Although there is much talk these days of the threat of new trade and other kinds of barriers, the digital world, which knows no borders, will eventually prevail, economist Pavel Kysilka believes. The question is whether this will be a smooth process or one full of glitches, he tells Robert Schuster.
Much has been written about digitalization and its chances for the future. It is reminiscent of discussions on globalization some twenty years ago. Its “casualties” and impact have become evident in the form of Brexit and Donald Trump’s election. Maybe a few years from now we’ll be moaning about digitalization in the same way?
Although technological and economic development has admittedly been continuous, it’s happened in waves. Digitalization fosters globalization because the Internet knows no borders. It has always been true that everything useful and interesting invariably results in some casualties. The invention of the automobile has significantly reduced distances between places and increased comfort, but has also caused loss of life and is approaching a dead end because of traffic jams, smog, and the unending demand for garages and parking spaces. Digitalization will end up exactly the same way as the automobile industry. It has delivered a great deal of comfort and speed, with every kind of information and service, including education, now within our easy reach.
However, there is also a darker side to it, most of which can never be anticipated. Some negative impacts of this development have already become apparent, for example the risk of cyberattacks. Another example are the “echo chambers,” inside which homogeneous groups of people persuade each other that they are in the right and everyone else is wrong. There is nothing new about this. In the past people used to sit around the table in a pub and talk to people who shared their opinions. The digital opportunities have just amplified this.
You mentioned the benefits offered by digitalization. But doesn’t it ultimately make people passive and incapable of looking beyond the superficial side of events?
People have been grumbling about superficiality since the Ancient Greece, where philosophers and scholars complained that the incoming generation was superficial, that it preferred speed and so on. It’s a human property. At the same time we don’t seem to notice that although new technologies have encouraged quantity to the detriment of quality, they have also freed a huge amount of energy and capacity for other things.
We mustn’t forget that the Internet is still a very young phenomenon. We have yet to fully appreciate the opportunities it offers, the enormous amount of creativity it facilitates.
We mustn’t forget that the Internet is still a very young phenomenon. Here, in the Czech Republic, it’s only been around for 25 years. We have yet to fully appreciate the opportunities it offers, the enormous amount of creativity it facilitates. However, it is up to each and every one of us to decide how deeply we explore the information we have gained.
Although the Internet knows no borders, lately there have been attempts to erect new barriers to global trade, and also to limit the free movement of people. Can digitalization succeed in the era of new economic nationalism?
Let me go back to the analogy with the nineteenth century, when nations continued to gamble with building barriers and walls until the outbreak of World War I. In those days, this was driven by industrial growth, which, in turn, led to protectionism, while nowadays, similar ideas of building trade barriers are the result of an expansion in digitalization and globalization. Donald Trump, the US president, is fundamentally wrong. If his goal is the reindustrialization of the United States, he might succeed.
Our politicians here in the Czech Republic have been trying to lull us into believing that the economy is doing well and we don’t need to do anything, so we’ve been resting on our laurels. But that is a very shortsighted view.
However, I’d like to point out that this industry won’t create new jobs for the middle classes or workers on production lines but rather provide jobs for programmers, people working in the field of artificial intelligence and robotics, the development of “smart” solutions. So the result will be a completely different kind of car factory than the one Trump’s former blue-collar workers remember from twenty years ago. And the other experience is even more crucial: where there is trade, there is no war.
There’s no need to go to the US, suffice it to look at the outcome of the British referendum that is taking the country out of the EU…
The fact is that those who voted for Brexit included people who have often and erroneously associated Britain’s membership of the European Union with the decline of certain kind of jobs and roles, especially in industry. However, the elites that supported Brexit had a very a different agenda: they were hoping to turn Britain into a global power, which is quite ironic. It will be interesting to see how Britain will cope, because the mass electorate that voted for Brexit has completely different expectations from the elites who were either in favor of Brexit or will now try to get as much as possible out of it in terms of restoring Britain’s former role as a global and globalizing power.
Who will prevail in the end? The digital world or the protectionists?
Most definitely the digital world. The only question is whether it will be a smooth process or one full of glitches. We are already beginning to feel growing tensions in international relations related to global processes fostered by the digital revolution.
Have the Visegrad group countries been sufficiently active in terms of preparing themselves for digitalization?
It varies. The rate of digitalization of individual households and companies in the Czech Republic is slightly above the OECD average, but there are also plenty of examples of smaller or medium-sized companies that have failed to grasp opportunities offered by digitalization and grow to an international and global size. And, by way of a spectacular contrast to this, we have zero or negative leadership on the part of our politicians – there’s quite a lot of talk but very little action or movement forward.
In terms of developing electronic contacts between citizens and the state and e-governance, we are last but one in the EU, with only Romania lagging further behind. This is where a huge gap has been opening up between the state and private sector. Poland, for example, is regarded as quite dynamic in terms of digitalization, and Hungary has seen some promising trends in start-ups.
A start-up scene has also recently begun to emerge in the Czech Republic, with a number of new investors appearing on the scene. Provided that future governments join in by taking enlightened measures in support of basic and applied research and education—which is still at the eighteenth or nineteenth century level—we have a chance of developing quite an interesting model. Incidentally, this is the only way to not only maintain our present high share of industry but also to shift it up a gear.
What I have in mind is an economy in which a key role is played by research and development as well as innovation and the introduction of new business models in shared economy, offering goods not for ownership but as a service to customers in smart living, smart energy, smart transport, education, healthcare, etc.
Politicians pay lip service to supporting investment in education but when it comes to practice they keep coming up with excuses for investing in other things…
Objectively speaking there’s nothing that stops us from firing 75 percent of state officials because we have no need for them whatsoever; on the contrary, they place a huge burden on the economy and the state as they keep coming up with regulations that slow us down. This could save enormous amounts of money, plus these people will be sought after by the private sector as we’re talking of welleducated, hard-working people with good communication skills.
Marx was wrong about many things. In the sentence which says that people will be replaced by machines, he forgot to add a comma and “in their present roles.”
The savings can be used to give teachers substantial pay rises and to turn them into the best paid people with higher education; and to do that we have to start with teachers who train teachers. To say nothing of state expenditure on social security benefits that represents a wholly unnecessary and ineffective investment.
Our politicians here in the Czech Republic have been trying to lull us into believing that the economy is doing well and we don’t need to do anything, so we’ve been resting on our laurels. We feel safe because Slovakia and Ukraine will always be between us and Russia. But that is a very shortsighted view.
How much longer can we continue to benefit from relatively low labor costs?
This is a thorny issue, not just for us but also for Slovakia, since both our countries have a very high proportion of industry, notably the automobile industry. This industry, in particular, will be subjected to a huge test on a global scale, as the transition from the car as an owned object to something that is just a service, the reduction in travel due to virtual reality, as well as the introduction of driverless cars may result in a significant drop in car manufacturing worldwide. The advantage of a cheap, skilled, and hard-working work force, and our geographical proximity to Germany, which have so far given us a competitive edge, may soon cease to count.
What is the situation like in Western Europe?
Take Great Britain, which is about to leave the EU, a country that has a major head start in terms of technology. For example, the degree of digitalization and automation of their industry and services is very high indeed. Germany is a world robotics leader, following on the heels of South Korea and Singapore.
The Netherlands is traditionally exciting and open to new technologies, and, interestingly, three years ago even the conservative Switzerland launched a program funded exclusively from private sources. They came to realize that traditional Swiss industries would prosper for another two hundred years only if they undergo a transformation.
You’ve mentioned Great Britain. Despite their head start in digitalization, in the end it was the de-industrialized regions of northern England that decided Brexit. Why?
Because the electorate in these regions, having lost their jobs in factories (classically understood as a result of modernization), has fallen precisely into the gap that should be bridged by education. People are always needed, but they have to retrain so that they can take on tasks required in the new situation, and that takes time. That is why I ascribe a major role to learning, and I mean lifelong learning.
So wasn’t Karl Marx actually right when he claimed that people would be replaced by machines?
Marx was wrong about many things and he was totally wrong on this one. In the sentence which says that people will be replaced by machines, he forgot to add a comma and “in their present roles.” Whether in the nineteenth or the twentieth century, it has always been the case that as machines replaced what used to be our jobs, we have been able to move on to more advanced roles.
Admittedly, there are fields, such as agriculture, where employment has gone down dramatically, but at the same time other areas have emerged with much higher demand for people. We can extrapolate that some 20 percent of the young currently at school will end up working in fields that don’t even exist today. And to come back to machines: it is worth noting that countries most advanced in terms of robotics, such as Germany and Singapore, also have the lowest unemployment rate.
is a graduate of the School of Economics (VŠE) in Prague. From 1986 to 1990 he worked at the Institute of Economics of the Czechoslovak Academy of Science. In the 1990s he served as Vice Governor and Acting Governor of the Czech National Bank, in charge of the planning and implementation of the separation of the Czechoslovak currency and introduction of the Czech koruna. From 1994 to 1997, as a consultant for the International Monetary Fund, he was involved in the introduction of national currencies in a number of East European countries. In 2000 he joined the Czech Savings Bank as its chief economist, in 2004 was elected to its Board and from January 1, 2001, he served for five years as its CEO and Board Chairman. He has been named Banker of the Year three times. He focuses on the economic, business, and social impact of the digital revolution. He is the founder and chairman of the board of the 6DAcademy, president of the Smetana’s Litomyšl music festival, member of the Board of VŠE, of the Masaryk University in Brno, Palacký University in Olomouc, the Leoš Janáček Foundation, the Bohemian Heritage Fund, the Czech-Israeli Chamber of Commerce, and serves on the boards of the Good Angel charity and Aspen Institute Central Europe.
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