Technology 8 min read

How Economies Can Stay Competitive in Industry 4.0

Ae Cherayut |

Ae Cherayut |

Choosing an appropriate economic model for Industry 4.0 is no easy task. In fact, on a global scale, it may be impossible. But countries such as South Korea prove that Protectionism is not the answer.

Serving as an example for the future, South Korea has pledged against protectionism. Conversely, the U.S. led by current president Donald Trump seems to be doing the opposite. But, what is Protectionism and why is it a threat to Industry 4.0?

image of bridge in South Korea for article How Economies Stay Competitive in Industry 4.0: Less Protectionism, More of This
Joshua_seajw92 | Pixabay

What is Protectionism?

Protectionism is an economic policy in which countries restrict trade between sovereign states using tariffs on imports, quotas, and other government-sanctioned regulations. Most critics of this policy contend that the long-term effects are detrimental and cause slow economic growth leading to increased prices.

The main alternative is free trade. South Korea, Japan, and China all pledged against Protectionism in 2017. This was due, in part, to President Donald Trump’s comments and actions.

After all, the U.S. has engaged in more than twenty trade disputes with twenty-nine nations over various items such as Spanish olives, Canadian jetliners, and Korean washing machines. If the U.S. is trending toward protectionism as a new economic model, that spells trouble for South Korea.

Due to its past focus of largely relying on manufacturing, South Korea has seen major economic growth over the past number of years. But with impending changes to how other countries trade with South Korea, the manufacturing dependency could quickly become problematic, causing an economic downturn.

According to the director of the Lauder Institute at the Wharton School of the University of Pennsylvania, Mauro Guillen, South Korea can avoid this. Four key factors need perspective shifts if South Korea wants to transition into Industry 4.0. These four factors are:

  • Economic approaches to innovation
  • Handling of aging population groups
  • Transitioning from manufacturing to a services-based economic model
  • Improve education and infrastructure systems to support a service-based economy

The bigger subtext in Guillen’s advice is a roadmap for other countries to navigate the fourth Industrial Revolution. The only way to stay competitive in the global market is to adapt. In order to adapt, sometimes you need a challenge.

Workers adapting to protectionism

Protectionism Stifles Innovation

Innovation is often spurred by challenges, but it is achieved through collaboration. As Edgy Labs has covered in the past, more interdisciplinary approaches that connect and span individual specializations lead to enormous insights and breakthroughs. If various ecosystems can connect and work together, everyone wins.

Protectionism, with its economic tariffs and quotas, seems almost the antithesis of the open and collaborative environment that innovation requires. In fact, when the Wall Street Journal asked ten thought leaders about the most important thing to “spark” innovation, the answers felt more free trade than protectionist. Here is a list of these thought leaders beliefs:

  • Invest in understanding and consistency
  • Challenge the status quo
  • Innovate and ossify in balanced parts
  • Listen out for useful ideas regardless of where they come from
  • Lead attitude changes in a scalable manner
  • Celebrate small victories to spur bigger victories
  • Connect with others for new ideas
  • Let all departments innovate
  • Be specific and clear about goals and action plans
  • Go for “singles” instead of home runs

This bulleted list can be boiled down into two simple phrases:

1) Stop, collaborate, and listen 

2) Positivity and teamwork are paramount.

Ignoring the unfortunate Vanilla Ice reference, we often see only some and not all of these adages at work in startup culture let alone on a bigger scale.

If countries like South Korea or even the U.S. want to embrace automation, adopting a new outlook on innovation is the first crucial step.

Elderly woman working at a desk

Are Pensions & Social Security Feasible in Industry 4.0?

One of the other main concerns South Korea has is a large and aging population. If people no longer work past a certain age, but still earn income, that income must come from somewhere. In America, social security takes money from the national population to pay retired citizens.

You also see similar structures with pension programs or teacher retirement funds. Recently, however, many “retired” citizens are now working well into their 70s. One reason may be that it’s more difficult to “slow down”. But it is more likely that people simply can’t afford to live on what social security or other retirement programs pay them.

Guillen suggests that, instead of having people retire completely, the older population groups should be kept working in some capacity. Not only does it keep people active, it is useful for the economy, too.

This is an effective way to remain competitive moving into Industry 4.0 where jobs may not be as intensive or even require transportation. Speaking of future economic models…

five star service industries
Black Salmon

Automation & Service-Based Economies

In the U.S., we currently live in a bit of a divergent scenario: some people are salaried and others are part of the “gig” economy. This is fine for our current economic model, but automation will outplace many “gigs” like Uber and Postmates. As we covered before, this not a viable structure for the future.

The gig economy also informs another economic model many countries currently use: debt-driven economies. This isn’t a sustainable economic model for Industry 4.0 either as a service based economy requires a more equitable division of wealth.

AI and automation will require a shift in economic priorities from manufacturing to services. Instead of a factory worker assembling a drill, a robot might do the assemblage. The worker will maintain the machine or oversee human resources. They might work remotely on instruction manuals for the machinery or oversee warehouse logistics with the help of a predictive AI.

Japanese service workers
Mahathir Mohd Yasin

The reality of automation is that we don’t quite know what that future really looks like. The best way to plan for it is by embracing a service-based economy. You see glimpses of this with countries such as Japan and Germany. By expanding your portfolio, you become more competitive.

Categories such as banking, software, and consulting fit tremendously well in a service based economic model. The thing is, this concept is not new by any means. A simple Google search of “service based economy” returned this research paper written about the shift towards service.

How can other aspects of the economy and culture support this shift?

Financial Industry's battle with protectionism

How Education & Infrastructure Support a Service Economic Model

Education is arguably one of the most important factors in attaining actionable progress toward the Fourth Industrial Revolution. But without the infrastructure to support education, you end up in a situation like many millennials find themselves in now.

That situation is largely the reality of massive debt with skills that were supposed to get them a “good job”. Turns out they just have to compete with every other job seeker including the aforementioned retirees still looking for work. This describes the previously mentioned debt-driven economic models that won’t fly in an automated future.

Brain and Heart shaking hands
credit: Honza Hruby

But what kind of education and infrastructure will inform the Fourth Industrial Revolution? More and earlier knowledge of computer science and coding languages will be intimately important. Effective communication skills and emotional intelligence will also be vital as they are something robots still can’t quite achieve just yet.

Service-based positions have been replacing manufacturing positions for centuries now, and it is something that we always managed to deal with as a society. Think of it like going to a couture tailor vs. buying clothes off the rack at Target. However, the scale of this modern shift towards a service-based economy is on an unprecedented level, and it is certain that government intervention will be needed to successfully make this change. 

This raises the important question of whether service jobs will be created in the future just for the sake of employing people and improving the economy or whether we will instead pivot to a fully automated job structure where only a small portion of the world is fully employed. It’s a difficult question not just economically or politically, but also ethically.

Maybe that means one day, in the IoT future, you’ll be getting artisanal, ethically sourced Sharpies delivered by a guy with no helmet on a fixie road bike in espadrilles handmade by his girlfriend. Or, it might mean that we’ll all be given a service robot who caters to our every need while we try and find a way to fill up the time in a jobless economy. 

More likely than either of those, it just means that many of us will have to learn to adapt with the times or get left behind.

Read More: 5 Ways Automation is Changing Job Applications

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Juliet Childers

Content Specialist and EDGY OG with a (mostly) healthy obsession with video games. She covers Industry buzz including VR/AR, content marketing, cybersecurity, AI, and many more.

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