Will 4IR shape our fortune or rob us of jobs?

It is commonly argued that the Fourth Industrial Revolution (4IR) is going to be special – not only because it is going to inject synergy between digital, biological and physical systems but that it will alter the very definition of a human being. The First Industrial Revolution allowed us to master the application of the steam engine, the second helped us invent and understand electricity and mass production, and the third gave us digital technology – the fourth will introduce a vast array of new technologies. These will include: Artificial Intelligence (AI), nanotechnology, 3D printing, bio-technology, advanced robotics, quantum computing, and the Internet of Things (IoT).

Hence, it has become essential for policymakers and intellectuals to investigate how such a technological wave will define the development prospects of nations – especially those in an economic transition to upper middle-income or developed country.  More specifically, will the advents of 4IR widen or reduce the gap between the developed and developing world? How will it affect the competitiveness of countries that are trying to replicate the export-led development model – as experienced by South Korea, Taiwan, Hong Kong and Singapore, plus now China and Vietnam? And how it will shape the fortunes of countries like Bangladesh, which aims to attain the developed nation pedestal by 2041?  

Consequently, to better understand how 4IR will shape the development prospects of Bangladesh, we need to offer some degree of clarity concerning how it will reshape the production process and how it might challenge Bangladesh's competitiveness in a technologically-sophisticated world. In particular, we need to first understand how it will re-shape the future of work and illustrate how it will influence the economic competitiveness of Bangladesh, which has traditionally been dependent on agriculture and the manufacturing sector to create employment and fuel growth. Thus, in the next section, I will explain the major concerns regarding how 4IR will influence the production process. I will then follow this with a discussion about two key challenges that Bangladesh is facing and how they can amplify as the advents of 4IR integrate with the production process to shape the future of work. I will also cover the areas policymakers must prioritize to navigate the challenges emerging from technological advancements.          

4IR and Future of Work

To better understand how developing countries like Bangladesh will cope with the advents of 4IR, it is essential we examine how the forthcoming technological changes will influence the future of work. This, nonetheless, requires us to explore how technological progress influenced structural changes in countries that experienced early industrialization. In particular, if we examine how employment changed after the First Industrial Revolution, we come across some noticeable stylized facts about structural transformations that have taken place – namely in the UK and US.       

First: agriculture was no longer the major source of employment due to the increased mechanisation of agriculture and industrialized farming – and at present, it contributes to less than 2 percent of the total employment in advanced countries like the UK and US. This is a noteworthy shift from the old economic order where agriculture was the leading avenue of economic activity for thousands of years.

Second: the rise of the manufacturing sector was a major disruption to the old economic order where people were mostly employed in the agriculture sector – and it paved the way for a new kind of economy where wealth and income were no longer dependent on agricultural subsistence. Additionally, during the 1940s and 1950s, the manufacturing sector accounted for more than 30% of overall employment in countries like the US.  Yet, due to the increased automation of the production process and greater tendency to shift production of manufactured goods to countries like China, in 2015, the manufacturing sector accounted for less than 15 percent of employment in the US.

Third: the service sector has emerged as the leading job-creator in advanced industrialised countries like the US and UK, and it now accounts for more than 70 percent of overall employment. These jobs rely more on an individual's cognitive ability rather than one's ability to do routine tasks within a defined production process.

Of course, this transition to a service-led economy raises a few pertinent questions. Is this the final stage of structural transformation? Or, will there be a phase that the service sector, too, cannot absorb much of the potential job-seeking labour force of an economy? As workers in the service sector predominantly depend on their cognitive capability and professional training as lawyers, doctors or drivers – to earn a living – what will happen if machines not only outperform workers in undertaking tasks that depend on physical labour, but also in tasks that require cognitive ability?    

This is not an unlikely scenario. One of the key technological characteristics of the 4IR is that machines will increasingly compete with workers who find their employment through their respective cognitive capabilities.  There is no reason to believe that an advanced robot with AI cannot perform the tasks that a doctor with an MBBS degree does – in terms of diagnosis – or even replace the surgeons who suffer from human shortcomings like stress and fatigue. This means that initially, technologies like artificial intelligence can replace people where basic cognitive judgements are needed – such as, taking bookings for restaurants or even replacing call centers in developing countries that presently allow an English-proficient woman in India or Bangladesh to take pizza orders in the United States. Moreover, there is no reason to think it cannot perform even more complicated tasks, where smart factoring with advanced robotics fundamentally reduce one's dependence on labour to perform routine jobs.

However, what will happen if the manufacturing sector and the service sector follow in the footsteps of the agricultural sector – and only produce jobs for two or three percent of the total potential labour force? Can countries that depend on cheap labour to replicate the export-led developmental model survive this technological wave that forces them to lose this comparative advantage? Historically, technology has added more net jobs and disrupted a few specific sectors; it has aided global growth and the rise of economic powers such as China, South Korea, and, to some extent, India. However, there are reasons to think that the 4IR will create a different technological disruption. Developing countries like Bangladesh must prepare themselves for the new technological wave by developing remedial policies that can ensure they remain competitive in this technologically-advanced global ecosystem.  

Hence, in the next section, I will discuss some of the key challenges Bangladesh is facing and how, going forward, 4IR can further complicate our economic transition to becoming a developed nation. The section will also highlight some policy areas that need urgent attention for Bangladesh to maintain its growth momentum against the backdrop of 4IR.

Bangladesh's Key Challenges:

Maintaining Competitiveness on the International Market:

The economic rise of Western Europe, Japan, the East Asian Tigers, and now, China, indicate how a favorable international context and nations' capacities to use it to enhance exports are critical to fueling their rise. Bangladesh, too, has benefited from the availability of a favorable international context in the 1980s that created the scope to enhance its Ready-Made Garments (RMG) sector in the late 1970s and 1980s – with the global Multi Fiber Agreement (MFA). It facilitated key knowledge and skills transfers in the RMG sector – from South Korea and other destinations. Separately, remittances increased significantly after the 1990s, when the labour market for the Middle East was explored and penetrated.

However, if we compare the four-five-year averages of growth in exports and remittances since 1991, it is clear that both exports and remittances are increasingly growing at a slower pace. This is particularly problematic as Bangladesh has fewer exports than countries like Vietnam, India or China in an absolute sense – which makes it essential to assess if Bangladesh is slowly losing its competitiveness on the world market. One particular reason why this might be happening is because Bangladesh has failed to diversify its export basket and has increasingly become dependent on the RMG sector to grow its exports. This dependence on one product has made exports vulnerable to shocks in the sector. Additionally, as technological advents of the 4IR slowly integrate into the production function – in the form of robotics, smart factories, an IOT, 3D printing and AI – the ability to derive a comparative advantage on the basis of cheap labour will further diminish over time. This underscores the urgent need to examine if present institutional and policy arrangements are adequate to increase Bangladesh's competitiveness over the coming decades. 

Addressing Human and Physical Capital Deficiencies:

The ability to increase the stock and quality of human and physical capital is fundamental for maintaining long-run growth – especially in a technological age that will be shaped by 4IR. This is particularly pertinent as Bangladesh aims to become a trillion-dollar economy over the next decade and push per capita income beyond $12,000 by 2041. Moreover, given Bangladesh will be increasingly competing in a global economy that depends on the advents of the Fourth Industrial Revolution, it will likely need to focus on improving the stock and quality of human capital – to enhance high-productivity sectors in the country's economic space. Bangladesh, traditionally, has performed adequately well to increase literacy and access to education. School enrollment – especially for primary and secondary students – and the adult literacy rate have witnessed a gradual improvement after 1980, and policymakers intend to attain a 100 percent adult literacy rate for everyone above 15 years of age by 2020 (See: Figure-5 & 6). 

In terms of enrollment rates for students at the tertiary level, at present, less than a fifth of pupils are in tertiary education. Additionally, concerns associated with this relatively low intake of students in tertiary education are further aggravated by concerns over the quality of primary, secondary and tertiary education. For instance, no public or private universities operating in Bangladesh rank on the top 500 Times Higher Education World University Rankings – in comparison to six Indian universities and one Pakistani university.

Even, when we assess the quality of primary and secondary education, recent reports indicate that students lack 4.5 years of learning of the first 11 years of a formal education. On the whole, addressing these deficiencies in our education sector will become imperative to maintain our competitiveness in a global economy that is increasingly dependent on innovation for growth. Policymakers, in particular, need to determine which skills will be required so that investments in education are made in productive avenues – given that the 'business as usual model' is unlikely to work in the education sector.

Final Thoughts

The export-led development model has been the primary mechanism of economic catching-up, especially for non-resource rich countries like South Korea, Taiwan, Singapore, and later, China. Bangladesh, until now, has done well in following suit and transforming itself into a lower-middle income country over the last four decades. Yet, going forward, policymakers in Bangladesh must revisit the fundamental source of competitiveness for its economy, as cheap labour and the strategy to cater to world demand for lower-end products will soon lose its relevance in the age of 3D printing and smart factories. This prospect not only calls for identifying new sources for Bangladesh's comparative advantage, but also measures that can be scalable for the larger population – so that human capital shortcomings do not narrow the economic prospects of Bangladesh in the age of 4IR.

Most importantly, the advents of 4IR will create a social, economic and political space, where institutional arrangements guiding cooperation in human endeavours require an additional emphasis on adaptive efficiency. Meanwhile, the need to adapt to the broader disruptions of the technological wave will intensify and will challenge the resilience and capacity of both the private and public sectors to assess and formulate policy choices that can help us ride the technological wave for the community's betterment. Since4IR is widely believed to be a major force in the next big economic divergence between rich and poor nations, policymakers in Bangladesh need to think creatively to contain the disruptions that will inevitably emerge and redefine the world's economic order.                 

The author is Senior Economist, Policy Research Institute of Bangladesh (PRI)