Industrial revolution scholars suggest it will take as long as it takes to reset the socio-political paradigm.
Historically, this transition has been long and difficult – two to three decades – and accompanied by considerable social costs.
Below are extracts from my 2019 (i.e. pre-pandemic) paper, published in the Australian Journal of Labour Economics. While the paper focussed on the future of work in Australia and how the nation was transitioning through what is referred to as the Fourth Industrial Revolution, the process of this transition is relevant in today’s world, perhaps even more so.
Current public discourse regarding the future of work and the Fourth Industrial Revolution (4IR) invites anxiety (Morgan 2019), implies determinism (Nübler 2016) and fails to acknowledge the socio-political role required in shaping the future of work (Perez 2012b).
Like history, the process of an industrial revolution repeats itself; a long wave transformation which plays out over half a century, give or take a decade (Atkinson 2018; Perez 2004, 2010, 2012b; Soete 2018). The historical cycle of an industrial revolution is a three-phase process involving job destruction (Phase 1) and job creation (Phase 3) with a turning point, or adjustment phase, sandwiched between the two (Perez 2010).
Between these two phases sits an adjustment period which is accompanied by resistance to change, inertia, social dishevel, rising inequality, regional disparities and economic stagnation, eventually becoming a critical issue which requires socio-political intervention. Perez and others (listed above) argue that the adjustment period is not a passive process and cannot be left to the markets to determine. The period of this interval lasts as long as it takes to establish the institutional framework required to fully capture the potential of the new techno-economic realm; it needs to be shaped by government regulation and policies. The level of political consensus, conflict or confusion strongly influences the speed and the ease or difficulty with which the surge of development and growth is established. Given that changes in an economy usually happen at a much faster pace than institutional reform, according to Perez these adjustment phases have historically been long and difficult – two to three decades – and accompanied by considerable social costs.
The institutional framework which governs the rules and regulations of both the economy and society, forms a critical component of the process to job creation during an industrial revolution. Nübler (2016) argues that institutions are integral in the pace of change, driving the adjustment phase and mobilising support for change whereby the institutional framework generates a sense of justice in society, that the distribution of gains and losses; the unintended consequences of technological advancements associated with the revolution, are considered fair.
Morgan (2019) extends the understanding of the revolutionary process, stating that 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 uses it, or rejects it.
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, highlighting the importance of institutions being adaptable and flexible to achieve long-term advances in prosperity.
Perez (2004) sums up the challenges of the adjustment phase as a process whereby the existing institutional framework becomes obsolete as it was designed around a previous techno-economic paradigm, arguing that the persistent application of obsolete practices can actually aggravate society and the economy contributing to a collapse, often in the form of a recession or financial market failure.
Given the long wave creative destruction process (Schumpeter 1942) to widespread prosperity of an industrial revolution, Hofheinz (2018) suggests that the pressing issue now is how do nations prepare for and legislate for an economy where society faces a different set of challenges, problems that will need to be mitigated with a different set of policies, proclaiming “We stand on the cusp of an important decision: will we find and develop the social innovation needed to make the digital revolution a win-win for all?”
The ability of a country to transition its economy from job destruction to job creation requires extension beyond relying on market forces to encompassing socio-political intervention. This potential socio-economic transformation is dependent upon a country’s productive and social endowments whereby productive capacities are embodied in the physical sphere of production factors and infrastructure and the social capabilities are embodied in the intangible sphere; the educational attainment structure (EAS), the collective knowledge base of a society and its institutional framework (Nübler 2014a, 2014b, 2016).
In order to transition to the third phase of industrial revolution to achieve longer term growth and social prosperity, Australia needs socio-political intervention to address four issues:
- The transformation of the institutional framework to facilitate both economic and social prosperity through increasing trust and safe-guarding;
- The repositioning of education, skill and training policy to shift its educational attainment structure to one of ‘strong middle’ and enhancing collective learning and the knowledge structure;
- The prioritisation of gender equality in rethinking both the structure of employment and the forms of work for both men and women; and
- Redesigning economic development policy to embrace contemporary manufacturing as a growing, important industry.
The full paper is available here: http://ftprepec.drivehq.com/ozl/journl/downloads/AJLE222denny.pdf