Is Industry 4.0 Good or Bad for the Economy?

In the beginning, there was ‘Web 2.0’.

Then there was ‘Cloud Computing’. Next came ‘Big Data’, followed by ‘IoT’.

Before the pandemic, the biggest buzzword in technology was ‘Industry 4.0.‘ Nowadays, the buzz is all about generative AI, which technically can be part of Industry 4.0 when applied to manufacturing and supply chain.

What is Industry 4.0 in the first place?

According to the proponents of Industry 4.0:

• Version 1.0, as the first industrial revolution, started with steam engines in the 19th century
• Version 2.0 came in the 19th century with electricity being used for mass production
• Version 3.0 came in the 20th century, with the computerization of manufacturing

Version 4.0 continues the trend of applying technology to production, specifically the combination of:

• IoT
• big data
• wireless connectivity
• systems integration into ‘cyber physical systems’

These connect and control each other, creating ‘smart’ factories.

So how does it work?

In a smart factory, all the components and tools of production are connected to other parts via wireless technology.

A raw material or part to be processed has an RFID tag which tells the sensors in the tools of the smart factory how it should be processed.

In this way, different materials can be processed in specific yet various ways using the same hardware at a faster rate.

Each material can tell the factory where it should go and what should be done to it, easing the decision making burdens for the human operators or even allowing fully automated production.

What does this system aim to achieve?

For customers, it hopes to let them get customized products more quickly.

For manufacturers, it aims to deliver a flexible production system that can be adapted to meet constantly changing requirements.

For both, it means having lower costs in the long run, making industry more competitive.

Born in Germany: A Smart Nation

Industrie 4.0 was an idea of the German government to promote the computerization of manufacturing amidst competition from China.

It was conceptualized in the Hannover Fair in 2011, launched in 2013, and started trending from 2015-2019.

Its precursor was the High Tech Strategy of 2010 of Germany which focused on standardization, technical skills, and collaboration with industry.

These, together with the push against nuclear power, seem to have been pushed by Angela Merkel who became German leader in 2005.

Automation Effects on Labor and Business

It cannot be denied that automation will cause jobs to be lost, specifically those with routine and repetitive work. This is the current fear with the development of Deep Learning and Artificial Intelligence.

In one case that I have heard, a port operator was able to replace its manual noise-monitoring system with an automated one, reducing the manpower needed. Here, the loss of regular employment of port workers is offset by the increase in project employment for data science project consultants.

The same is true for the use of AI whether for fault detection in manufacturing systems, or for driving transport vehicles as driverless trucks and drones.

According to research from the US government, AI will disrupt industries such as trucking and banking, reducing employment considerably.

One just has to look at how blog technology affected newspapers and how ecommerce caused retailers (such as Toys R Us) to close down.

The release of generative AI models and ChatGPT to the public has further expanded the jobs being replaced by technology. This was emphasized by the strike of the Writers Guild of America (WGA) against AI.

However, new technologies often create new industries, generating more jobs than they destroy.

For example, the invention of the automobile displaced workers employed in the operation and maintenance of horse-drawn carriages.

• But they created the automobile industry which employs much more people, even today.

The adoption of Automated Teller Machines (ATMs) allowed banks to decrease the number of human tellers per branch.

• This allowed banks to open more branches, hire more human tellers, and serve more customers.

Similarly, Industry 4.0 will create more jobs by creating demand for programmers, engineers, and technicians to develop, maintain, and expand the smart factory.

According to The Economist, automation will generally reduce employment in mid-level jobs, but increase those in both low and high-level, specialized jobs significantly.

Our Main Issue With Industry 4.0: Neoliberalism

Industry 4.0, along with the shutdown of nuclear plants in favor of renewables and hydrogen power, are a Merkel-era economic policy that reeks of neoliberalism.

Noeliberalism focuses on making money.

The most money is made is making the right bets on emerging technology, emerging countries, possible trends, potential ideas, etc.

These bets are done even at the expense of common sense, and tried and tested fundamentals which might not be as exciting nor make as much money.

Industry 4.0 seems to have a hidden agenda of merely selling new equipment and systems even if they are not really needed by enterprises.

This is in contrast to China’s industrial push which is for regular heavy equipment that is cost-effective and reliable. This is similar to Japan’s strategy in the 70’s and 80’s before its asset-price bubble.

China stole some of Japan’s market share in heavy industry, forcing Japan to go into robotics just as Germany has to go into smart manufacturing.

It would have been better for Germany to focus on the basics such as nuclear power development and battery technology instead of hydrogen.