Digital technologies

Endangered employment

Digital technologies will fundamentally transform the way goods and services are produced, argues a new paper published by the German Development Institute (Deutsches Institut für Entwicklungspolitik – DIE). While the trend will predictably lead to job losses, additional employment is uncertain. Policymaking can make the difference.
A solar-powered robot equipped with cameras and lights controls traffic in Kinshasa, DR Congo. picture-alliance/dpa A solar-powered robot equipped with cameras and lights controls traffic in Kinshasa, DR Congo.

The digital revolution will disrupt production processes, argues author Wilfried Lütkenhorst. He speaks of a “new general purpose technology” comparable to the steam engine or electricity in earlier industrial revolutions. General purpose technologies are applied across various sectors. They change how companies operate, modify value chains and make new business models necessary.

According to Lütkenhorst’s DIE publication, “digital enablers” are driving change today: big data, cloud computing and the internet of things (IoT).

Big data refers to vast amounts of data that exceed the capacities of conventional data-processing software. More advanced software, however, serves to reveal the hidden value by analysing patterns and inter-relatedness in the datasets.

Cloud computing is a response to big data. It provides the infrastructure for storing and processing data. Businesses no longer rely on their own computer hardware, but on a network of remote, internet-hosted servers. Cloud computing reduces costs and gives companies additional flexibility.

The IoT connects physical appliances to the internet, facilitating interaction between them. Industrial machines thus become able to learn. The results include better products and a more efficient production.

Based on these enablers, according to Lütkenhorst, three innovative approaches to industrial production are being taken:

  • Additive manufacturing – the building of 3D objects layer by layer – means that previously separate manufacturing operations are integrated into a single one. A single skilled worker can handle it.
  • Automatised machines and systems are gaining relevance. Ever more robots are being installed.
  • The interaction of human beings and machines is changing. Especially in the automotive industry, workers are increasingly training robots. Research is being done to improve “human-robot team fluency”.

The impacts of the digital revolution are manifold. Manufactured goods will increasingly require or become interwoven with services. One consequence Lütkenhorst foresees is that industrialisation may become a less likely development path for low-income countries. He argues, moreover, that job losses are predictable in some sectors – or have already occurred. The scope for new employment, however, is less obvious. At the same time, rising income inequality is set to hollow out middle classes.

In spite of the risks, digital technologies are certainly promising. There are many potential environmental benefits, according to Lütkenhorst, for example in managing supply systems that depend on renewable energy. He argues that the reaping of sustainability dividends will depend on appropriate legal frameworks and financial incentives.

Germany has adopted the “Industrie 4.0” programme to shape the digital revolution, as Lütkenhorst writes, and other countries worldwide are pursuing similar strategies. His study concludes that strategic industrial policy is necessary to ensure that the currently largely technology-driven process is geared to societal goals. Lütkenhorst is in favour of policymakers considering and testing innovative approaches like a universal basic income or a machine tax.

The implications for developing countries are not easy to discern, Lütkenhorst writes. Studies suggest that more than 70 % of the workers in the Thai auto industry may lose their jobs. Similar estimates have been made for other sectors and countries in the region. On the other hand, productivity and employment gains are possible. Lütkenhorst cites examples of growing IT sectors in Kenya and Rwanda.

Lütkenhorst, W., 2018: Creating wealth without labour? Emerging contours of a new techno-economic landscape.

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