Business

Potential and pitfalls of the next Industrial Revolution

The transition to the next, fourth, industrial revolution will be like none that has gone before, Sheldon Slabbert writes.

Behind each of the three periods of industrial revolution we’ve seen to date has been the emergence and adoption of a new type of energy more efficient than the last.

The first revolution, commencing in 1765, employed steam and waterpower; the second harnessed electricity and assembly lines; and the third saw the rise of nuclear energy, electronics, computers and the internet.

We are currently in the midst of a fourth industrial revolution, which will arguably be less obvious to many, as the first to have its genesis in a new technological (rather than energy) phenomenon - digitisation.

This era has its origins as far back as 1969, as the beginnings of a period of intense and prolific hardware and software development. During the 1990s these developments give rise to the Internet, prompting an even greater explosion of developments and businesses - until the dotcom crash triggered an evolutionary purge of companies at the turn of the millennium. In the time that’s elapsed since, with the rise of digital behemoths like Google and Facebook, and thanks to the utility and connectivity they offer, the Internet has enjoyed rapid and widespread adoption.

The initial steps into the Fourth Industrial Revolution include the growing Internet of Things (IoT)and Internet of Systems (IoS), aimed at the connection of most all things to the internet – as well as big data and the proliferation of self-learning machines and technologies currently underway. In his book The Fourth Industrial Revolution, Professor Klaus Scwab, founder and executive chairman of the World Economic Forum, describes the enormous promise for the new technologies and the possible risks.

Potential

Over recent decades, technology has enhanced nearly every aspect of our daily lives. Developments in communication technology mean we can now easily reach pretty much anyone, anywhere in the world. Our ability to access knowledge has been transformed - with Google’s search function far exceeding the capabilities of the traditional local library. Navigation, entertainment and healthcare have all been transformed through technology.

The business and employment landscape have changed irreversibly, with the adoption of technology and online payments. New sectors like the gig and share economies have transformed the way many people work – creating freelancing opportunities through websites like Fiverr, and opening up new avenues for business such as AirBnB, Alibaba and Trademe. While some jobs are becoming obsolete, we have seen new careers emerge that were unheard of only a few years ago.

The Fourth Industrial Revolution will be driven largely by the convergence of digital, biological, and physical innovations – with devices, machines and systems connecting and communicating through technologies such as the Cloud, Big Data Analytics and Artificial Intelligence, to enable improved decision-making. Everything is being targeted for integration, from phones to fridges, heavy machinery to the clothes we wear. Efficiencies are at the heart of industry 4.0, with a focus on the more productive generation and use of resources to improve quality of life for people across the world.

We’re already seeing the rapid adoption of industrial IoT technologies such as 3D printing (with applications ranging from printing houses to human hearts) and blockchain, as the next generation operating system which has enabled the growth of technologies like Bitcoin.

Pitfalls

Health Risks posed by 5G:

An advancement on the current 4G platform that will be familiar to most, 5G is the wireless system set to be rolled out to facilitate the IoT – the issue being that the radiation it creates is of a much higher intensity than that of its predecessor.

Senator Patrick Colbeck, Dr Sharon Goldberg, and others have cited evidence of numerous health problems as a result of radiation from devices such as cell phones, cell towers, smart power meters and wireless internet, even at current 4G levels. These reported effects range from depression, neurological effects, DNA damage and cancers.

This has raised serious concerns regarding the 5G rollout, and in particular the intended installation of 5G small cell tower networks in residential areas.

Security:

Over recent years, we’ve seen a significant number of high-profile security breaches, such as the infamous “Wannacry” ransomware attack in 2017, that paralysed the UK’s NHS Health system, among many others.

Connected devices may also increase the vulnerability of your office or home systems, as one US casino learnt the hard way, when hackers attempted to access their high roller database through an internet-connected “smart” fish tank.

Investing across change:

There is little doubt that the rate of change across the business and employment landscape is increasing, meaning that many traditional businesses and occupations are likely to be disrupted, and workers and business owners will need to continuously sharpen their swords.

A good example is The Dow Jones Industrial Average, the most widely followed stock index in the world. Following the exit of General Electric last year, there are no original members of the index left and components have changed 54 times since its inception in 1896.

There have been some phenomenal success stories over the recent cycle in tech that has made Google, Facebook and Amazon household names. Outside of the United States, the likes of Tencent, JD.COM and Flipkart have also grown to become multibillion-dollar players in the global tech space.

That said, it pays to remember that technology stocks can be vulnerable to investors’ exuberance. We have seen an example of such an overshoot in the period of 1997 to 2001 and we may be nearing such extremes in the market again.

Lesser-known ride sharing application, Lyft, recently went public with a valuation of billions, despite having lost about US$900 million last year; Uber did the same, with equally dismal financials. Having filed for bankruptcy protection as recently as March 2018, iHeart Radio is another which has surprised many by filing to go public.

Some short sellers are seeing these examples as possible signs of near-term top in the current cycle.

Benjamin Franklin is reported to have said “An investment in knowledge pays the best interest” - and the public need to be mindful of the adoption and implementation of new technologies, and the trade-offs being accepted in the name of progress, which may have marginal real value. While investors now need to consider which companies and sectors are best positioned for the transition into the next industrial revolution and who may be disrupted next.

Sheldon Slabbert is Sales Trader at CMC Markets New Zealand.

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