Throughout history, new technologies have created changes in economic and social structures. The transition from hunting-gathering to agricultural society was followed by the industrial revolution. The first industrial revolution lasted from 1760 to 1840. Revolution pioneers mechanical production with the construction of railways and the introduction of the steam engine. The second industrial revolution gains momentum in the late 19th and early 20th centuries. It enables mass production with the support provided by electricity and assembly line. The 3rd Industrial Revolution, which started in the 1960s, develops with the driving force of semiconductors, main computers, personal computers and the Internet. The fourth industrial revolution (Industry 4.0) begins with this century and rises above the digital revolution (Schwab, 2016).
Industry 4.0 is now a very common word in our modern world. It first comes to the fore with a project initiated by the German government in 2011. It is based on the digital transformation of the manufacturing industry (Schwab, 2016). It is aimed to provide convenience in production and increase production by transforming the production process through digital automation. Industry 4.0 uses modern forms of information technology (Stefanuk, 2020).
Reflecting rapid advances in digital technology, Industry 4.0 includes technologies such as artificial intelligence, machine learning, internet of things, robotics, 3D printers and blockchain. Biotechnology, nanotechnology, cognitive, social and humanities are combined in this technology. These technologies are also known as pioneering technologies: Innovative, fast growing, deeply interconnected and dependent technologies (UNIDO, 2019).
Industry 4.0 is actually a radical change and transformation process. New technologies will bring important changes that are not linear, transforming the economic system and social structure. It leads to a paradigm shift that affects individuals’ lives, working styles and interactions with each other. Mobile technology is getting cheaper and more and more individuals are starting to use the internet. For example, the Internet of Things increases the interaction between tools, systems and services, and artificial intelligence can predict the behavior and preferences of individuals. Individual and digital systems are more intertwined than ever before (ADB, 2017).
The new technological break has a faster and greater impact than ever before. For example, when fixed lines were first developed in 1878, they reached 100 million users in 75 years. Mobile lines reached 100 million users in just 16 years in 1979. It took 6 years for the Internet to reach 100 million users. Apple reaches 100 million users within 3 years (ADB, 2017).
New technology innovation is an increasingly complex, multidisciplinary, collaborative, unplanned, unpredictable and disruptive process. The cycle of innovation is accelerating and shortening, causing a product’s life cycle to break. New developments reach more people than before and spread systemically. All countries and especially less developed countries are affected by the process. Agriculture is industrializing, industry is gradually entering the service sector, and the services sector is industrializing. Technologies such as blockchain create new processes and relationships with smart contracts, with the potential to destroy the socio-economic system. Human error is minimizing, reducing the role of markets and governments (UNIDO, 2019).
The effects of the Fourth Industrial Revolution on the economy are multifaceted. The benefits of the Fourth Industrial Revolution stem from reduced transaction costs, control in the manufacturing process, better quality and more reliable output, increased productivity and competition, stronger industry security, customer orientation in manufacturing, and an increase in foreign direct investment.
Global value chains evolve with smart, digital networks and cyber systems, creating a horizontal and vertical value chain, and this process will evolve in real time across remote regions. Mass production leaves its place to mass customization, strengthening product service characteristics and functions. Thanks to data analytics, real-time collection, management and analysis of customer data will be provided. Thus, customer behavior will be evaluated and advantages will be provided for new products, services and solutions. All of these will be realized with the new business models created / to be created, and the growth of the economy will be encouraged with new products and services. The associated costs will decrease by increasing production efficiency (UNIDO, 2019).
Competitiveness is especially important for companies in developing countries. Because here, capital constraints are an important factor in the development of technology. Fixed capital investments, 4th industrial revolution technologies will increase capacity utilization, more flexible robots, 3D printers will provide more effective solutions that will reduce investments in multi-automation production lines. The adaptation of technologies with the support of productivity and competitiveness will lead to economic growth, job creation and poverty reduction (UNIDO, 2019).
Many countries that are leaders in frontiers will achieve competitive advantage by avoiding delays in science, technology and innovation. But there are also advantages / unique opportunities for countries that are late comers to this change. These countries will have the opportunity to catch up with the developed countries quickly. Developing countries that catch up as a late comer in the era of the Fourth Industrial Revolution will have more opportunities as more active and fast learners, they will do so by producing new products and services instead of reproducing previous technologies (UNIDO, 2019).
Data collection, ownership and transfer will contribute to higher efficiency and effectiveness. With the block chain, negative externalities created by asymmetric information can be reduced. Developing country producers will be able to enter the markets easily. It will provide direct communication and interaction with the blockchain in making decisions both in the market and in the society (Schwab, 2016). With technologies based on trust, the unforeseen costs to be created by fraud can be reduced. Wireless technologies such as 5G will strengthen the benefits of 4. industrial revolution technologies and developing countries will jump up like a frog. Many industries make great efforts in technology. They invest in R&D activities and train software development experts. It is predicted that more than 37% of foreign direct investment will make technology investments in developing countries (UNIDO, 2019).
Opportunities and Threats for the Global Economy
Opportunities
New technologies will increase the well-being of individuals. Many people can access TV, flight tickets and contact lenses that were previously unreachable (Schwab, 2016). The trade off between wealth and technology is changing, new technology can be reached by low-income individuals.
It provides opportunities for many people to enter the trade and services sector. In this sense, financial inclusion will increase. With Industry 4.0, access to new sources of information and new forms of education (such as online education, virtual classroom) will be easier. Online medical services and new financial services will develop (ADB, 2017).
SMEs constitute the backbone of the economy in many regions, and at the same time provide a significant amount of employment. With SMEs, they are the source of innovation, many of whom have limited improvement in access to finance, business services and knowledge. The rise of digital in marketplaces and online services compared to a few years ago improves the trade of SMEs. Technologies such as blockchain provide a significant advantage to small businesses in payment and logistics services. For example, the value of e-commerce has reached 9 billion dollars in ASEAN. It is about $ 14 per person. This figure is 426 billion dollars in China, 327 dollars per person (ADB, 2017).
- Industrial Revolution technologies create opportunities for developing countries. The traditional stages of the industrial revolution are bypassed, for example mobile phones reduce the need for expensive landlines. Online and mobile banking reduces the need for physical bank branches (Schwab, 2016). Drones help carry lightweight products. High value-added products such as medical products can be sent to remote areas with poor transport infrastructure. Of course, drones will not reduce the need for transportation of products and people, but the degeneration of the human environment continues in certain regions in order to shape the transportation infrastructure in new ways. Fisheries and forestry can be observed more effectively with artificial intelligence, drone and remote control. The block chain system can be used in water distribution.
Many countries have large agricultural areas and the 4th Industrial Revolution will positively affect farming. In the short term, with the connection of farmers to the internet, a well-organized document system will be established, and the productivity, profitability and sustainability of the farmers will increase. Smartphones will provide farmers with better market pricing, weather information, soil, seeds and fertilization. With the sharing economy, farmers will be able to rent their agricultural vehicles from online sharing sites. With the Fourth Industrial Revolution, products can be monitored and the risk of contaminated food can be reduced. With the new logistics applications, transportation services in and out of the rural areas will be provided. The use of microbiology in farming will increase and easier genetic creation in seeds, plants and livestock will be easier (ADB, 2017).
New business models (such as tele-medicine) will join healthcare services. Doctors will be able to collect genetic, environmental, and behavioral data of their patients. For example, in Turkey, drugs whose past disease information is given through the e-Nabız application can be seen within the permission of the patient. Services such as precision medicine will improve and spending on inadequate medicine will decrease.
In addition, the impact of climate change can be reduced with new technologies. Blockchain technology will provide cost effectiveness. Carbon emission will be monitored and the formation of carbon markets as in China.
Threats
Artificial intelligence and robotics are evolving rapidly, outperforming humans, thus reducing costs and increasing productivity. But it also threatens many people with job loss. Low-skilled workers / assembly line workers are particularly threatened. Service workers are also negatively affected. The new era negates regional success stories.
Economic convergence between developed and less developed regions in the global economy has increased significantly in the recent period. However, it was not sufficient in reducing the inequality between regions. The fourth industrial revolution has the potential to accelerate talent and knowledge. This situation can reduce convergence between countries and increase inequalities. Non-inclusive growth can increase social and political instability among countries and reduce countries’ support for regional integration. (ADB, 2017).
For many countries, industrialization is developing due to low cost / low skilled workers and foreign investment is attracted. But the development of artificial intelligence and robots will decrease low cost / low skilled worker competitiveness. 3D printers will completely change the nature of production. Today, many products are produced in central locations as standardized at a certain scale. In the future, 3D printers will be produced locally and will be produced on demand according to customer request. Digital designs can be downloaded from different regions. This will cause production to shift back to high-cost regions and reduce the attractiveness of foreign investment. Moving rapidly towards knowledge-based economies will ensure that countries are competitive.
While the fourth industrial revolution provides opportunities for many SMEs, it may create challenges for large companies. For example, it will require banks and virtual marketplaces to be competitive on the basis of scale. With the spread of digital networks, decreasing returns to scale may occur. An additional customer has zero cost and creates higher added value with the network effect. For example, Google controls 90% of ads, Facebook controls 77% of mobile social traffic, Amazon owns 75% of the e-book market. While platform-based businesses empower their users, they threaten scale-based competition in some regions, making it difficult for them to compete with these competitors (ADB, 2017).
Many machines / devices are exposed to cyber attacks because they are connected to the internet. Countries have not been able to make progress in this regard, neither at the regional nor at the national level. Studies show that the cost of cybercrime varies between 375 billion and 575 billion dollars (ADB, 2017).
What Can Be Done for the Global Economy ?
Global cooperation is important in this sense, because developments have no boundaries. The following issues may be important in managing risks and opportunities;
Data is the foundation of the industrial revolution, the transfer / transition of information across borders makes data important. If individuals, companies, and governments can access information, the more they can reap the benefits of the 4th industrial revolution. Combining different types of data will increase the economic and social benefits. Denial of access to data will create the opposite situation. How can data flow be encouraged? Efforts should be made in this regard. On the other hand, there may be problems in sharing information for data regarding the health and financial status of individuals. The privacy and security policy should not depend on a specific place, so that rules / protocols should be set in this regard so that attention can be paid wherever information is used. (ADB, 2017)
The character of the trade changes from physical goods to virtual goods. This is especially observed in media products, books, music and movies. Standards for production and trade should be determined and regulations should be made. Cross-border trade is also changing with the development of services trade. It’s like health care. For example, Cambodian individuals benefit from healthcare services from the Philippines via smartphones. This situation requires the development of service standards regionally as well as the improvement of governance. Compliance with rules and transparency are also important (ADB, 2017).
Banks, payment system providers, online marketplaces, logistics service providers should be coordinated on a regional scale. In order to benefit from the network effect and economies of scale, it is necessary to open up from small markets to large markets, and the laws and regulations between countries should be harmonized. When products and services are online, governments must also collect taxes, and need to be reshaped according to this model. The development of cross-border trade based on digital platforms increases the regional need for defining tax rules.
Innovative SMEs and start-ups are critical in taking advantage of the opportunities of the 4th industrial revolution. Although many countries have such incubators at the national level, a regional / global level formation is needed. Thus, countries can create new values by being influenced by different cultures and societies. Job losses caused by the industrial revolution also require the transformation of education. The qualification should not only have technical competence, but also be creative and innovative in problem solving. In this sense, adult education and lifelong education practices should be made widespread. These trainings should be carried out at both regional and national level. Online education will create opportunities for those across the border. Networks of transnational professionals can be useful in this regard (ADB, 2017).
Seizing the opportunities of the fourth industrial revolution will be possible with a highly skilled workforce. In this respect, the mobility of scientists and IT staff will be important. In this sense, “mutual recognition agreements” can be expanded (ADB, 2017). Language and cultural barriers can be avoided through programs. Individuals no longer work for companies but for themselves, this situation is called “human cloud”. Sharing economy also offers these individuals incredible opportunities. In this sense, global / regional data management, taxation and social protection will be important in this sense.
References
ADB-WEF, (2017) “ASEAN 4.0 :What Does the Fourth Industrial Revoluation mean for regional economic integration”, World Economic Forum and Asian Development Bank.
Schwab, K. (2016). The Fourth Industry Revolution, World Economic Forum.
Stefanuk, A(2021). “Industry-4-0-and-its-impact-on-the-financial-services”https://fintechweekly. com/magazine/articles/industry-4-0-and-its-impact-on-the-financial-services[20.04.2021]
UNIDO (2019). Bracing New Industrial Revoluation : Elements of Stratejik Response Discussion Paper, Vienna.