Eurasia. Therefore, when we talk about the hypothetical Eurasian community as a center of power, we would have to exclude China, which itself is a power center and the core of a separate civilization. As for India, it will hardly show much interest in close integration as Hindustani civilization is a vivid example of an introverted and self-contained one.

Putting aside the term “center of power,” creating a community of countries with shared economic interests in Eurasia is quite possible. This project will not be hampered by any political incumbrancers, if only its participants agree to find compromises as they go. It won’t be easy, but, as they say, a journey of a thousand miles begins with a single step…

From our partner International Affairs

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The $10 Trillion Question: How to End a Lost Decade of Global Productivity

MD Staff

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Ten years on from the global financial crisis, the global economy remains locked in a cycle of low or flat productivity growth despite the injection of more than $10 trillion by central banks. While these unprecedented measures were successful in averting a deeper recession, they are not enough on their own to catalyse the allocation of resources towards productivity-enhancing investments in the private and public sectors. The Global Competitiveness Report 2019, published today, points to the path forward.

Launched in 1979, the report provides an annual assessment of the drivers of productivity and long-term economic growth. The assessment is based on the Global Competitiveness Index (GCI), which maps the competitiveness landscape of 141 economies through 103 indicators organized into 12 pillars. These pillars are: Institutions, Infrastructure; ICT adoption; Macroeconomic stability; Health; Skills; Product market; Labour market; Financial system; Market size; Business dynamism; and Innovation capability. For each indicator, the index uses a scale from 0 to 100 and the final score shows how close an economy is to the ideal state or “frontier” of competitiveness.

This year, the report finds that, as monetary policies begin to run out of steam, it is crucial for economies to boost research and development, enhance the skills base of the current and future workforce, develop new infrastructure and integrate new technologies, among other measures.

With a score of 84.8 (+1.3), Singapore is the world’s most competitive economy in 2019. The United States remains the most competitive large economy in the world, coming in at second place. Hong Kong SAR (3rd), Netherlands (4th) and Switzerland (5th) round up the top five. The average across the 141 economies covered is 61 points, almost 40 points to the frontier. This global competitiveness gap is of even more concern as the global economy faces the prospect of a downturn. The changing geopolitical context and rising trade tensions are fuelling uncertainty and could precipitate a slowdown. However, some of this year’s better performers in the GCI appear to be benefiting from the trade feud through trade diversion, including Singapore (1st) and Viet Nam (67th), the most improved country in this year’s index.

“The Global Competitiveness Index 4.0 provides a compass for thriving in the new economy where innovation becomes the key factor of competitiveness. The report shows that those countries which integrate into their economic policies an emphasis on infrastructure, skills, research and development and support those left behind are more successful compared to those that focus only on traditional factors of growth.” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

The report documents emerging areas of promising policies, reforms and incentives to build more sustainable and inclusive economies. To manage the transition to a greener economy, the report recommends four key areas of action: engage in openness and international collaboration, update carbon taxes and subsidies, create incentives for R&D, and implement green public procurement. To foster shared prosperity, the Report recommends four additional areas of action: increase equality of opportunity, foster fair competition, update tax systems and their composition as well as social protection measures, and foster competitiveness-enhancing investments.

Global trends and highlights

In addition to providing an annual assessment of economies’ long-term health, the report also highlights five trends in the global economy and their implications for economic policymakers

The last ten years saw global leaders take rapid action to mitigate the worst of the financial crisis: but this alone has not been enough to boost productivity growth.

With monetary policy running out of steam, policymakers must revisit and expand their toolkit to include a range of fiscal policy tools, reforms and public incentives

ICT adoption and promoting technology integration is important but policymakers must in parallel invest in developing skills if they want to provide opportunity for all in the era of the Fourth Industrial Revolution.

Competitiveness is still key for improving living standards, but policymakers must look at the speed, direction and quality of growth together at the dawn of the 2020s.

It is possible for an economy to be growing, inclusive and environmentally sustainable – but more visionary leadership is needed to place all economies on such a win-win-win trajectory.

The report’s data also shows growing inequalities in the global economy.

Market concentration: The report finds that business leaders in the United States, China, Germany, France and the United Kingdom believe that market power for leading firms has intensified over the past 10 years.

Skills gap: Only the United States among G7 economies features in the top 10 on the ease of finding skilled employees. It is, in fact, the best economy in the world in this category. Of the others, the United Kingdom comes next (12th) followed by Germany (19th), Canada (20th), France (41st), Japan (54th) and Italy (63rd). China comes 40th.

Technology governance: Asked how the legal frameworks in their country are adapting to digital business models, only four G20 economies make it into the top twenty. These are; the United States (1st), Germany (9th), Saudi Arabia (11th) and the United Kingdom(15th). China comes 24th in this category.

“What is of greatest concern today is the reduced ability of governments and central banks to use monetary policy to stimulate economic growth. This makes it all the more important that competitiveness-enhancing polices are adopted that are able to boost productivity, encourage social mobility and reduce income inequality,” said Saadia Zahidi, Head of the Centre for the New Economy and Society at the World Economic Forum.

Regional and country highlights

G20 economies in the top 10 include the United States (2nd), Japan (6th), Germany (7th) and the United Kingdom (9th) while Argentina (83rd, down two places) is the lowest ranked among G20 countries.

The United States (2nd overall) is the leader in Europe and North America. The United States remains an innovation powerhouse, ranking 1st on the Business dynamism pillar and 2nd on Innovation capability. It is followed by the Netherlands (4th), Switzerland (5th), Germany (7th), Sweden (8th), the United Kingdom (9th) and Denmark (10th). Among other large economies in the region, Canada is 14th, France 15th, Spain 23rd and Italy 30th. The most improved country is Croatia (63rd).

The presence of many competitive countries in East Asia and the Pacific makes this region the most competitive in the world, followed closely by Europe and North America. In Asia Pacific,Singapore leads the regional and the global ranking thanks to a top-10 performance in seven of the 12 GCI pillars, including Infrastructure (95.4), Health (100), Labour market (81.2), Financial system (91.3), quality of public institutions (80.4) and it takes advantage of being the most open economy in the world. It is followed by Hong Kong SAR (3rd), Japan (6th), and Korea (13th). China is 28th (the highest ranked among the BRICS) while the most improved country in the region this year (Viet Nam) is 67th. The ranking reveals how heterogenous the regional competitiveness landscape is. Although the region is home to some of the most technologically advanced economies in the world, the average scores of the innovative capability (54.0) and business dynamism (66.1) are relatively low, lagging behind Europe and North America.

In Latin America and the Caribbean, Chile (70.5, 33rd) is the most competitive economy thanks to a stable macroeconomic context (1st, with 32 other economies) and open markets (68.0, 10th). It is followed by Mexico (48th), Uruguay (54th), and Colombia (57th). Brazil, despite being the most improved economy in the region is 71st; while Venezuela (133rd, down six places) and Haiti (138th) close the regional ranking. The region has made important improvements in many areas, yet it still lags behind in terms of institutional quality (the average regional score is 47.1) and innovation capability (34.3), the two lowest regional performances.

In the Middle East and North Africa, Israel (20th) and the United Arab Emirates (25th) lead the regional ranking, followed by Qatar (29th) and Saudi Arabia (36th); Kuwait is the most improved in the region (46th, up eight) while Iran (99th) and Yemen (140th) lose some ground. The region has caught up significantly on ICT adoption and many countries have built sound infrastructure. Greater investments in human capital, however, are needed to transform the countries in the region into more innovative and creative economies.

Eurasia’s competitiveness ranking sees the Russian Federation (43rd) on top, followed by Kazakhstan (55th) and Azerbaijan (58th), both improving their performance. Focusing on Financial development (52.0), and Innovation capability (35.5) would help the region to achieve a higher competitiveness performance and advance the process towards structural change.

In South Asia,India, in 68th position, loses ground in the rankings despite a relatively stable score, mostly due to faster improvements of several countries previously ranked lower. It is followed by Sri Lanka (the most improved country in the region at 84th), Bangladesh (105th), Nepal (108th) and Pakistan (110th).

Led by Mauritius (52nd), sub-Saharan Africa is overall the least competitive region, with 25 of the 34 economies assessed this year scoring below 50. South Africa, the second most competitive in the region, improves to the 60th position, while Namibia (94th), Rwanda (100th), Uganda (115th) and Guinea (122nd) all improve significantly. Among the other large economies in the region, Kenya (95th) and Nigeria (116th) also improve their performances, but lose some positions, overtaken by faster climbers. On a positive note, of the 25 countries that improved their Health score by two points or more, 14 are from sub-Saharan Africa, making strides to close the gaps in healthy life expectancy.

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The Fourth Industrial Revolution and the (Unwarranted) Pessimism over Jobs

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Ever since homo erectus carved a piece of stone into a tool, the welfare of our species has been on the increase. Indeed, this technological breakthrough led first to the hand axe, and eventually to the iPhone. We have found it convenient to organize the most dramatic period of change between these inventions into four industrial revolutions.

 As each revolution unfolded, dire predictions of massive job losses ensued, increasing with each. The first three are over, and these concerns were clearly misplaced. The number of jobs increased each time, as did living standards and every other social indicator.

McKinsey predicts that 800 million workers could be displaced in 42 countries, or a third of the workforce, because of the Fourth Industrial Revolution (4IR). When reminded of the experience with previous revolutions, the comeback is often that this one is different. Although this has been said at the onset of each revolution, could there be something more to it this time?

Disruptive technologies such as artificial intelligence, robotics, blockchain and 3D printing are indeed transforming social, economic and political systems, often in unpredictable ways. The technology itself is difficult to map because its growth rate could be exponential, factorial or higher. It is this unpredictability that is making impact assessments difficult. Difficult but not impossible.

To begin with, we know that a lot of low-skilled, repetitive jobs are being automated, starting in high wage countries but quickly spreading to the developing world. And not all high-skilled jobs are immune either.

But are there limits? To answer this question, we need to first understand how work has been transformed, especially with global value chains. Jobs now consist of a bundle of tasks, and this is true for all skill levels. As long as one of the multitude of tasks that a worker performs cannot be technically and economically automated, then that job is probably safe. And there are lots of jobs like that, although it may not appear so, on the surface. 

For example, although most tasks performed by waiters can be automated, human interaction is still required. Human hands are also highly complex and scientists have yet to replicate the tactile sensors of animal skin. The robot may deliver your soup, but struggle to place it on your table without spilling it. Apart from what vending machines can dispense, some of the tasks associated with waiting tables will still require humans.

The debate also tends to wrongly focus on gross rather than net jobs, usually unintentionally. But it is the net figure that matters in this debate. 

For instance, greater automation of production processes will require greater supervision and quality control. Humans will be required to carry out this function. The focus on gross ignores the higher skilled jobs created directly as a result of greater automation. 

And as long as the cost of adding more supervisors does not outweigh the savings from automation, the reduction in the price of the final good would spur an increase in demand. If the increase in demand is large enough, it could even expand the number of jobs in factories that automate part, but not all, of their production process. In this case, the automation leads to a net increase in jobs.

There will also be inter-industry effects. Productivity gains from new technology in one industry can lower production costs in others through input–output linkages, contributing to increased demand and employment across industries. Higher demand and more production in one industry raises demand for other industries, and on it goes.

Why then the widespread pessimism about the 4IR and jobs? 

It could be that it is easier to see how existing jobs may be lost to automation than it is to imagine how new ones may emerge sometime in the future. Simply put, seeing is believing. In a sense, this is like the gross versus net confusion, but separated by time and greater uncertainty.

It is also more sensational to highlight the job displacing possibilities than the job creating ones. We also hear more about it because while the benefits are widely dispersed across the general public through lower prices, the costs are concentrated and can displace low-skilled workers, providing greater incentive to organize and lobby against or complain about the costs. 

Furthermore, when there is enough uncertainty, it is generally safer to overstate rather than understate the potential cost to innocent victims of change. All of these factors could combine to explain the unwarranted pessimism over jobs.

But there could be a silver lining to all this negativity. If it leads to greater efforts to reskill and reshape the workforce to better adapt to change, then this is exactly what is required, and there is no overdoing it. Ironically, it could well be this pessimism that produces the preparedness that results in it being misplaced, if not to begin with, but in the end!

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