Industry 4.0 and the future of work: Argentina, Brazil, Chile and the EU – state of affairs, opportunities and challenges

Industry 4.0 and the future of work: Argentina, Brazil, Chile and the EU – state of affairs, opportunities and challenges

Disclaimer

One of the most important events taking place in the whole world and especially in developed and high-industrialized countries is the fourth industrial revolution, or industry 4.0. Its main characteristics are linked with automation, data exchange and digitalisation.[i] How prepared are the largest economies in Europe (EU) and the Latin America Caribbean region (LAC) for this big transition? The major question will be how governments and businesses face future scenarios. According to many studies, the revolution is most certainly going to hit Argentina’s, Brazil’s and Chile’s labour market much harder than the central European countries.

 

However, a bi-regional cooperation between EU and LAC could mitigate the negative impact of industry 4.0 on labour.As such, the needs for policy reforms and a concrete policy roadmap for institutionalized cooperation between the LAC and the EU should determine policy agendas for the coming years. Since 1999, both regions enjoy a strategic partnership (through the Community of Latin American and Caribbean states – CELAC), but there is still a big margin for further development of commercial cooperation, especially in high valued products. In this sense, the EU is expanding its relationship with countries of the LAC region also to increase its competitiveness vis-à-vis the US and China. In this context, it is important to look at the economic reality of the main countries in both regions to elaborate possible strategies, which can enhance the socioeconomic development of both regions. Therefore, the principal focus of analysis in this paper lies on the main economic and political players (with some level of regional integration schemes) of LAC and EU: Argentina, Brazil and Chile on one side and Italy, Germany and France on the other one.

 

Considering the major differences and dynamics regarding export, technological capacities and social standards between LAC countries and Central Europe, this article contextualizes opportunities and challenges: Taking into account that the Internet of Things (IoT) is supposed to have the fourth biggest technological impact, it is difficult and often almost impossible to predict future trends. However, states, civil society and other actors have to prepare the future. Thus, this article examines the importance of bilateral cooperation between both regions as well as the economic scope of action in relation to IoT and the future of work. The first section briefly reviews the central characteristics of the production revolution in LAC countries and the economic realities. The subsequent part considers the social impact on the workforce, probabilities, and future trends in order to assess policy recommendations and reforms for states, policy makers, institutions and civil society.

 

The advent of industry 4.0 and the production revolution

This section provides an overview of some characteristics of the Industry 4.0 and one of its technologies, the Internet of Things.[ii] Objects become intelligent and connected – this way one can monitor, adjust and optimize processes in real time.[iii] Such a huge change in the way we produce things, from a mass production model to a mass customisation one, creates not only a race for which countries are going to control such profitable processes, but also new demands from the labour market: A new set of qualifications is going to be needed and a big contingent of workers will likely be displaced at the same time as many new jobs are going to be created. The full impact of IoT is yet unknown, as many of the technologies in question are functioning at the earliest stages of their development.

Looking at Argentina, Brazil and Chile (further: ABC countries), those countries do not produce many products considered “unique” and their economy is not complex (although the Brazilian industry is diversified). The main products exported by the ABC countries are commodities such as soybeans, corn, iron ore and copper.[iv]

The advent of industry 4.0 indicates the necessity of high investments in the development and implementation of those techniques. On the other hand, it also requires a certain level of income on the consumer’s side to afford exclusive products and this purchase power is concentrated in a small proportion of families in the LAC.[v]Consequently there is a limited potential for application of the IoT in the LAC considering the years to come.[vi] ABC countries will hence act as importers of the technologies and new processes and not as developers or producers and this can hinder severely the prospects of generating high valued jobs. Also, manual work will come under increasing pressure from IoT and smart machines.[vii] In fact, it is estimated that in 30 years that robot and machines will carry out half of the jobs performed by Chileans.[viii]

On the other hand, the main players of the EU, namely France, Germany and Italy have a large extent of their exports concentrated in complex goods which have synergic connections with technology related industries. [ix]

Beyond having enough knowledge and capacity to control the main activities of industry 4.0, the three European countries have launched together “Plattform Industrie 4.0”’, a cooperation initiative to strengthen the process of adherence to the new standards of production.[x] This platform is already the largest and most diverse Industrie 4.0 network worldwide and illustrates a good and effective policy initiative. It is likely that Germany, Italy and France will be leading countries in that transition while the ABC countries can hardly internalize such processes without high social costs.

 

Capturing the social impact on the workforce

The internet of things is supposed to have the 4th biggest technological impact on the future of workforce. Interlinked with other developments, about 7.1 million jobs will be lost in 15 economic areas from 2015 to 2020, based on data in major developed and emerging economic areas across nine industry sectors.[xi] As such, the kind of insertion of the ABC countries and of the main EU countries in the new paradigm of production seems to be highly divergent. Therefore, the effects of those changes for the workforce may be much more devastating in the ABC countries, which also offer a lower level of social protection[xii] to their citizens than the European countries. [xiii]

 

Policy initiatives

  1. To mitigate negative impacts of the Fourth Industrial Revolution, it is important that new cooperation initiatives arise on the ground of a minimum floor for non-contributory social protection schemes and also in the joint development of technology and knowledge production between the two blocks. The initiatives should build a link from the islands of excellence of ABC countries and cut edge industries of the main European countries and main research centres, in the hope that they might help both sides to compete with other giants such as Japan, the USA and China.[xiv]

 

  1. Two major EU economies, France and Germany, are predicted to end up with a negative balance of jobs, meaning that there will be more jobs displaced than created.[xv] The top sectors that are predicted to experience the largest decline in terms of employment are sales, office and administrative, management, business, legal and financial.[xvi] A concrete analysis of regional effects on the labour market should be part of a policy recommendation.

 

  1. The major key lesson from any industrial revolution since the 18th century is that they affect labour and workers: Since new goods and services are being gradually globalized, neoliberalism will impact the international system and IoT.[xvii] The consequences of job automation for low vs. highly skilled jobs, necessary reforms in education, the need to reskill society due to the risk of job extinction are some of the unforeseeable dynamics of the future.[xviii]

This combinational feature of technology makes foresight tenuous, major changes to globalization were always surprising. National industries and governments have to prevent, anticipate, cooperate and inform, in order to find policy strategies and determinants of growth in productivity and living standards.[xix] Fears of technology-induced unemployment are rising, and any unpreparedness shall have tremendous consequences on the globalized society in a variety of sectors (labour-cost relationship, decreasing cost, machine-driven labour displacement). European governments try to anticipate with cross cutting business models and their implementation. This tendency should be applied in LAC countries and the EU could initiate a new strategic partnership model, in order to increase the sharing of experiences and best practices.

 

  1. Responsible leadership: Emerging economies heavily rely on labour-cost advantages, and any heavy displacement of workforce in the future may disrupt economies in many ways. The need for long-term policy thinking, the consideration of global value chains and a real cooperative intergovernmental workforce strategy for the fourth industrial revolution are important steps for the upcoming next years.[xx]

 

This implies responsible leadership as an emphasis on business to make ethical choices. In the LAC countries there is a special need to offer credit with lower interest rates for advanced sectors and also to create a stronger partnership between universities and industries for the development of local technologies.[xxi] [xxii]

LAC countries as well as Europe need more transparency, practical policy recommendations and the adoption of roadmaps, as connected ‘things’ will become the norm. This revolution will have a great impact on Europe and its main economies, but it will be crucial to find new approaches towards policy and reform enhancing measures. New policy recommendations when it comes to lifelong learning, educational infrastructures (skills and employability), cross-industry, cross-regional and public–private collaborations, government funding, IoT infrastructure as well as rules and regulations would enhance cooperation and the mitigation of risks:[xxiii] LAC and European countries have the capacities to learn from each other, to cooperate in many policy sectors and to develop new infrastructures for a better future.

 

Endnotes

[i] United Nations Industrial Development Organization (2017). Industry 4.0: Opportunities and Challenges of the New Industrial Revolution for Developing Countries and Economies in Transition. Vienna: United Nations Industrial Development Organization. Available at: https://www.unido.org/sites/default/files/2017-01/Unido_industry-4_NEW_0.pdf [Accessed 22 Apr. 2018].

[ii] The industry 4.0 goes beyond the mere application of new technologies in traditional businesses: It creates and articulates intelligent units of production, which are able to produce customized items with reduced costs. With the so called Internet of Things (IoT). McKinsey Global Institute defines the Internet of Things as “[…] sensors and actuators connected by networks to computing systems. These systems can monitor or manage the health and actions of connected objects and machines. Connected sensors can also monitor the natural world, people, and animals.

According to Hausmann et al. (2013), the economic complexity of a country reflects the amount of knowledge that is embedded in the productive structure of an economy, countries with complex economies are able to produce sophisticated products and consequently tend to have higher levels of income per capita.

[iii] Instituto de Estudos para o Desenvolvimento Industrial (2017). Indústria 4.0: Desafios e Oportunidades para o Brasil[ ] São Paulo: IEDI. Available at: http://www.iedi.org.br/cartas/carta_iedi_n_797.html.  [Accessed 22 Apr. 2018]

[iv] Moreover, the region is experiencing a deindustrialization since mid 80’s. Brazil and Chile have two of the most internationalized industries in the world, but long term plans for economic development haven’t found place in the last decades and they haven’t been able to catch up with the microelectronic revolution, which is crucial to the development of industry 4.0.

[v] However, because of the presence of important multinationals and the absent of an integrated industrial system, it is likely that these countries will have some participation in industry 4.0.; Their performance will be crucial for the labour force. Like Nestlé, Unilever, Walmart, BASF, P&G, Dowchemical, all the main brands of the automotive sector, IBM and enterprises from the mining sector like BHP Billiton, Xstrata Plc, Rio Tinto Group.

[vi] McKinsey Global Institute (2018). THE INTERNET OF THINGS: MAPPING THE VALUE BEYOND THE HYPE. Available at: https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/McKinsey%20Digital/Our%20Insights/The%20Internet%20of%20Things%20The%20value%20of%20digitizing%20the%20physical%20world/Unlocking_the_potential_of_the_Internet_of_Things_Executive_summary.ashx [Accessed 27 Apr. 2018].

[vii] Instituto de Estudos para o Desenvolvimento Industrial (2017). Indústria 4.0: Desafios e Oportunidades para o Brasil[ ] São Paulo: IEDI. Available at: http://www.iedi.org.br/cartas/carta_iedi_n_797.html [Accessed 22 Apr. 2018].

[viii] Guzman, F. (2018). Industria 4.0 y los nuevos desafíos para Chile. La Tercera Pulso.  Available at: http://www.pulso.cl/opinion/industria-4-0-los-nuevos-desafios-chile/. [Accessed 23 Apr. 2018].

[ix] The Observatory of Economic Complexity, MIT/ Harvard (2017). Available at: https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/. [Accessed 22 Apr. 2018].

[x] Federal Ministry for Economic Affairs and Energy (n.d.). Plattform industrie 4.0. Available at:  https://www.plattform-i40.de/I40/Navigation/EN/Home/home.html#&panel1-5. [Accessed 22 Apr. 2018].

[xi] The World Economic Forum (2016). The future of jobs and skills. Available at: http://www3.weforum.org/docs/WEF_FOJ_Executive_Summary_Jobs.pdf. [Accessed 9 Apr. 2018].

[xii] Social protection is a set of actions implemented by the State which aim to support the most vulnerable groups of the society.

[xiii] European Commission (2018). Cross-Cutting Business Models for IoT. Final Report. pp. 210. Available at: https://ec.europa.eu/digital-single-market/en/news/cross-cutting-business-models-internet-things-iot.

[xiv] An approximation between Argentina and European businesses as well as between Chile and European businesses has already taken place in 2017 in the Elan network event, when companies of the renewable energy sector, industry 4.0 and ICT from both regions met to discuss challenges as well as concrete business ideas. Another initiative pointing towards a greater level of cooperation between the two regions is the partnership, which started in 2015, between the 15 Senai (National Service of Industrial Training) institutes in Brazil and the Fraunhofer Institute for Production Systems and Technology Design (IPK) from Germany. The German institute of applied research provides consultancy in project management and helps implementing and monitoring new Senai institutes in Brazil. Moreover, there is an important aspect of knowledge transfer in the project since the Brazilian researchers involved in projects from Senai can have access to the innovations produced by the Frauenhofer Institute, this way Senai institutes together with Frauenhofer researchers can respond to the demands of the Brazilian industry in a more efficient way. And Starting in June 2018 and planned for the whole year, the new working plan aims to establish cooperation between the industries of Brazil and Germany within the scope of Industry 4.0.

[xv] Across the analysed 15 economies in general, so the WEF, are non-manufacturing jobs. However, these employment effects should not be attributed solely to the IoT-related developments. Also, regional socio-economic contexts and landscapes are heavily influencing supply chain movements, technological advancement and global expansions.

[xvi] European Commission (2018). Cross-Cutting Business Models for IoT. Final Report. p. 210. Available at: https://ec.europa.eu/digital-single-market/en/news/cross-cutting-business-models-internet-things-iot.

[xvii] Linked to other demographic, social, geopolitical, gender and economical aspects of the industrial revolution, such as artificial intelligence, economical ecosystems, urbanisation, energy, as well as climate change, IoT might enhance major disruptions to labour markets. The worst-case scenario pictures technological change, talent shortages, mass unemployment and growing inequality: Some patterns and major challenges related to skills instability are already evident. In many fields and especially in LAC countries reforms and reskilling of workers will be very difficult: Today, infrastructures of the LAC countries are not able to adapt quickly enough to mitigate the negative effects on the workforce. According to the WEF, labour in the administrative and white-collar office sector will be first at risk of disappearance, while other sectors, such as finance, management, natural sciences and IT are expected to grow exponentially.

[xviii] Dr. Dervojeda, K., in: European Commission. (2017). How IoT will impact our jobs. 2 August 2017, https://ec.europa.eu/digital-single-market/en/blog/how-iot-will-impact-our-jobs. [Accessed 20 Apr. 2018]. ; The World Economic Forum (2016). The future of jobs and skills. http://www3.weforum.org/docs/WEF_FOJ_Executive_Summary_Jobs.pdf. [Accessed 9 Apr. 2018].

[xix] Organisation for Economic Co-operation and Development. (2017). Directorate for science, technology and innovation. The next production revolution. p. 27. Available at: https://read.oecd-ilibrary.org/science-and-technology/the-next-production-revolution_9789264271036-en. [Accessed 20 May 2018].

[xx] The changes to our working culture remain to be seen, but as new technologies unfold, it is crucial that governments and businesses support proactively the workforce continuously, through retraining, lifelong learning and business collaboration, to create large multi-sector pools of skilled talents, collaborative models and technology-driven innovation.

[xxi] On the European level, the Commission calls for an EU Skills Observatory to monitor how the supply and demand of IoT-related skills and workflows change over time. Policy interventions and their relationship to the allocation of government funding, as well as a concrete infrastructural roadmap related to IoT are priorities in order to develop flexible regulations and drivers of IoT adoption. 24 Europe aims at investing and supporting initiatives, such as the Digital Single Market (DSM) and the rise of the digital economy and society (IoT systems, regulations, industry cooperation, cross-border digital networks and services, broadband and 5G networks, online goods and services, the protection of foreign customers and modernisation of EU copyright framework).

[xxii] The World Economic Forum (2016). The future of jobs and skills. http://www3.weforum.org/docs/WEF_FOJ_Executive_Summary_Jobs.pdf. [Accessed 9 Apr. 2018].

[xxiii] European Commission (2018). Cross-Cutting Business Models for IoT. Final Report. pp. 150-200. Available at: https://ec.europa.eu/digital-single-market/en/news/cross-cutting-business-models-internet-things-iot.

 

Author

Amélie Jaques-Apke is currently researching on Franco-German and European security policy in Paris and working for the think thank Europa Nova. She studied International Security at SciencesPo Paris PSIA, with concentrations in diplomacy, EU foreign policy and Latin America, and at King’s College in London at the War Studies department. She holds her Bachelor from the Franco-German campus in Nancy (ScienesPo Paris) in Euorpean Affairs. She worked in Washington DC for the European Delegation PSD section, for a Spanish development company, the French ministry of interior and for the French Foundation Zellidja, where she remains project manager and member of the jury. Juliane holds a Bachelor’s degree in International Relations from Universidade Federal de Santa Catarina (Brazil) and gained work expereince as a research intern at the International Policy Centre for Inclusive Growth/ UNDP in Brasília. Previously, she worked as a research assistant at the Logistics Lab producing reports on economical analysis of Brazilian cities and demand studies on commodities for the Brazilian government. She was also an Erasmus fellow mundus scholarship holder in Poland. Her research interests are sustainable development, international cooperation, social protection and inequality.