Embracing the Fourth Industrial Revolution

Professor Heizo Takenaka speaking at G1 Global Conference 2018

We are at the dawn of the fourth industrial revolution. What are its implications and what measures should Japan take to prosper from advances in artificial intelligence, big data and robots? Beacon Reports spoke one-on-one to Professor Heizo Takenaka to learn his thoughts on the matter.

Takenaka is professor emeritus at Keio University and a member of Prime Minister Shinzo Abe’s Council on Investments for the Future. He was formerly economic and fiscal policy minister serving on PM Junichiro Koizumi’s cabinet.

A few days earlier, Takenaka spoke as a moderator at the G1 Global Conference in Tokyo. He said the world order was drifting away from liberalism. Anti-globalism and populism were on the rise. The global economy, still fragile, was moderately and steadily recovering. At the same time, the world was experiencing a fourth industrial revolution. AI, big data and robots were rapidly changing our world.

Conference panelists added their big picture thoughts. Jane Harman, a nine-term former congresswoman and current CEO of The Wilson Center (a Washington, DC think tank), lamented the US’s recent withdrawal from Asia as a reliable trading partner. A question mark hung over US commitment to its allies. “The US used to be the global stabilizer and the global legal shaper,” she said, adding, “By abandoning our role in TPP we created a vacuum.”

The vacuum would likely be filled by a new world order. Its final shape was unclear, but it might contain two groups—one which included the US and the other China. “Both groups would have very different visions of government, freedom of democracy and expression,” Harman speculated.

The once ‘free’ global Internet was balkanizing into regions, each with a different set of rules. China and Europe already had different rules governing Internet data usage, as might in the future TPP-plus countries (of which Japan is parcel). Data misuse could have Orwellian consequences: “AI is potentially a source for good, be very dangerous or be both,” she said.

Noted journalist, columnist and author Yoichi Funabashi expressed his concern that China was using state capitalism to gain technological hegemony by 2049. “It’s unstoppable,” he said, citing a lack of checks and balances on their use of AI and bid data. In China, a social credit scoring system decides who gets what jobs, goes to which schools and even if citizens can board an airplane. Everyone should be concerned about governments which use AI to gain political control over their citizens, he warned.

Tom Kelly, whose company IDEO popularized the term ‘design thinking’, said technology had not only the power to divide people but also to bring them together. Today’s algorithms deliver only the news people want to hear, isolating their thoughts to an ‘echo chamber’. Yet innovative technology (for example, FaceTime) also had the power to reconnect people separated by distance. “We need 1,000 more examples of that,” said Kelly. He hoped society would build human-centered intelligent machines. AI and robotics should create technology that serves mankind and not the other way around.

Later at his offices, Takenaka talked about the need to encourage AI’s use in Japan. He said the nation was late to embrace Industry 4.0 compared to the US and China. For example, US based Uber had a share value which now exceeds those of megabanks, while a ride-sharing industry still does not exist in Japan because of powerful taxi industry lobbying. The Chinese city of Hangzhou already combines AI with real-time big data to direct city traffic flow. Since being introduced, the average congestion in the city has decreased by 20%. Ambulance travel time has also been cut in half, he noted.

China leads the world in AI because it collects more data—the ‘digital oil’ fueling Industry 4.0— from its 1.42 billion citizens than can smaller countries. Alipay, for example, collects information from its 600 million users. “They are gathering big data through people’s purchases,” putting the Chinese firm at the forefront of the fourth industrial revolution. “AI is not a future story. It’s a present story,” said Takenaka.

China arguably enjoys another competitive advantage in that it does not have to respect human rights and personal privacy, when collecting and using data under its form of state capitalism. Contrarily, Japan must find market driven ways to harness AI and big data that preserves liberal democratic principles.

Takenaka rejects the use of industrial policies similar to those employed during the 1950s and 1960s when the Japanese government intervened in the economy, to manage firms, industries and markets. “Considering the complicated legal framework, the importance of human rights, etc., we need to discuss how to realize the fourth industrial revolution,” he said, suggesting that more deregulation was needed.

Takenaka is advising Prime Minister Shinzo Abe on ways to help the nation benefit from Industry 4.0. He proposes that government establish ‘super cities’, special economic zones with policies encouraging the adoption of AI and robots. Super cities would be the first to embrace autonomous vehicles and the cashless society, for example. Currently 80% of purchases in Japan are made with cash, compared with 50% in the US and 40% in China. That must change, if Japan is to realize the productive efficiencies achievable under Industry 4.0.

He also advises government to introduce a universal basic income to protect the low paid, under skilled and the very old. Economists predict AI and robots will hollow out work by replacing jobs involving routine tasks currently preformed by humans. Low-skilled workers will be affected—think of truck drivers who will be replaced by autonomous vehicles. Higher-skilled workers doing jobs which can be automated will also be affected, for example, medical diagnosticians.

The rapid pace of technological change may disproportionately enrich the few who make the algorithms and machines, creating many displaced workers struggling to make a living. “Worldwide, the income gap is expanding,” said Takenaka. “In this case, we need a safety net.”

Those entering the workforce will likely need to reskill several times over the course of their extended working careers, to accommodate the rise and fall of industries through creative destruction. Half the population today aged 20-years old will live to be aged 100 or more, claims Lynda Gratton and Andrew Scott in their book about longevity, titled The 100-Year Life. Life expectancy is increasing by about two years every decade, they report.

Today’s youth can look forward (or not) to working well into their 70s and 80s. They cannot rely on unfunded government public pensions (often described by economists as ‘Ponzi schemes’) to make ends meet in their retirement. The proposed basic income will protect young and old. “If this payment system is realized, we can abolish the pension system,” Takenaka suggests.

However, his policy recommendations may not be realized under the current administration. The prime minister is mostly focused on amending Article 9 of the Constitution. “He may not have the political capital” to take them up, Takenaka admits.

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