Industry 4.0 Opportunities and Threats for Government

2018 FISC LogoAre governments obsolete in the emerging era of digital transformation. The Fourth Industrial Revolution: autonomous vehicles, robots, 3D printing, artificial intelligence. And, the sharing economy with the ‘uberization’ of everything. The impact of digital disruption has been a subject of discussion at the past three FreeBalance International Steering Committee (FISC) conferences.
FISC is future-focused. It isn’t a legacy software company sales event. That’s why we assemble speakers and workshops to address emerging opportunities and threats.
Like the revolutions that preceded it, the Fourth Industrial Revolution has the potential to raise global income levels and improve the quality of life for populations around the world.”
Klaus Schwab
The combination of  “cyber-physical systems, the Internet of things, cloud computing and cognitive computing,” promises unprecedented industrial and manufacturing productivity. This is known as “Industry 4.0” or “The Fourth Industrial Revolution”.
Digital is deceptive. It takes many years for digital technology to mature to provide more utility than analog technologies. Growth is astronomical once the analog to digital gap is spanned. 3D printing becomes affordable and manufacturing subcontractors are no longer needed. Artificial intelligence chatbots replace call centre workers. Hotel and taxi revenue slides as people use more convenient “sharing economy” apps. Unskilled labour is replaced – at the same time as firms hunt for advanced skills – known as the “war for talent”.
This societal impact is called “the future of work”.
A recent Deloitte survey found that executives thought that the impact will be more evolution than revolution. Perhaps “hope for the best, plan for the worst” is a more effective approach to digital transformation.
Industry 4 gap

Government Threats and Opportunities

Observers have made different predictions about the impact of Industry 4.0. It’s clear that the “future of work” will see jobs disappear, with new jobs appearing that never existed before. Governments are able to leverage technology advances for economic leapfrog. McKinsey sees success when “governments have supported the shift with clear policy efforts to encourage companies to adopt” Industry 4.0 technologies.
Governments who are unable to develop far-sighted policies will find economies ruined, revenue drops, and expenditure increases. A recent Deloitte analysis characterizes Industry 4.0 as “a mix of hope and ambiguity”.
Countries leading in traditional industries, like Germany, Singapore, and Sweden are ready to benefit. Possibly at the expense of other countries.
The digital disruption policy dimensions facing policy-makers include:

The 2016 EU study of Industry 4.0 included an interesting SWOT analysis. (The authors seemed a bit confused about how to do SWOT analysis properly, with most “strengths” really “opportunities”, and “weaknesses” really “threats”.)

Strengths

  • Increased productivity, (resource) efficiency, (global) competitiveness, revenue
  • Growth in high-skilled and well- paid jobs
  • Improved customer satisfaction – new markets: increased product customisation and product variety
  • Production flexibility and control
Weaknesses

  • High dependence on resilience of technology and networks: small disruptions can have major impacts
  • Dependence on a range of success factors including standards, coherent framework, labour supply with appropriate skills, investment and R&D
  • Costs of development and implementation
  • Potential loss of control over enterprise
  • Semi-skilled unemployment
  • Need to import skilled labour and integrate immigrant communities
Opportunities

  • Strengthen Europe’s position as a global leader in manufacturing (and other industries)
  • Develop new lead markets for products and services
  • Counteracting negative EU demographics
  • Lower entry barriers for some SMEs to participate in new markets, links to new supply chains
Threats

  • Cybersecurity, intellectual property, data privacy
  • Workers, SMEs, industries, and national economies lacking the awareness and/or means to adapt to Industry 4.0 and who will consequently fall behind
  • Vulnerability to and volatility of global value chains
  • Adoption of Industry 4.0 by foreign competitors neutralising EU initiatives

A 2017 KPMG study for Industry 4.0 in the UK described the need for smart infrastructure. This is an important point. Governments cannot accurately predict policy impact. Governments can measure impact and adjust to improve outcomes. This is consistent with a Frost & Sullivan recommendation for Asian governments to leverage the Internet of Things (IoT) to advance Industry 4.0.

20th. Century Policy-Making Limitations

Industrial Modernization
Many governments are stuck in a previous industrial era for decision-making. The characteristics of Industry 2.0 thinking include:

  • Standardization: making of standard, generic, repeatable, and equitable, rather than on personalized service delivery
  • Industrial-scale investments: consideration of big plans, rather than experimentation and scientific discovery – including focus on traditional supply chains rather than digital value chains
  • Inputs-rationale budgeting: where spending on something, somewhere is politically important, rather than outcomes of spending
  • Experts, silos and secrecy: government as a “black box” of experts making expert specialized decisions in secret, rather than openness, engagement and holistic thinking
  • Right-left divide: dogma and dogma shift, rather than scientific public policy based on what works
  • Data scarcity: decision-making based on limited information and poor information quality, rather than the flood (or, “data lake”) of big data
  • GDP scorecard: policy objective of growth at almost all human costs, rather than sustainable prosperity based on social values
  • Governance as ceremony: processes based on tradition, administration, compliance, and management oversight, rather than based on risk profiles

Power Shift 4.0?

Citizens, either individually or in communities of interest, will increasingly use technology to seek greater autonomy, which will challenge the power of government and institutions,” says David Lye in GE Reports. This is the power shift to citizens and consumers.
Institution Power Shift
This power shift comes with increased distrust of institutions. Much of this comes from the “experts, silos, and secrecy” from legacy thinking. Industry 4.0 comes with a Power Shift 4.0.
Trust in Government

Digital Disruption Country Context

How can governments unpack the digital transformation opportunity? It’s through analyzing the country context, such as using the FreeBalance A-i3+qM Methodology GESCED approach.
Country Context

An example of GESCED in-progress analysis:

GOVERNANCE IMPLICATIONS

(political & governance)

ECONOMIC IMPLICATIONS

(macroeconomic)

  • Economic Growth
  • Poverty Reduction
  • Globalization
    • Context: Economies are becoming more integrated. This integration disrupts vested interests, and can be to the detriment of the poor.
    • Digital Challenge: Protectionism restricts growth. Yet, there are losers in free trade.
    • Digital Opportunity: Globalization is a reality. Governments can use big data to track trade and growth. Investment in the right industries protects countries, and supports growth. Digital can help policy-makers to navigate the Atlas of Economic Complexity.
  • Gig Economy –digitally-driven
    • Context: There is an increase in employment in the so-called “gig economy” that includes freelancing and the use of “platforms” such as Uber and AirBNB.
    • Digital Challenge: Negative characteristics of the current gig or “platform economy” providers includes low pay, poor job security, limited job benefits, tax avoidance, and the use of technology to skirt legal requirements such the Uber Greyball program. Meanwhile, established business that pay taxes and provide benefits are at a disadvantage.
    • Digital Opportunity: The gig economy is an opportunity for governments to support innovation that improves economic value, and reduces waste through sharing. Data-driven policy can inform regulation to create the optimal level of social support.
  • Cryptocurrencies –digitally-driven
    • Context: Bitcoin and other cryptocurrencies using blockchain technologies, in a peer-to-peer basis, promises to reduce transaction costs while functioning without the need for central trusted authorities like financial institutions. The recent financial crisis showed that many financial institutions were not trustworthy.
    • Digital Challenge: Cryptocurrencies are often used for illegal activities. Investors using Initial Coin Offerings (ICO) skirt securities law. Exchanges have proven susceptible to failure. Transaction costs have not been eliminated. Wild speculation on cryptocurrencies makes for economic uncertainty.
    • Digital Opportunity: There’s more to blockchain and distributed ledgers than cryptocurrencies. Experiments show how blockchain technology can be leveraged for smart contracts, remittances, international aid, and copyright protection. Most importantly, blockchain can act as a major anti-corruption mechanism through transaction immutability.
  • Industry 4.0 –digitally-driven
    • Context: The combination of  “cyber-physical systems, the Internet of things, cloud computing and cognitive computing,” promises unprecedented industrial and manufacturing productivity.
    • Digital Challenge: Analysts differ in their assessment of Industry 4.0 effects. Some see massive unemployment, while others see job shifts with net increases in jobs. The challenge to governments is far greater. It is clear that new digital skills are needed where current educational curricula have become out-of-date. The use of artificial intelligence, robotics and 3D printing overcome labour arbitrage creating massive unemployment in countries with low-cost workforces.
    • Digital Opportunity: Governments can fund industry 4.0 investments, and leverage digital for workforce capacity building.
  • Urbanization

SOCIAL AND CULTURAL IMPLICATIONS

ENVIRONMENTAL IMPLICATIONS

(environmental sustainability)

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