Big IFs in Productivity-Enhancing Industry 4.0
2. Self-Organised Criticality in the Socioeconomic Innovation Ecosystem
3. Complex Nexus behind Increasing Criticality
- Demographic challenge, such as ageing population, increasing income, and wealth inequalities and impoverishment.7 Ageing population entails a society demanding at least new types of public services and also more prolonged treatments for the elderly, but its ultimate consequences are unsustainable pension and social systems requiring a more tailored, reflexive, and resilient public administration; what is more, the migration crisis in Europe also raises challenges for public administration (legal conditions, migration management, etc.).
- Climate change, including air pollution, intensifying extreme weather anomalies, increasing temperature, etc. Climate change triggers more awareness on prevention and mitigation of the effects of climate-change-related events (disaster, air-pollution-related health effects, etc.) by calling for more proactive, more holistic public administration with increased capacity to plan, design, implement, and evaluate in the interest of greening the economies and public sectors out.
- Broken harmony between the financial sector and the real economy (i.e., the financial sector does not seem to be an efficient intermediator any longer, but it has been showing a parasitic-like behaviour by becoming a financial casino). This is mainly because preferring financial investments in a more dedicated way over investments in the real economy, where the focus would be on riskier technological or nontechnological innovations and R&D activities, has become the new norm.8 It can be captured by many indicators (e.g., the intensifying rate of share buybacks, for example, excessive credit consumerism; labour shares of income have been declining, while capital share of income has been growing, etc.). An important feature of this system evolving is the inherent bias towards larger firms. In this way, there has been an increasingly serious inequality across companies (among global frontier and laggard firms)9 with many innovation–freedom deleterious effects stifling down the performance of the innovation ecosystem.10
- Changing characteristics of emerging markets (i.e., becoming more service- and consumption-driven, like Chine, by being accompanied with a conspicuous slowdown in economic growth having non-negligible impacts on the world economy elsewhere via many channels).
- The sui generis sovereign debt crisis of 2008, including the Eurozone crisis and its aftermath, resulting in limited fiscal capacities to stimulate the economies. It is hardly by chance that one of the most influential economist duos, Carmen Reinhart and Kenneth Rogoff, considered the period 2007–2018 as a decade of debt already in 2011 (i.e., low interest rates, combined with low growth, high debt, and populist pressure, can lead to fiscal crises).11 Importantly, countries with the necessary fiscal space have achieved less GDP loss after the 2008 crisis hit compared to those that did not have enough fiscal space, which suffered from more voluminous declines (Romer and Romer 2017).
- The prime example for the negative attitude toward globalisation through increasing protectionism and nationalism is the looming “global trade war”, initiated mainly by the United States in the form of trade barriers and sanctions.
3.1. IF No. 1—Trade-Off between Fast Diffusion and Trust
3.2. IF No. 2—Regulation over Labour Market
3.3. IF No. 3—Trade-Off between Reality-Oriented Politics and Post-Factualism
4. An Illustrative Case: Hungary
4.1. IFs a la Hungary
4.2. Survey Insights and Steps Forward?
5. Concluding Remarks
Conflicts of Interest
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The raison d’être of Industry 4.0 is the creation of self-optimising cyberphysical systems by building upon various technologies, starting from the wide application of Information and Communication Technologies (ICTs), sensors, robotics, through to additive production, internet-based continuous communication and interaction, simulation and virtual modelling, cloud-based services, augmented reality, data mining, and artificial intelligence, as well as machine learning.
Despite the lack of convincing empirical backing (Baldassarre et al. 2017), improved productivity via Industry 4.0-related technologies (e.g., robotics, see Graetz and Michaels (2018) piece on its impact) and nontechnological solutions is widely expected in the literature. See: Aichholzer et al. (2015); BCG (2015); Dalenogare et al. (2018); Vaidya et al. (2018); and World Economic Forum (2018). In the case of small and medium-sized enterprises, see Ghafoorpoor Yazdi et al. (2018) or Schröder (2016) on Germany or Nagy et al. (2018) on the Hungarian case. In a recent comprehensive work by Petrillo et al. (2018), they declared that Industry 4.0 will concur to create new wealth and it has now become strategic to pursue ever-more digitalization of manufacturing, while developing national or regional investment plans to encourage companies to invest in the 4.0 revolution is of key importance as well. Another calculation, addressing the issue of whether productivity growth will return in the digital era, envisions more than 50% rate of diffusion in 10 years (Saniee et al. 2017).
A growing interdisciplinary literature has been backing the wide applicability of SOC (or at least, its similar scenarios, like turbulence) to the socioeconomic system we live in. See the work of Bak et al. (1993) on fluctuations in economic systems, Ghashghaie et al. (1996) on turbulence, Sornette et al. (2004) on the criticality of social networks, Mandelbrot and Hudson (2006) on the phenomenon embedded into the behaviour of markets. For a more general account on SOC, see: Pruessner (2012) or Aschwanden (2013).
According to Perez (2010), the following technoeconomic paradigms can be mentioned with the big boom events: (1) Industrial revolution (1771, the opening of Arkwright’s mill in Cromford); (2) age of steam and railways (1829, “rocket” steam engine for the Liverpool–Manchester railway); (3) age of steel, electricity, and heavy engineering (1875, Carnegie Bessemer steel plant opens in Pittsburgh, Pennsylvania); (4) age of oil, automobile, and mass production (1908, first Model-T out of the Ford Plant in Detroit, Michigan); and (5) age of information and telecommunication (1971, Intel microprocessor is announced in Santa Clara, California).
For instance, trust in national governments and in national parliaments has been declining. An increasing majority of Europeans distrust national governments, see: European Commission (2018, p. 12).
Including chronically increasing income and wealth inequalities (e.g., the real median household income has been stagnating for more than 20–25 years in OECD countries, where the richest 10% earns 10 times more than the poorest 10%; the wealthiest 1% owned almost 20% of total household wealth, while the bottom 40% owned only 3%). In addition, the social elevator seems to be out of order, because, on average, 4.5 generations are needed for those born in low-income families to approach the middle class. Source: OECD.Stat.
The end result of this pattern is the lack of productive private investment. This is per se reminiscent of the stagnation hypothesis coined by Alvin H. Hansen (1939) with respect to the US by the end of 1930s.
See: Andrews et al. (2016).
An important feature of this system evolving is the inherent bias towards larger firms becoming dominating and being more willing to use patents strategically, leading to difficult entrance of start-ups, medium wages stagnation, intensifying the jobless character of anaemic growth, secular stagnation of productivity, and, thus, moderated innovativeness (i.e., contributing to the wicked problem of secular stagnation, increasing income inequality, etc.). These larger firms are more able to initiate vertical restraints parallel with using patents to reduce risks associated with their expensive R&D and innovation activities—i.e., exclusive deals with a downstream firm, for instance, a manufacturer which then is only allowed to sell the products of that larger firm, leading to partial foreclosure of other competitor companies (Sovinsky et al. 2016). Larger companies are more likely to use patent thickets—patents belonging to them to protect overlapping technologies, which decrease entry of newcomers (Hall et al. 2016). In addition, since Industry 4.0 requires substantial R&D and innovation investments, which is even more difficult to do for younger smaller firms, this phenomenon can become even more intensive, endangering healthy competition. It will also affect the relevancy of patents as a whole.
In spite of the known shortcomings with respect to the Economic and Monetary Union (i.e., the Eurozone is not an optimal currency area) at the very beginning, Bordignon et al. (2018) showed that any kind of convergence in terms of public services, product, and labour market regulation, and the quality of institutions and the future of the EMU is riding on political will rather than the sheer economic considerations.
The expected progress of self-driving vehicles beyond peradventure will cause a shift in the landscape of land transport (taxi and trucks) and inland waterway as well as maritime transport alike, endangering many jobs.
For more on deskilling and on the cumbersome upskilling, see: de Pleijt and Weisdorf (2016); Krzywdzinski et al. (2016); or Acemoglu and Restrepo (2018).
A survey conducted by Chapman University in 2016 showed that, after corruption, what Americans fear the most is cyberterrorism. Available: http://www.usatoday.com/story/news/nation-now/2016/10/12/survey-top-10-things-americans-fear-most/91934874/ Accessed on: 11 January 2019. It is hardly by chance that Piggin (2016) documented that not only the number of reported industrial control incidents, but also the number of cyberattacks against manufacturing firms have been conspicuously growing, initiated by ransomwares, malwares, and various types of phishing activities, engendering smaller-scale and also full disruptions (e.g., in public services as well).
Zezulka et al. (2018) pointed this out with respect to the communication challenges across Industrial Internet of Things.
E.g., the so-called People Analytics for the purpose of selecting as well as hiring, then monitoring the best candidates for a job, as Isson and Harriott (2016) demonstrated.
See Cathy O’Neil’s book (O’Neil 2016) on how algorithmist organisational environments can cause ‘math-destruction’ in this respect, leading to deteriorated morale, stressful work, and a culture of anxiety being interspersed with mental and even physical diseases.
For more on the reallocation channel, see: Martin and Scarpetta (2012). Of course, not only the tangible (salaries/wages, bonuses etc.), but also the intangible (e.g., autonomy, space for self-realisation, increased responsibility) part of the incentive regime matters (See: Beck-Krala et al. 2017), whose power can be curbed in the case of extensive ICT-based monitoring and control, encoding the culture of anxiety mentioned above.
If one looks at patterns discernible in World Development Indicators of the World Bank, it can be shown that previously, if employment expanded, average wages had risen, or at least public revenues had increased; this trend cannot be identified today. At a time when productivity increased, it was accompanied by wage growth, but today it is not necessarily true.
Source: Eurostat (lfsi_emp_q).
See: Cette et al. (2016) or Kurz (2017) in emphasising that even the high-wage occupations will not remain resistant to automation and robotisation.
Source: Statista, Citigroup, World Bank.
This nexus is therefore not a one-way street, as economics with ‘mathiness’ (Romer 2015) is presupposed for a long time, as the work of Earle et al. (2017, p. 174) raises. Wage/salary increases are also of crucial importance to cope with the increasingly worrying trend of shortage of labour, particularly in the case of Central and Eastern European Member States. For example, Hungary has become a net exporter of talents, and the personal remittances (% of GDP) received have more than doubled in the period 2010–2017, see: World Development Indicators.
In a recent survey by Capgemini Research Institute, 58% of company respondents reported that the positive impetus of automation on productivity was actually invisible. Available: https://www.capgemini.com/wp-content/uploads/2018/11/Report-%E2%80%93-Upskilling-your-people-for-the-age-of-the-machine.pdf Accessed on: 11 January 2019.
See: Europe2020 Strategy or the Annual Convention for Inclusive Growth.
See: OECD Inclusive Growth Initiative. Not to mention the Sustainable Development Goals of the United Nations accentuating the promotion of sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. Fecent work, among others, offers work–life balance in a more dedicated and flexible way, which is required more and more by generation Y. See: Robak (2017).
As a corollary, suppressed tensions are the new norm waiting for breaking up either like a subterranean stream breaking the surface or volcano eruption causing serious structural changes (e.g., the rise of Trump, vote for Brexit in the United Kingdom, and at the time of writing this study, yellow vest protests in France since November 2018).
See: Baudrillard (1981). For example, at the end of the 2016 US presidential election campaign, the number of fake news posts on Facebook outnumbered that of the real ones with respect to the election. See: Allcott and Gentzkow (2017).
See: Richardson (2016).
See: Haskel and Westlake (2018).
Policies can artificially be made up as seemingly productive ones, but eventually they can turn out to be damaging (i.e., having bubble-generating power). For instance, in Shenzhen (China), there were only 200 companies specialised in robotics development in 2014, but now, that number is over 2000.
At present, the predominant share of company net profits (specialised in robotics and automation) is coming from governmental subsidies. See: http://knowledge.ckgsb.edu.cn/2016/12/21/manufacturing/china-worlds-automated-factory/ Accessed on: 11 January 2019.
A more and more ubiquitous phenomenon is that budgets of national statistical offices have been declining; hence, statistical offices will not necessarily be able to invest in new technology and production processes and establish partnerships with new actors in the interest of offering relevant, granular, timely, and usable data for better informed policies. One might assume that politic is not pursuing such a direction so inexorably. This is why, for example, international organisations have become the pioneer of establishing new methods for measuring the evolvement of the Digital Economy (also encapsulating the ‘beyond GDP’ research programmes).
For instance, for the year 2013, the Hungarian value was 2.07, while the OECD average was 2.28). See: OECD.Stats.
Hungary was considered a net exporter of talents according to IMD World Talent Ranking 2017. It performed much worse than its Central European peers, the so-called Visegrad group (Czech Republic, Poland, and Slovakia).
The personal remittances received (in % of GDP) have been by far the greatest in Hungary compared to other Visegrad countries. That volume accounted for 2% of the GDP in 2010, while it had skyrocketed over 3.3% by 2017 due to a significant emigration of people. According to the Hungarian Central Statistical Office, almost 175,000 people have left Hungary since 2010.
In 2016, among the Visegrad group, only the Hungarian rate of risk of poverty or social exclusion (26.3%) exceeded that of the European Union average (23.5%). According to OECD statistics, income and wealth inequalities in Hungary tend to be large. Moreover, now, it takes 7 generations for a child born in a poor family to get into the middle class. Unsurprisingly, Hungary suffers from a comparatively surpassing share of well-being deprivations, with 12 out of 18 deprivation indicators ranked in the bottom (most deprived) third of OECD countries (OECD 2017).
The Hungarian trajectory in terms of labour productivity (measured in GDP per hour worked, 2010 = 100) has been by far the worst amongst Visegrad countries since 2010 (See: Source: OECD Productivity Statistics: GDP per capita and productivity growth).
A form of governance which perpetually refers to the people’s will, but its original intention is to transform that will to its own purposes. Such a system necessitates and is built on a strong charismatic leader alone representing the political elite, which shapes rather than follows the public will. See Urbinati (2014).
For in-depth analyses on the autocratic fashion, see Kornai (2015, 2017). The main measures were as follows: Eradicating the original form of Hungary’s Fiscal Council; amending the constitution and adapting the authority of the Constitutional Court to the planned laws and regulations in an ad hoc fashion; introducing special taxes on the energy, telecommunications, retail, and banking industries that discriminate against foreign companies; rejecting any commitment to preserving and strengthening the sanctity of private property by nationalising private pension funds; introducing flat income taxes, which are more beneficial for high earners; reducing the autonomy of higher education and cutting its budget by HUF 84 billion between 2010 and 2013; strict regulations on the media; and establishing and adopting Hungary’s new Fundamental Law, which inter alia constrains the power of the Constitutional Court and limits the room for manoeuvre of future governments without a two-thirds majority. In 2014, the Hungarian prime minister explicitly expressed the government’s ambition to create an ‘illiberal democracy’. In addition, independent media suffered from serious attacks (e.g., as Freedom House documented, Hungary’s largest independent daily, Népszabadság, which had uncovered a string of scandals involving the ruling party, was unexpectedly suspended in October 2016, available: https://freedomhouse.org/report/freedom-press/2017/hungary accessed on: 11 January 2019). An increasing share of the Hungarian Public Finance has been spent on communication in an effort mostly to rebel against Brussels, to communicate how dangerous the migration crisis is, etc. Even in 2018, approximately EUR 150 million was spent on communication by the government. In 2018, beyond the approval of the amendments to the Labour law (Slavery Act mentioned earlier), the Hungarian Parliament also passed a law on establishing a new system of administrative courts under the firm control of the Minister of Justice, meaning that a separate court system will be responsible for decisions in which Hungarian authorities are affected or involved by endangering judicial independence. Attacking renowned higher education institutions together with the Hungarian Academy of Sciences by removing its financial autonomy contributed to a series of demonstrations as well.
The term ‘fight for economic freedom’ was repeatedly used in governmental speeches (e.g., it was used in a speech in the Hungarian parliament on 21 November 2011 delivered by the Minister of National Economy with respect to the IMF credit agreement).
See: Kozár and Neszmélyi (2017).
These fields absorbed almost 80,000 people in the period 2008-2013. Another telling fact was that, in 2014, the government did not allocate financial resources for the Central Statistical Office to carry out researches on poverty or socioeconomic inequality.
See the survey within the project Smart Factory Hub involving 280 manufacturing firms from 10 countries, available: http://www.interreg-danube.eu/approved-projects/smart-factory-hub Accessed on: 11 January 2019. Furthermore, a recent survey, a joint undertaking commissioned by the Industry 4.0 National Technology Platform—see Haidegger and Paniti (2016)—with the aim of assessing the Industry 4.0 readiness as well as awareness of domestic manufacturing companies revealed that not only large, but also small and medium-sized (SMEs) Hungarian companies are mostly lacking a systemic strategy for Industry 4.0 (the share of those not having strategy at all was 66% in case of large companies, while it was 36% in case of SMEs).
OECD (2018, p. 124) pointed out that except the mainly foreign-owned export sector, the domestic SME sector has low growth, productivity, and propensity to innovate.
See the survey within the project InnoPeer AVM involving 163 manufacturing companies from 5 countries (30 from Hungary), available: https://www.interreg-central.eu/Content.Node/InnoPeerAVM.html Accessed on: 11 January 2019.
The Digital Economy and Society Index, developed by the European Commission, also suggests that Hungary belongs to the bottom third in terms of maturity among European countries. Slovakia and the Czech Republic outdid Hungarian performance. See: https://ec.europa.eu/digital-single-market/en/desi Accessed on: 11 January 2019. If one looks at IMD World Digital Competitiveness Ranking 2018, Hungary seems to have been deteriorating (while Hungary was ranked at the place of 36th in 2014 out of 63 countries, it then fell to the 46th position in 2018).
Manufacturing companies involved meet the following criteria: A minimum of EUR 300,000 annual turnover; employment over 10 persons; operation in convergence regions (regions except Central Hungary); preferred domestic ownership; constant growth in recent years either in terms of employment or profit.
The number of such companies is 153, employing more than 10,000 workers in Hungary. Sixty percent of those are with less than 20% export in their operation, 9% of those have exports above 80%, only 8% of those companies are familiar with digitalisation of manufacturing processes, and only 2% of them are experienced in Big Data analytics.
The extension of corporate social responsibility in the case of industrial players can be seen as an instructive way forward, as Shpak et al. (2018) presented. For the nexus between Industry 4.0 and circular economy, see: Garcia-Muiña et al. (2018).
Within the context of the European integration, speaking of some kind of industrial policy, which concept has been dissolved into the oblivion for decades, let us recall to the fact that the Treaty of Rome does not refer to any common industrial policy, but, according to the 92nd article, there is a chance for it, but: it has to be targeted, specific, temporary, and powerful, if we want to promote adaptation to a new, changed environment. This is what industrial revolution means, and this is in line with the considerations of Jean-Claude Juncker’s document, called State of the Union 2017—Industrial Policy Strategy 2017, see: European Commission (2017).
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Kovacs, O. Big IFs in Productivity-Enhancing Industry 4.0. Soc. Sci. 2019, 8, 37. https://doi.org/10.3390/socsci8020037
Kovacs O. Big IFs in Productivity-Enhancing Industry 4.0. Social Sciences. 2019; 8(2):37. https://doi.org/10.3390/socsci8020037Chicago/Turabian Style
Kovacs, Oliver. 2019. "Big IFs in Productivity-Enhancing Industry 4.0" Social Sciences 8, no. 2: 37. https://doi.org/10.3390/socsci8020037