Letter IEDI n. 899–Emerging economies in the face of Industry 4.0
Throughout 2018, based on studies by the most important international organizations, the IEDI has published a series of analyzes on the ongoing worldwide profound transformations of the productive system, in general, and industrial activities, in particular. Giving continuity to the retrospective initiated last week with Letter n. 898, the present Letter IEDI draws on three works that explain some of the challenges to be faced by Brazil and other emerging economies with the rise of industry 4.0.
Although the new industrial revolution has important implications for countries throughout the world, it requires special attention from emerging countries, notably those in Latin America, which in recent decades have performed poorly in relation to other developing regions, East Asia in particular.
As will be discussed below, two features that are very characteristic of Latin American countries —namely, high social inequality and limited insertion in global value chains, if compared, for example, to the Asian economies— are in danger of being deepened with the progress of the integration between the physical and the virtual worlds. This was made possible by the greater automation and robotization of productive processes and the development of the Internet of Things, Big Data, Artificial Intelligence, in addition to other 4.0 technologies.
In the chapter "Robots, industrialization and inclusive growth" of the Trade and Development Report 2017, UNCTAD estimates that the deepening of the automation of productive systems through increasingly intelligent robots will most likely have greater impacts in developed economies than in emerging economies. Many jobs, especially those associated with routine activities, should disappear in high-income countries, but this process can be offset, to some extent, by the creation of new high-productivity jobs.
Emerging economies, however, will not be immune. Their levels of industrial employment may be negatively affected by the reshoring process of rich countries' transnational corporations. This movement would reinforce the tendency to concentrate output and industrial employment in a small number of countries, making the path of manufacturing upgrading toward knowledge-intensive activities more difficult and hindering the productivity and per capita income catching-up trajectories of emerging economies.
Therefore, the increasing use of robots could widen inequalities between nations, making inclusion difficult at the international level. However, such impacts would depend on the stage of structural transformation of each country, its position in the international division of labor, demographic factors and also its economic and social policies.
In the second study, "The Future of Global Value Chains: 'Business as Usual' or 'A New Normal'", the OECD deals with the restructuring of global value chains (GVC), a phenomenon that involves (1) in developed countries, questioning the benefits of globalization and (2) the reorientation of the development models of some emerging countries (especially China) towards the domestic market. Note, however, that this restructuring process also results from the technological transformations of Industry 4.0.
Koen de Backer and Dorothée Flaig, OECD researchers and authors of the study, estimate that in the next decade international trade as a percentage of world GDP will fall by 4.1 percentage points as a result of the dramatic restructuring of GVCs, dropping from 27% in 2011 to 23% by 2030.
Who will be the biggest losers if this scenario is confirmed? As the competitiveness of developed countries would be enhanced by new forms of production, the negative impacts of GVCs restructuring would be more acute on emerging countries.
Potential losses in industrial employment, known to be of better quality and deliver higher earnings, and fewer opportunities for international trade insertion through value chains mean that the future may bring important challenges for Latin American countries. For this reason, the ECLAC's study "4.0 Industrial Policy in Latin America", by Mario Castillo, Nicolo Gligo and Sebastián Rovira, seeks to propose industrial development policy designs compatible with the reality of the region in order to enhance the opportunities and reduce the challenges created by Industry 4.0.
Noting that the major Latin American economies, such as Brazil, have not yet reached the minimum capacities in industry 4.0-enabling technologies (connectivity, data storage infrastructure, cloud computing, Big Data, Internet of Things, etc.), the ECLAC researchers argue that industrial policy proposals should comprise three main dimensions:
• International technological integration: connecting the region to international technological networks and transferring knowledge and technological capabilities in new areas;
• Infrastructure and regulation: raising infrastructure investment, particularly in fixed and mobile high-speed broadband, ensuring the connectivity and speed required by Industry 4.0, while also advancing regulatory milestones and safety for virtual networks;
• Supply and demand policies: coordinate policies to strengthen technological capacities and promote digital innovations in the productive sectors, using: funding lines and grants to new companies, promotion of technological innovation, establishment of research centers and implementation of public procurement programs.