In 2015, the Japanese government began to explore how science, technology, and innovation (STI) can work together to help develop a new model of sustainable development. The plan they put together for human development around the world came to be called Society 5.0.
Society 5.0 envisions a human-centered community that balances economic advancement and the resolution of social problems. With every innovation, the world moves toward this society: one that is sustainable, inclusive, and super-smart. Society 5.0 will build upon the innovations of Societies 1.0 (hunter-gatherer), 2.0 (agricultural), 3.0 (industrialized), and 4.0 (information), yet draw upon modern technologies like big data analytics, artificial intelligence (AI), the Internet of Things (IoT), and robotics as its driving forces.
This future will live within the fabric of the cyber-physical system, in which cyberspace and the physical space are tightly integrated, and form a pervasive technological mode supporting Society 5.0. Even today, the gap between the cyber and physical realities is closing, as most people live online-to-offline and back again, or “O2O”.
Solving existing social problems—which have become increasingly complex—can kick-start the full potential of economic development in Society 5.0. The reduction of greenhouse gas emissions, increased production and reduced loss of foodstuffs, mitigation of costs associated with an aging society, support of sustainable industrialization, redistribution of wealth, and correction of regional inequality all present opportunities for problem-solving, though thus far maintaining economic development and sound social policy at the same time has proven to be difficult.
But, the relationship works both ways; new value created through the innovation prized by Society 5.0 will eliminate regional, age, gender, and language gaps and enable the provision of products and services finely tailored to diverse individual needs. In this manner of reciprocity, it will be possible to achieve a society that can both promote economic development and find solutions to social problems.
For many countries, science, technology, and innovation (STI) policy has already become a mainstream political agenda. In Japan, the Ministry of Education, Culture, Sports, Science and Technology and the Ministry of Economy, Trade and Industry are leading the Society 5.0 progression agenda. They craft their STI policy to support the United Nations Sustainable Development Goals (SDGs), and have made the SDGs the theme of World Expo 2025—“Designing Future Society for Our Lives”—which will be held in Osaka.
Japan has also established industry–government committees for next-generation mobility, smart public services, next-generation infrastructure, financial technology, and next-generation healthcare.
The Drivers of Society 5.0
Worldwide, both governments and businesses believe that increasing urbanization and technological changes, aging populations, and globalization will continue to stimulate Society 5.0.
This dramatic shift to the digital age is happening ten times faster and three hundred times the scale of the societal shift of the Industrial Revolution—meaning that we will feel roughly three thousand times the impact. Just as waves amplify each other, these trends are gaining strength, magnitude, and influence as they feed upon one another.
The age of urbanization
Emerging markets are going through simultaneous industrial and urban revolutions that have shifted the center of world economy east and south at a speed never witnessed before. Today, 95 percent of the Fortune Global 500 companies—Airbus, IBM, Nestle, Shell, and The Coca Cola Company, to name a few—were headquartered in developed economies. But, by 2025, it will not be surprising to see nearly 50 percent of the world’s large companies (those with revenues of $1 billion or more) headquartered in emerging markets. According to Euromonitor International, as of 2018 twenty megalopolises—sets of roughly adjacent city agglomerations forming continuous urban regions known for their sheer economic size and their massive contribution to the global economy—have been identified across the world. Nine of these are in North America, seven in the Asia–Pacific, three in Europe, and one in Latin America. As these megalopolises generate roughly $30 trillion in gross domestic product each year—equivalent to 35 percent of the world economic output—and house 9 percent of the world’s population, they are fertile ground for large companies traditionally headquartered in the West.
Greater Global Connections: Trade, People, Finance and Data
Clearly, the world is becoming much more connected through movements in capital, people, and information. Trade and finance have long been part of the globalization story—but, in recent decades, they have significantly expanded. Instead of a series of lines connecting major trading hubs in Europe and North America, the global trading system has exploded into an intricate, sprawling web. Asia is becoming the world’s largest trading region. “South–South” flows between emerging markets have doubled their share of global trade over the past decade; the volume of trade between China and Africa, for example, soared from $9 billion in 2000 to $215 billion in 2014.
Accelerating technological change
Likewise, the scope, scale, and economic impact of technology have been rapidly expanding. Technology has always been a major force in overturning the status quo, from the printing press to the steam engine to the Internet. However, the pervasiveness of technology in our lives now is unparalleled, and the speed by which new technologies are developed has increased. For instance, it took almost four decades for the radio to attract 50 million listeners—but, Facebook managed to attract 50 million users in two years, and Instagram did it in one and a half years. As fast as innovation has multiplied and spread in recent years, it is poised to change and grow exponentially, at a speed beyond the power of human intuition to anticipate.
Yet, there is one other trend that is mushrooming across the globe: aging. The human population is getting older. Fertility is falling, and the world’s population is graying dramatically. While aging has been evident in developed economies for some time—Russia and Japan have seen their populations decline over the past few years—the demographic deficit is now spreading to China, and will soon reach Latin America.
For the first time in human history, aging could mean that the planet’s population will plateau in most of the world. Thirty years ago, only a small share of the global population lived in the few countries with fertility rates substantially below that needed to replace each generation: 2.1 children per woman. But, by 2013, the number had expanded to about 60 percent. This is a sea change. The European Commission expects that, by 2060, Germany’s population will have shrunk by one-fifth, and the number of people of working age will fall to 36 million as opposed to 54 million in 2010.
The Future Economies
These four disruptive forces have not only influenced the development of Society 5.0, but are paving the way for the emergence of new types of economies within it. In the coming years, emerging “digital”, “experience”, “sharing”, “gig”, “circular”, and “purpose” economies will all dominate how businesses will create value.
In so doing, those new economies will alter our understanding of the political economy. The future economies are expected to have a profound effect on the generation and distribution of wealth and power, the intersection of which are at the core of the concept of political economy. As the future economies evolve, societies, enterprises, and governments will find themselves in new roles when it comes to the use or control of wealth and power, each as an instrument to influence the other.
For over four decades, conventional wisdom among policymakers, academics, and journalists has lauded the neoliberal policies that have governed the global economy. We have been assured that the costs of global deregulation of capital, labor, and commodity markets are “transitional”, and more than compensated for by overall economic growth, rising standards of living, and a narrowing of the income gap between rich and poor. Yet, there is no convincing proof that this “Washington Consensus” has delivered on its promises. Most of the claims in its favor are based on anecdotal evidence, and typically focus on only the benefits while ignoring the costs. There is, however, a strong prima facie case that the net impact of neoliberalism has been negative.
The new realities that are being shaped by Society 5.0 put this phenomenon of blind acceptance up for questioning. Consumers expect that the future economies will address their mounting concerns about the stagnant wages, rising debt, and lack of creditor-friendly low inflation levels that have existed under the neoliberal status quo. This is surely shaping a new agenda for the future political economy, and is even driving voters to reject mainstream political parties.
The digital economy lies at the center of this change; it acts as the enabler and influencer of the rest of the economies in one or more ways. It is changing the world view on value creation; it will not only transform the way we convert our resources into economic value-added outcomes, but it will redefine our views on how to utilize available resources to address existing economic and social challenges.
The digital economy develops in three layers. The foundational layer includes core issues such as infrastructure, regulations and policies, digital skills, finance, and governance. The second layer is the true ecosystem of innovation and includes the different technologies that fuel the digital economy: big data analytics, AI, 3-D printing, social networks, new digital media, and cloud computing are just a few. They enable economic sectors, which exist in the third layer, to go “smart” to form the digital economy. The final product includes many sectors, such as e-health, e-government, precision agriculture, smart manufacturing, smart cities, and smart mobility. Because of its multi-layer makeup, the digital economy is able to create benefits for multiple levels of society. For example, digitization allows for the automation of business operations, resulting in operational efficiencies (like the reduction of transaction costs) which ultimately heighten productivity. Furthermore, it offers new business opportunities, thus affecting employment and entrepreneurship. It also enhances the provision of public services, such as health and education, and improves interactions between citizens and their governments by facilitating communication and social inclusion. With all of these benefits, the development of a digital economy will ultimately lead to a society that has more inclusion, affordability, and accessibility to support the achievement of social and economic development goals.
The emergence of another economy—the experience economy—has fundamentally changed how companies go to market, influence their buyers, and engage people throughout the customer journey. Brands have realized that experience is king: consumers’ loyalty and dollars go not to products, but to the experience that they have when shopping with a company.
Brands consider many touchpoints in crafting a customer’s experience; its product, service, employees, and market messaging across multiple channels are continually cultivated over the duration of the customer-brand relationship. However, in order to improve and deliver a memorable customer experience—and see optimal business outcomes—companies need to move from touchpoints to journeys.
I propose a three-step approach to making this transition. First, companies must observe. Seeing the world as their customers do helps leading companies better organize and mobilize their employees around customer needs. Then, the customer experience must be shaped around these observations. Designing the customer experience requires digitizing processes, reorienting company cultures, and nimbly refining new approaches in the field.
The last step in this process—the performance—can take two to four years. Rewiring a company is a journey in itself, and requires high engagement from company leaders and frontline workers alike.
Some companies have created superior customer experiences and left lasting impressions in the minds of consumers by adopting this approach. Apple, Workday, and Amazon have excelled in the technology sector; Southwest and Virgin Atlantic in air travel; and Starbucks, Nordstrom, and Zappos.com in retail. Because of the interest in customer experience shown by brands like these, spending on the experience economy is projected to skyrocket to $8 trillion by 2030.
However, around the world, a new wave of peer-to-peer, access-driven companies are shaking up the established businesses. The sharing economy has allowed individuals and groups to make money from under-used assets. Trust, convenience, and sense of community have given consumers a greater appetite for sharing-based rather than corporate opportunities, whether they’re looking to borrow goods, rent homes, or use someone’s micro skills in exchange for money.
Numbers of people are switching from traditional hotels to Airbnb and Couchsurfing. Uber, Lyft, Side.car, and Getaround have become more popular than taxis, and it is common for individuals to buy and sell retail and consumer goods from Poshmark, Tradesy, and NeighborGoods. And, of course, who among us hasn’t used Wix, Spotify, Earbits, or Soundcloud for media and entertainment?
The impact created by this emergent ecosystem is upending mature business models across the globe. To put the scale of disruption caused by the sharing economy into perspective, Airbnb averages 425,000 guests per night: 22 percent more than Hilton worldwide. Uber, an archetypal disruptive business, has played havoc with the taxi industry in over six hundred cities in sixty-five countries.
The sharing economy is too big of an opportunity to miss, but too big of a risk (for traditional businesses) not to mitigate. Therefore, it is increasingly important for traditional businesses to recognize both the opportunities and disruption risks they are confronted with in order to remain effective in the sharing economy. This can be achieved in seven steps: create a marketplace that involves high fixed costs and low marginal costs with underutilization; develop mitigation strategies by acquiring new entrants or partnering with them; engage in sharing won asset bases; effectively tap talent; share in shaping regulatory and policy frameworks; expand the brand; and finally, never settle—and continue evolving.
Although they seem similar, separate from the sharing economy is the gig economy—rather, the “skills sharing economy”. Also called the “freelance economy”, the gig economy refers to the use of digital platforms by independent freelancers to connect with individuals or businesses for short-term services.
Since the majority of the gig economy’s gross volume is generated from platforms that are relatively new to the market, the outlook for continued industry expansion is positive. Gig platforms are projected to continue extending their operations regionally and offer a greater diversity of services to customers, thus enabling the industry to expand and mature.
Freelancers are increasingly offering their services to gig platforms, partly because evolving social attitudes about peer-to-peer sharing of personal items now accept, and even encourage, sharing underutilized assets for profit. Moreover, digitization has become more accessible through rapid smartphone adoption and increasing Internet access in underserved regions. A cultural shift toward embracing a “flexible” work–life balance has also changed the working population’s expectations of a typical nine-to-five workday, and rising costs of living and a shrinking middle class compel the employed lower-to-middle class to seek additional part-time income through gig work.
The circular economy is a $4.5 trillion business opportunity with the potential to transform the production and consumption processes that have operated since the Industrial Revolution. Often defined as a “new way of looking at relationships between markets, customers, and natural resources”, the concept of the circular economy is widely misunderstood by businesses. Capitalizing on its opportunity will remain a challenge until or unless more business leaders adopt a circular mindset, as executives from Danone, Solvay, International Flavours & Fragrances Inc., and Unilever have.
The circular economy moves away from the orthodox “take-make-dispose” economic model towards one that is regenerative by design. The origins of the linear economy, the excessive consumerism-driven economic model that we see today, date back to the period after the Second World War when the global economy was in disrepair and growth through constant buying and disposing of products was promoted. Today, we need an economic model that reflects the new generation’s social values and benefits the planet: one that reduces waste, focuses on repairing things instead of throwing them away, and designs and builds products that are more reliable, live longer, and use less packaging.
The benefits of such a model abound. The circular economy has already created five hundred thousand additional jobs in France, and could offer a 37 percent reduction in energy consumption in the European Union. It also reduces greenhouse gas emissions—in India, implementing circular solutions presents the opportunity to reduce emissions by about 40 percent—and is particularly important in light of resource scarcity. In fact, applying circular economy principles to water management can greatly reduce conflict over water resources. Lastly, the circular economy drives innovation; the potential revenue that can be generated by circular business models for automotive companies, for example, could grow to $400–600 billion in 2030.
The conscious mindset that underlies the circular economy takes a second form in the purpose-driven economy, which finds its roots in social entrepreneurship. Social entrepreneurs are popping up everywhere, demonstrating through innovative approaches that profit-making and social benefit can go hand-in-hand. The Egyptian brand Okhtein, for example, is one of the country’s hottest exports. They have taken a philanthropic approach to incorporating handmade embroidery and straw into their leatherwork by collaborating with several local nongovernmental organizations that provide assistance to skilled female workers from economically unstable backgrounds in the country.
Vava Coffee is another example. Launched in Kenya, Vava Coffee buys and exports some of the finest Kenyan coffee beans from smallholder farmers who have traditionally lacked access to fair markets, ensuring that they receive equitable prices.
Tapping into a rising consciousness among customers, employees, and other stakeholders, many organizations and businesses are stepping up to enable positive innovation to tackle societal and economic challenges while promoting business growth.
The success of businesses like Vava and Okhtein shows that for consumers, purpose has become personal, and the new generation—empowered by technology, high connectivity, and social media—has more power than ever to help solve the world’s economic and societal challenges.
The Optimal Path to Society 5.0
Movement toward Society 5.0 and the future economies is unstoppable; but, the world as a whole still needs to work to ensure that we get the most that we can out of this evolution. In order for Society 5.0 to operate at its full potential, we must confront serious deficiencies in the status quo, which take the form of five societal “walls”.
First to be confronted must be the wall of the ministries and agencies. This necessitates, as the Japan Business Federation states, “formulation of national strategies and integration of government promotion system”. This includes expanding the system of “Internet of Things” to the “Internet of Every Thing”, engineering a bureaucratic “think-tank function”.
Whereby laws need to be developed to implement new economic models, innovative regulatory reforms and a push of administrative digitization are also necessary to bring down the wall of the legal system. For example, Japan is promoting the expansion of World Trade Organization rules beyond goods and services to encompass trade in data
To combat barriers in technology, we need to form a “knowledge foundation”. Actionable data plays a foundational role here, as do all technologies and areas that protect and leverage it, from cybersecurity to robotics to nano, bio, and systems technology. This requires a serious commitment to research and development on various levels.
Educational reform, information technology literacy, and a greater number of individuals with specializations in advanced digital skills are crucial to removing the wall of human resources. This should also include the promotion of women’s participation to discover potential talents.
Lastly, we need to break down the wall of social acceptance: educate the public, address privacy concerns, and continuously examine ethical, legal, and social implications for all stakeholders. This examination must cover everything from the relationship between humans and machines (AI and robots) to philosophical issues, such as the definition of individual happiness and humanity.
Hesham Dinana is a professor of integrated marketing communications (IMC) at the American University in Cairo. His interest in future technologies and its social implication guided his research on the use of Information and Communications Technology and Digital Economy. He also authored research on Insights-Driven Sales Management.
Subscribe to Our Newsletter