Industrial Revolution 4.0

Kompas

A. Tony Prasetiantono

The fourth industrial revolution, also called Industry 4.0, has arrived. It is marked by the emergence of technological breakthroughs in a number of fields, which will have a major impact on the manufacturing sector.

These advanced technologies include artificial intelligence, e-commerce, big data, financial technology, shared economy and the use of robots. The term Industry 4.0 was first introduced at the 2011 Hannover Fair, which was marked by the digital revolution.

Bob Gordon of Northwestern University, as quoted Paul Krugman, said there had been three industrial revolutions before. First, the invention of steam engines and trains (1750-1830). Second, the invention of electricity, communications, chemical and oil (1870-1900). Third, the invention of computers, internet and mobile phones (1960 to present). Another version states that the third industrial revolution began in 1969 through the emergence of information technology and automated machines.

Like the previous three industrial revolutions, the emergence of Industry 4.0 is also believed to further increase productivity. According to a survey conducted by McKinsey in 2017 on 300 company leaders in Southeast Asia, nine out of 10 respondents believed in the effectiveness of Industry 4.0. It means that almost all people have no doubts over it. However, when asked whether they were ready to face it, only 48 percent said they were ready. It means that Industry 4.0 still leaves a question mark about its future.

This doubt is in line with what Krugman says in an article in the The New York Times, (17/1/2013) titled "A New Industrial Revolution: The Rise of the Robots", where he argues that the use of smart machines can indeed increase GDP. However, at the same time, it can also reduce demand for labor, including skilled labor. However, all these things will not occur instantly. It will go through stages and during that long process, the debate will continue.

Thus, the use of digital technology in factories will result in an increase in productivity, though that is not necessarily good news. The Boston Consulting Group 2015 study predicting the impact of Industry 4.0 on the German economy in 2025 shows that it will increase economic growth by only 1 percent in more than a decade.

It is also interesting to note that deindustrialization, which is a decrease in the contribution of the manufacturing sector to GDP, which has already taken place in Indonesia, is also being experienced by developed countries. It is replaced by the increasing role of the services sector. This is a phenomenon called the post-industrial economy.

The combination of projected high economic growth and the decline in the role of manufacturing leaves a question mark in the greatness of Industry 4.0. It even leaves a question on its dark side such as the negative impact on job creation. Furthermore, The Economist (6/4/2018) is concerned that the emergence of artificial intelligence will also result in the loss of people’s privacy because of the easy dissemination of digital information. There is no place for data to hide.

One thing is certain that Industry 4.0 has come and we cannot refuse or avoid it. This process will continue and we must be able to prevent its negative impact. Nothing can stop it. Then, what is the fate of Indonesia and its neighbors in the region?

The Jeffrey Sachs Center in 2017 noted that more than a half of ASEAN\'s population of 629 million people are under 30 years old; in which 90 percent of them are aged between 15 and 24 years old are familiar with the internet and the digital world. This is a big advantage that can help create additional output of about US$1 trillion in GDP so that it can reach $5.25 trillion in 2025.

The International Labor Organization projected in Indonesia, the Philippines, Thailand, Vietnam and Cambodia, 56 percent of jobs will be replaced by automation in the coming decades.

About 54 percent of Malaysian workers are in danger of losing their jobs. Everything looks bleak, except Singapore which has a population of 5.6 million people. Therefore, it should be well anticipated so that we can prevent its negative impacts.

The Indonesian government has formulated a roadmap and strategy in entering the digital era. In the Making Indonesia 4.0 initiative, launched by President Joko Widodo on April 4. Indonesia will focus on five leading manufacturing sectors: (1) food and beverage industry, (2) textiles and clothing, (3) automotive, (4) chemical, and (5) electronics. These five manufacturing areas contribute substantially to GDP and are internationally competitive.

So, is Industry 4.0 an opportunity or a threat? No one can be sure. Both characteristics can be present simultaneously. All the countries, both advanced and developing, are now in the same confusion. So far, it\'s probably only Singaporeans who dare to claim to have a positive outlook.

Regardless of how the process will eventually culminate, building human capital further to support massive infrastructure development in Indonesia should be a priority.

Industry 4.0 will eventually eliminate the use of labor. However, only certain qualified individuals can survive in the manufacturing sector. Others will be absorbed by the non-manufacturing sector and the informal sector.

A. Tony Prasetiantono, Head of the Center of Economics and Public Policy Studies at Gadjah Mada University