My thoughts about Davos and the so-called Fourth Industrial Revolution

For over four decades, the mission of the World Economic Forum has been to improve the state of the world. Every year, top leaders from all over the planet gather at this meeting in Davos to participate in collaborative activities that can shape global, regional, and industry agendas. Today, more than ever, leaders need to share insights and innovations on how best to navigate the future.

The theme of this year’s conference was “The Fourth Industrial Revolution”, and three of the biggest issues addressed were automation, China, and emerging markets.

The fourth industrial revolution represents a revolutionary paradigm change because it will no longer be humans controlling machines but machines controlling humans, who will nevertheless continue to carry out some industrial operations which machines have not yet been able to automate. Above all, knowledge will be self-generating in this new industrial world and this significant breakthrough will lead to a “jobless recovery,” an economic recovery with fewer jobs.

The change in China’s growth strategy is also an epochal change. After enjoying 10% real gross domestic product growth in the first decade of this century, China is now slowing down. However, we must bear in mind that when China was registering 10% growth, its GDP was half what it is today. The World Bank’s projection of 7% growth for this year is good, so I don’t think we can talk about an actual slowdown, but rather a structural change in China’s economy, as it passes from exports of industrial products to internal consumption.

Emerging markets were slowed by a series of circumstances in 2015. As China’s demand for raw materials to fuel its heavy industry and construction sector diminishes, commodity prices have slumped to a 10-year low. India, unlike most other emerging economies, is not a net exporter of commodities and it has managed to avoid the pressure.

Climate change is also affecting emerging markets. To cite just one concrete example which is representative of the broader problem dealt with at Davos, coffee is one of the crops which is severely affected by climate change, a threat both in terms of extremely high temperatures in some regions where it is produced, and also in terms of water security—either droughts or excessive rains—in certain other regions. It is feared that most of the land suitable for Arabica production will be reduced by 50% from now to 2050 as a consequence of climate change. But consumption is still growing. We predict that we will need at least twice as much coffee by the end of the century, with less than 50% of the land available. I’d say this is a problem we need to fix.

It’s clear that there are many sources for the present instability, such as international geopolitical tension, terrorism, the lack of a true leadership in Europe, and the Fed’s controversial decision to raise U.S. interest rates. These and other factors have created a sort of perfect storm in recent weeks. As for Italy, it is in the middle of a micro-crisis. Initially, the stock markets registered strong growth but now a correction is underway. However, Italy is rallying, we have some tailwind. The low price of oil is stimulating consumption, very low interest rates are stimulating investments, the low euro stimulates exports, and all this is good for the economy. The reforms will take time, and there is still an issue with non-performing loans in banks that urgently need to be fixed, but all in all, Italy has some good cards to play in the present and in the future.

 

 

photo credits@Andy Mettler

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