Page last updated at 08:35 CST6CDT, Saturday, 14 December 2019 PH
We should be happy that business media and industry associations are spending a lot of time and resources to alert the public about the consequences of what is now popularly known as Industry 4.0 or the Fourth Industrial Revolution (FIRe). The most recent important event was the Business World’s Industry 4.0 Summit held last September 9, 2019. There is no question that many businesses—large and small —will be disrupted by developments in digital technology. Especially affected will be the banking and finance sector, retailing, logistics, manufacturing, tourism, health and education. We should, however, not exaggerate the impact on jobs that FIRe will have on the Philippine economy at least for the next twenty years as we transition from low-middle income to high-middle income. Fortunately, Secretary Gregorio Honasan II of the Department of Information and Communication appealed for more moderation and realism in talking about the so-called revolutionary changes in our economy that Industry 4.0 will introduce. He recognized that “the world has changed and will continue to do so in a fast-paced manner.” Here we are reminded of Moore’s law which stated that the speed and power of microchips—that is, computational processing power—would double roughly every year, which later Moore himself updated to every two years. To dramatize things even more, just last September 21, 2019, the Financial Times carried an article about Google achieving “quantum supremacy” with a computer that only does one task. Google claims to have built the first quantum computer that can carry out calculations beyond the ability of today’s most powerful supercomputers. It is asserted that the new processor can perform a calculation in three minutes and 20 seconds that would take today’s most advanced classical computer, known as Summit, about 10,000 years! It is said that these quantum computers, if they can be built at scale, will harness properties beyond the limits of classical physics to offer exponential gains in computing power. According to a Boston Consulting Group report, they can change the game in such fields as cryptography and chemistry (and thus material science, agriculture and pharmaceuticals) not to mention artificial intelligence and machine learning…logistics, manufacturing, finance and energy!
Whoa! Before we get carried away, let us listen once again to Secretary Honasan’s words of caution: “Our fellow Filipinos in many areas still cannot tap into the wonders of ICT due to the lack of resources and connectivity, thus slowing down our transformation and leapfrogging to a digital society.” Let me add more reasons for realism and caution when talking about the disruptive consequences of FIRe. It is not only our ICT sector that is backward. It is the whole economy that is still in the pre-industrial stage. We have not had a real agricultural revolution which in large countries is a pre-requisite to even just Industry 1.0. Twenty percent of our population are still below the poverty line and would be happy enough to receive some of the lowest industrial wages in the Asia Pacific region. Most of our industrial workers will still be necessary for the first three phases of the industrial revolution that we have not completed. There is little danger of these jobs disappearing instantly.
Let us review just exactly what are the various phases of the so-called industrial revolution. As already mentioned, for a country with vast agricultural resources such as the Philippines (like the first European countries to industrialize, i.e., England, the Netherlands, France and Germany), a significant increase in agricultural productivity is needed as a precondition to even the first phase of the industrial revolution or Industry 1.0. This happened in England at the end of the 18th century and involved the introduction of water- and steam-powered mechanical manufacturing facilities. These factories absorbed the labor that was released by the more productive agricultural sector. Then the second stage, Industry 2.0, involved the introduction of electrically-powered mass production based on division of labor, happening more are less at the start of the 20th century. The dominant industry during this stage was the iron and steel industry that benefited a great deal from electric power. It is quite obvious that the Philippines is just starting to benefit from this second stage of industrialization with the increasing presence of such large steel manufacturing enterprises as Steel Asia which just reported that its output of steel bars jumped 11% year-on-year in 2018 to over a million metric tons (MT), citing demand from the public sector. Steel Asia, in its six operating plants produced 1.02 million MT of reinforcing steel bars or rebars. With the Build, Build, Build, program expected to last at least for the next twenty years for us to catch up with our more industrialized neighbors, especially in Northeast Asia, the Philippines will continue to need a great deal of manpower for Industry 2.0. We will need not only many more civil, electrical, mechanical and metallurgical engineers as well as architects and urban planners. We will also need even many more carpenters, plumbers, electricians, masons, mechanics, painters, and other technically skilled workers who are in great demand in the construction sector. Even at the incipient stage of our infrastructure building program, we are already suffering from serious shortages of technical workers!
Then there is Industry 3.0 which uses electronics and IT to achieve further automation of manufacturing. This phase of industrialization took off more or less at the beginning of the decade of the 1970s. We will continue to need hundreds of thousands of our manpower resources to work for the electronic and semiconductor devices factories in our export processing zones, unless we shoot ourselves on the foot by driving all of them to the enthusiastic embrace of Vietnam, Myanmar and other labor-surplus Southeast Asian countries by removing the tax incentives in our PEZA zones. It is Industry 3.0 that will absorb our manpower most as the emerging markets of the ASEAN Economic Community (AEC) transition from low to middle income status during which the demand for household appliances and similar electronic products grows exponentially. I am impressed with how one of the largest producers of home appliances in the world, Samsung, manufactures most of its parts in Vietnam that is a great deal more open to foreign direct investments than the Philippines. For all practical purposes, Samsung can own land in Vietnam while we are still so finicky about foreign ownership of land in the Philippines. (To be continued)