DAVOS (Project Syndicate) — At the train station in Davos, members of the global elite hustle in snow boots to their annual summit in the mountains. I catch snippets of conversations about falling oil prices, China’s slowdown, and the scourge of deflation. But the official agenda sounds equally challenging: how to master what the World Economic Forum’s founder, Klaus Schwab, calls the “Fourth Industrial Revolution.”

Schwab argues that the world is on the threshold of changes as big as those wrought by the invention of the steam engine, electricity, and the digital revolution — a new era characterized by the “merging of the physical, digital, and biological worlds.” He claims that this will transform every aspect of human existence, disrupt labor markets worldwide, and change the idea of what a human is.

Project Syndicate commentators have been examining the economic impact of these changes, particularly on employment and income, as well as the shifts in national and international politics that they are causing. Together, they make clear that, as with all revolutionary change, today’s new era of transformation is a period defined by high hopes, myriad risks, and a broader scope for both visionary and reactionary leadership.

“ The result of automation and job displacement is likely to be shocking levels of income inequality worldwide. ”

Will robots take our jobs?

Kaushik Basu, the World Bank’s chief economist, points out that global sales of industrial robots reached 225,000 in 2014, up 27% from a year earlier. At the same time, “labor income as a percentage of GDP is declining across the board and at rates rarely witnessed.” And former United Nations Development Programme head Kemal Derviş notes that the impact of these technological disruptions could affect some 20% of GDP and 40% of jobs by 2030. So are the robots taking over?

The NYU economist Nouriel Roubini says improvements in robotics and automation will boost productivity and efficiency, implying significant economic gains for companies. But this also means that many jobs — if not entire occupational categories — will become obsolete. That includes high-skill jobs such as doctors, government officials, even train drivers. But even investing in education to give workers the skills needed to participate in the brave new economy “may not be sufficient, in which case it will become necessary to provide permanent income support to those whose jobs are displaced by software and machines.”

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By contrast, the Nobel laureate economist Michael Spence and James Manyika of McKinsey are considerably more optimistic about a new era of employment opportunity. They reject “fatalism,” which they believe assumes that “we are powerless to harness what we create to improve our lives — and, indeed, our jobs.” On the contrary, connectivity is reducing the “staggering waste of human and economic potential” in the job market by connecting employers and future employees all over the world through online talent platforms.

Derviş is closer to Roubini on this point. Historically, technological revolutions have eventually led to more, if different, jobs; but this time may be different. He foresees in the rise of global super-firms serious problems for labor markets and societies, because mid-level jobs based on old skills will be destroyed faster than comparable jobs based on new skills can be created.

Moreover, it won’t only be jobs that are, to paraphrase Joseph Schumpeter, creatively destroyed. GAM Holding’s Larry Hatheway argues that, just as “big box” retailers in the U.S. supplanted “mom-and-pop stores and the established retail chains,” so these giants — for example, Walmart, Staples, and Home Depot — “are now under siege from online retailing, which promises even greater economies of scale and logistical efficiencies.”

A world of inequality

The result of all this automation and job displacement is likely to be shocking levels of income inequality worldwide. Even Spence and Manyika concede that digital talent platforms are bad news for low-skill workers and inequality (at least in the short term): “Now that employers have new tools for recruitment and assessment,” such workers could become “easier to replace.” And, “as workers’ earnings diminish,” Basu argues, “the challenge will be to ensure that all income growth does not end up with those who own the machines and the shares.

The Presidio Institute’s Lenny Mendonca and Laura Tyson, President Bill Clinton’s former chief economist, note that, in the U.S., the increasing digitization of the labor market “is undermining the traditional employer-employee relationships that have been the primary channel through which worker benefits and protections have been provided.” Unless policymakers act, a two-tier labor market will become entrenched, characterized by “a large pool of contingent middle- and low-skill workers without the benefits, income, or security on which a robust and resilient middle class depends.”

Of course, the degree to which the U.S. relies on employers for welfare provision makes it exceptional among the advanced economies. But, as Derviş points out, the problem is a global one, as the casualization of labor causes low-income workers to lose state protection. And the process of creative destruction is occurring faster than ever. Confronted by the meteoric rise of Uber, for example, traditional taxi drivers “are being asked to adjust in a matter of days, rather than years, leaving democratic systems little time to determine how much compensation they should receive, and how it should be distributed.”

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Developing countries are in an even more precarious position, says Harvard’s Dani Rodrik. The good news is that “there is no reason that safe working conditions, freedom of association, and collective bargaining cannot be introduced at earlier stages of development than has occurred historically. Just as political democracy need not wait for incomes to rise, strong labor standards need not lag behind economic development.”

The bad news is that income growth in developing countries is likely to slow sharply, because “the forces of globalization and technological progress have combined to alter the nature of manufacturing work in a way that makes it very difficult, if not impossible, for newcomers to emulate” the advanced economies. Simply put, “the traditional engine of economic development – industrialization – is likely to operate at much lower capacity.”

Revolution and reaction

Few observers expect politics and political systems to remain unaffected by such major shifts. As Rodrik notes, the “combination of high public expectations and low income-producing capacity will be a major challenge for developing economies everywhere.” And in “high- and middle-income countries,” writes Basu, rising income disparities will be accompanied by a corresponding increase in “the frequency and intensity of political conflict.”

The only way to minimize the political risk generated by the Fourth Industrial Revolution is to embrace active and appropriate official intervention. “To think that markets alone can manage its transformative impact is pure folly,” argues Derviş. “What is needed now are new social and regulatory policies, often global in nature, that embody a new social contract for the twenty-first century.”

Easier said than done. True revolutionary change is a rapid, fluid, and inherently indeterminate process. But there has been no indication so far that transformative economic change will lead to the types of policies — for example, a minimum basic income, greater investment in public goods, heightened multilateral cooperation, and closer regional integration — that would promote political stability. On the contrary, rather than embrace the new global connectivity, there is a yearning to build fences and walls, resist trade deals, and restore national independence.

Former German Foreign Minister Joschka Fischer paints a bleak picture. He points to a nationalist backlash in the West — exemplified by the strength of political leaders such as Donald Trump in the U.S., Hungarian Prime Minister Viktor Orbán, Polish political boss Jarosław Kaczyński, and French National Front leader Marine Le Pen. One reason for their surge, he argues, is that “the ‘White Man’s World’ — a lived reality assumed by its beneficiaries as a matter of course — is in terminal decline, both globally and in the societies of the West.” Today’s backward-looking ethno-nationalists defend an identity and a worldview “threatened by immigration, globalization of labor markets, gender parity, and the legal and social emancipation of sexual minorities.”

Toward a new geopolitics?

According to Francis Fukuyama, “the big question for the future of global politics is straightforward: Whose model will prevail?” Fukuyama suspects that it may be China, given the breath-taking ambition of its new infrastructure projects designed to connect the world. If the “New Silk Road” project — known in Chinese as One Belt, One Road — meets President Xi Jinping’s expectations, “the whole of Eurasia, from Indonesia to Poland will be transformed in the coming generation.”

For one thing, One Belt, One Road will have the effect of “raising incomes and thus demand for Chinese products to replace stagnating markets in other parts of the world.” Moreover, economic activities that have caused immense environmental devastation in China “will be offloaded to other parts of the world.” And Central Asia, now at “the periphery of the global economy, will be at its core.”

Of course, as Fukuyama acknowledges, there are questions about whether One Belt, One Road will work, particularly given that the Chinese government cannot “control the political environment.” Nonetheless, he worries that “China’s form of authoritarian government will gain immense prestige, implying a large negative effect on democracy worldwide.”

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Mohamed A. El-Erian is more worried about the global effects of a sharp slowdown in China’s GDP growth as it shifts from an economic structure based on manufacturing and exports to one based on domestic services and household consumption. Slower growth has already “undermined the government’s capacity to maintain inflated asset prices and avoid pockets of credit distress.” To shore up economic performance, the authorities have embraced currency devaluation, heightening global uncertainty.

“Specifically,” El-Erian writes, “markets worry that renminbi devaluation could ‘steal’ growth from other countries, including those that have far more foreign debt and far less robust financial cushions than China, which maintains ample international reserves.” That, obviously, is a concern that can swiftly migrate from trading floors to legislative ones around the world, with highly uncertain effects for both the global economy and the international order.

In my view, however, an even more important question than the relative power of different players is the way that hyper-connectivity will change the nature of geopolitics. Big data, 3D printing, and robots are all highly dependent on networks; the Fourth Industrial Revolution will connect the entire world to a single man-made system. This will make it costly for countries to go to war with one another.

But enforced interdependence will also exacerbate tensions. Power struggles will persist, but in a new form, in which the very things that connect the world are used as weapons. For example, the global trading regime, once a tool of integration, is increasingly riven by economic and financial sanctions. Likewise, global multilateral institutions are in jeopardy of being sidelined by a new generation of competing friendship clubs.

Rather than using the construction of physical infrastructure links as a way to maximize profits, China and the U.S. are using them as a way to project strategic power. Even the Internet is being used as a weapon (and becoming fragmented because of concerns about privacy and security). Stopping short of nuclear war, and not prepared to lose access to the spoils of globalization, the great powers will increasingly try to disrupt the global system to compete with one another. Mutually Assured Disruption will become the new MAD, only this time it will not be a doctrine of deterrence.

And yet, rather than becoming fatalistic, the future, as Project Syndicate’s commentators would agree, remains wide open. As Schwab puts it: “New technologies, however remarkable they might seem, are fundamentally just tools made by people for people. We must keep this in mind, and ensure that innovation and technology continue to put people first, propelling us toward sustainable and inclusive development.”

Mark Leonard is director of the European Council on Foreign Relations.

This article was published with the permission of Project Syndicate.