The document discusses 4 scenarios for how technology transformation may impact innovation, sustainability, and employment during the 4th Industrial Revolution: 1. A Modern Gilded Age - Protectionist policies slow technology evolution, disrupting demand and limiting opportunities over the long run. Unemployment and inequality rise as resources dwindle. 2. Collaboration for Sustainability - Government policies encourage sustainable technologies, boosting long-run demand as new industries emerge. Unemployment transitions but wealth is more evenly distributed. 3. Age of Robots - Automation substitutes most human labor, but high basic incomes funded by corporate taxes create a stable, welfare-focused economy with low unemployment. 4. Innovation Constraint

1. July 05, 2017
The 4th Industrial Revolution
How will technology transformation of production systems drive innovation,
sustainability and employment in 4 different scenarios?
Economic Environment II
Group C: Antonio Auricchio | Barbara Fontela | Avaneesh Goel | Yuxiang He | Clemens Jungmair | Andrea Roa
Modern Gilded Age Collaboration Age of Robots Innovation Constraint

2. 2Economic Environment II – 4th Industrial Revolution
Agenda
A Modern Gilded Age1
Age of Robots3
Collaboration for Sustainability2
Innovation Constraint4
4th Industrial Revolution

3. 3Economic Environment II – 4th Industrial Revolution
1. A Modern Gilded Age
Technology transformation will slowly evolve and disrupt AD in the long term
Digital
1
Physical
2
Biotech
3
Banned through
internet policies
High import
tariffs
Tariffs and
limited growth
Foreign Technologies (and goods)
Aggregated Demand
Domestic technologies will slowly continue to evolve
and go through the 4 stages of technological
development – from Emerging to Scaled-up.
Protectionism of government would limit domestic
companies’ opportunities and put burdens on foreign
technologies:
Domestic Technologies (and goods)
Short Term Medium Term Long TermAD
t
Turning to a Modern Gilded Age, aggregated demand
will first experience natural growth levels and new
technological support, but will ultimately drop in the long
term.
SocietyEconomyTechnology

4. 4Economic Environment II – 4th Industrial Revolution
ST MT LT
1. A Modern Gilded Age
ProductionEmployment
Imports & Net Trade Sustainability
+4.80%
1995 ST MT LT2015
ST MT LTPP
t
The purchasing power of
wages at the beginning will
adapt to a higher inflation rate.
Over time, due to the
combined effect of real wages
weakness and technological
subsidization of workforce,
countries will enter in a
downward recession spiral.
• No food security
• Gap between social classes
• Limited eco-friendly production
technology
• Increasing environmental damage
• Supply < demand
• Consumption of resources will be a
threat to future generations
SocietyEconomyTechnology
$
t
Real economy will increase in
correlation with AD, but will
drop in the LT as production is
not efficient and resources are
scarce.
Financial economy will fall ST
as volatility after protectionism
will boost, shifting its focus to
a trans-generational capital
market in LT
R
F
OECD Imports
Net Trade

5. 5Economic Environment II – 4th Industrial Revolution
1. A Modern Gilded Age
Consumption
Investments
Government
Spending
Import/
Exports
Protectionism will eventually slow down economic growth
GDP
Reflects pattern of AD; grows in MT, but
breaks down in LT
As state turns shielded, investments from
foreign investors and go down
As imports decrease, government will
have to subsidize the lack of factors of
production.
Increasingly negative net trade will cause
GDP to significantly drop in the LT.
Foundations
of Wellbeing
Environmental Quality: Suffers from
inefficient use of natural resources while
expending on new renewable sources of
energy.
Opportunity
Personal Freedom: Restricted; especially
less freedom over life choices as
ownership of foreign goods.
SocietyEconomyTechnology
Basic Human
Needs
Water and Food Deficit: Further
exploitation of resources will not guarantee
coverage of basic human needs
Social
Progress
Index
Basic Human Needs
Foundations of Wellbeing
Opportunity
0
20,000
40,000
60,000
80,000
1960 1980 2000 2020 2040 2060 2080 2100
6%
Historic OECD
Forecast Assumption

6. 6Economic Environment II – 4th Industrial Revolution
2. Collaboration for Sustainability
Technology transformation will presumably occur in the long term
Digital
1
Physical
2
Biotech
Development
depends on
resources and
sustainability
Aggregated Demand
Government policies will eventually hamper
technologies if production methods or consumption are
unsustainable
Sustainability affecting technology
Short Term Medium Term Long TermAD
t
In collaboration for sustainability, aggregated demand
continues to grow in natural terms, but will sharply
revive in the long run when technologies reach maturity
and scaled-up phases to get fully commercialized.
Scaled-up
3
SocietyEconomyTechnology

7. 7Economic Environment II – 4th Industrial Revolution
ProductionEmployment
Imports & Net Trade Sustainability
L
t
2. Collaboration for Sustainability
Aggregate Labor demand will
experience three different
phases over time:
§ ST: transition from the
status quo to a tech-based
manufacturing;
§ MT: adoption of new techs;
§ LT: evolution of the whole
productive system
(subsidization).
+4.80%
1995 ST MT LT2015
• Cooperative environment will lead
to tangible growth in common
welfare
• Renewable energy boom propels
development and sustainability
• Advancements in resources
extraction through technology
• Natural unemployment rate in the
LT will shift to higher levels
OECD Imports
Net Trade
ST MT LT
Q
Labor
As technology evolves in the
medium-run, the total product
curve would shift from the
traditional shape to a linear
line. With the help of
technology, labor would be
very efficient and would
directly reflect output. In the
long-run, robots will substitute
labor, which will be zero.
TP1
TP2
TP3
SocietyEconomyTechnology
ST MT LT

8. 8Economic Environment II – 4th Industrial Revolution
2. Collaboration for Sustainability
Consumption
Investments
Government
Spending
Import/
Exports
As AD and wealth increases,
aggregate consumption level will rise
Domestic investments will go up as
country situation improves
To incentivize sustainable
technologies in private sector, public
subsidies will be high
Increasing exports and positive net
trade balance
Equal accessibility to education and
room for develop a healthy living in a
green environmental society with vast
resources
Society will empower every member
towards self-fulfillment
Technology will assure state-of-the art
health care and access to basic
resources
SocietyEconomyTechnology
Foundations
of Wellbeing
Opportunity
Basic Human
Needs
Technology transformation will presumably occur in the long term
Foundations
of Wellbeing
Opportunity
Basic Human
Needs
Social
Progress
Index
GDP
Basic Human Needs
Foundations of Wellbeing
Opportunity
0
100,000
200,000
300,000
400,000
1960 1980 2000 2020 2040 2060 2080 2100
6%
Historic OECD
Forecast Assumption

9. 9Economic Environment II – 4th Industrial Revolution
3. Age of Robots
Unemployment becomes irrelevant as high basic income will be redistributed
Aggregated Demand
The full exploitation, high adoption and full scale will
achieve an ultimate robot society in which human labor
is substituted by technology.
Full Technology Transformation
By substituting human labor, shareholders will be left as
the only “workforce”. By redistributing part of the
surplus, “non-workers” will be provided with high basic
income, which will lead to high, stable levels of AD.
Digital
1
Physical
Biological
3
Robot Society
2
Short Term Medium Term Long TermAD
t
SocietyEconomyTechnology

10. 10Economic Environment II – 4th Industrial Revolution
ProductionEmployment
Imports & Net Trade Sustainability
Counterintuitively, subsidizing
workers with machines and
redistributing wealth will cause
unemployment to marginally
decrease, as the subsidized
workers would actually leave
the workforce. Thus, in the
utopic LT, the unemployment
rate would be irrelevant from
an economic standpoint.
3. Age of Robots
ST MT LTu
t
+4.80%
1995 ST MT LT2015
• Welfare Society
• In the long run, technology
development finds sustainable
ways of production
• Cheap production costs and high
purchasing power
OECD Imports
Net Trade
Tax revenues
Tax rate
When workforce will be
substituted by robots, personal
income tax will not be
applicable anymore. Tax will
be taken from the higher
surplus made by companies
that will have no more
incentives to evade taxation.
Consequently, the Laffer curve
will converge to the optimum.
SocietyEconomyTechnology
T*
R*
Optimum
A B
0% 100%
R´

11. 11Economic Environment II – 4th Industrial Revolution
3. Age of Robots
Welfare Society in the LT will reach a Nash Equilibrium
Society will reach status of maximum
welfare, thus Consumption will
balance at high levels in LT
Domestic investments will go up as
country gets more productive
High subsidies for technology
development. High unemployment
benefits to create welfare
Despite the openness of markets,
production will happen locally in the LT
Environmental Quality:
Development of biology technology
will increase sustainability
Lack of incentives for professional
development and social status
improvement
Society will progress towards
common well-being without
inequalities on the social structure
SocietyEconomyTechnology
Consumption
Investments
Government
Spending
Import/
Exports
Social
Progress
Index
GDP
Basic Human Needs
Foundations of Wellbeing
Opportunity
0
20,000
40,000
60,000
80,000
1960 1980 2000 2020 2040 2060 2080 2100
6%
Historic OECD
Forecast Assumption
Foundations
of Wellbeing
Opportunity
Basic Human
Needs

12. 12Economic Environment II – 4th Industrial Revolution
4. Innovation Constraint
Economy is driven by natural growth but not by technological progress
Aggregated Demand
Regulations will limit 4th Industrial Revolution.
Consequently, R&D and investments will stop and
technologies will never become viable.
Technologies not being developed
Natural growth of the economy is driving slight
increases of aggregated demand over time. A 4th
industrial revolution is not spreading through society, as
government regulations will protect nations from its
inherent dangers.
Digital
1
Physical
Biological
3
2
Short Term Medium Term Long TermAD
t
Regulations
prohibit
development
Constrained AD Potential AD ( not costrained )
SocietyEconomyTechnology

13. 13Economic Environment II – 4th Industrial Revolution
ProductionEmployment
Imports & Net Trade Sustainability
Wages would mirror the non-
competitive situation of the
labor market. In fact,
technology would be
abandoned by all industrial
sectors, leading to both a
commodification of low-skilled
workers (stagnant wages) and
an incremental divide with
highly specialized employees.
4. Innovation Constraint
ST MT LTwg
t
• Technology will not dominate social
interactions
• Human capital is key
• Traditional production systems
continue emission growth
• No improvement of resource
management
+4.80%
1995 ST MT LT2015
OECD Imports
Net Trade
Q
Labor
TP
Output increases as input
increases, then experiences
constant returns until law of
diminishing returns kicks in
and firm reaches maximum
output. Beyond that, increases
of input diminish and gives
negative returns.
SocietyEconomyTechnology

14. 14Economic Environment II – 4th Industrial Revolution
0
100,000
200,000
300,000
400,000
1960 1980 2000 2020 2040 2060 2080 2100
6%
4. Innovation Constraint
Economy is driven by natural growth but not by technological progress
Constraint progress leads to stagnant
growth rates
Low domestic investments due to
better foreign opportunities
Low government spending as only the
status-quo is to be preserved
Imports and exports grow at normal
historic rates
Access to Communications and
Information: limited access to global
new trends will avert society to
become modernized.
Personal freedom: outdated system
at social, economic and environmental
levels
Nutrition and Basic Medical Care:
traditional methods incapable of
handling population aging
SocietyEconomyTechnology
Consumption
Investments
Government
Spending
Import/
Exports
Potential (no constrain)
Social
Progress
Index
GDP
Basic Human Needs
Foundations of Wellbeing
Opportunity
Historic OECD
Forecast Assumption
Foundations
of Wellbeing
Opportunity
Basic Human
Needs