How to Accelerate the Fourth Industrial Revolution

Since World War II the world has focused on efficiency gains. The low-hanging fruit had been plucked and the world was optimizing production, ignoring innovation (with the exception of IT which has had a relatively small impact on productivity).

The focus on efficiency had policy implications. Standardization and uniformity were stressed along with lowering barriers to trade. Such policies have had tremendously beneficial impacts, drastically lowering poverty over the past 30 years.

However, there appears to be imminent innovation on the horizon which requires rethinking regulatory systems. The fourth industrial revolution, which refers to “emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing”, is coming.

The fourth industrial revolution is not about efficiency gains; it is about innovation. The benefits from the fourth industrial revolution will not come from international trade, they will come small groups of dedicated people working hard. The fourth industrial revolution is a return to tinkerers, away from multinational corporations, and a new regulatory structure is needed for it.

Families with diabetic kids are building home-made insulin pumps because the FDA is unable to improve them. 23andMe saw their user rate drop by 50% when the FDA banned them from giving disease profiles, slowing down the era of personalized medicine. Amazon moved their drone program to Canada because the FAA was too slow to issue drone regulations.

With the rapid pace of innovation, a one size fits all policy becomes a hindrance. The stifling of innovation begins to outweigh the benefits of consumer protection. Standardization and uniformity must give way to adaptability.

In practice this means localizing regulatory policies. Different cities and localities have different tolerances for risk. Detroit, for example, might want to innovate drone policy to attract jobs and residents. San Francisco could allow for innovative medical procedures to attract investment from Alphabet, formerly Google.

More generally, policy makers don’t know what the ideal regulatory system is. Innovation requires experimentation and discovery. Regulatory systems need to reflect this. Cities are more responsive to local needs and able to act more quickly than national governments. Preparing for the future means understanding trends to fully take advantage of them. Allowing cities to take the lead in regulatory policies will undoubtedly lead to some mistakes. However, the long term outcome will be more dynamism, more creativity, and further technological advances.

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