Economic Watch

Will South Africa survive the new industrial revolution?

New Industrial Revolution.jpg

The global economy is in the grip of a new industrial revolution and South Africa will sink or sail handsomely depending on how well plans for ‘reindustrialisation’ meet the challenges that come with this revolution.

Societies across the globe are experiencing an upheaval led by a second wave of automation on the back of what a new report by the McKinsey Global Institute (MGI) calls The Internet of Things (IoT).

The report describes IoT as “sensors and actuators connected by networks to computing systems. These systems can monitor or manage the health and actions of connected objects and machines. Connected sensors can also monitor the natural world, people, and animals.”

It concentrates on the economic benefits of these networks and estimates that its potential global economic impact could be between $3.9 trillion and $11.1 trillion annually by as early as 2025. That is the value that can be added for those in business sector harnessing the potential of IoT.

The report does concede that, “as with other productivity-improving technologies, IoT will affect workers in different ways”. It does not, however, deal at all with this subject and the socio-economic impact.

Wave of change

Fact is that on the back of IoT the world is already experiencing a wave of what some commentators describe as “deep automation” and the social upheaval that comes with it.

It goes hand-in-hand with the development of so-called ‘artificial cognition’ linked to the proliferation of cheap sensors facilitating machine learning, and distributed smarts. This deep automation will touch all jobs, from manual labour to knowledge work and even some managerial positions.

In fact, the latter process is already well under way and even at an advanced stage in for instance the banking industry – not least so in South Africa where the sector is often described as one of the most sophisticated in the world.

Next in line are probably already highly automated industries like the automobile and household appliance manufacturing industry. When government talks about a new phase of industrialisation, some careful and holistic thinking should go into the nature of the industrialisation that is being talked about.

Reach of change

There is hardly a sphere of human endeavour that is untouched by what is happening on this front. It ranges from war to religion. Just consider the impact of the use of cyber attacks and drone aircraft in war on the one hand and the growth in popularity of the ‘TV-church’ on Sundays in South Africa.

On the war front it has implications for things like pinning responsibility should a ‘mission’ go wrong and an inappropriate target is struck – that is besides the physiological impact of the ‘remote gunner’ pressing the button thousands of kilometres away, and not confronted with the sight of the bloody scenes and of victims.

On the religious front it has implications for the income model and organisational structure of traditional churches and those dependent on it for their livelihood. Already there is an increasing tendency for ministers of religion to develop additional professional or other income streams besides their strictly congregational duties. 

One of the most important challenges is to reconcile the economic advantages with the lag between the benefits they bring for the broad business sector and the ability of the population at large to adapt to the changed economic environment that comes with it in the form things like:

  • The disappearance of some types of jobs and when replaced with other kinds of jobs requiring new knowledge and skill sets. Some estimates foresee 70% of existing jobs being replaced by automated machines, or robots if you want; and
  • The disappearance of jobs and living space from some areas like farms and rural regions, also causing rapid urbanisation.

Another major challenge is for the regulatory and legal frameworks to keep pace with the changing environment. Consider, for instance, the impact of third party claims if a ‘self-driven’ vehicle should be involved in a road accident and the principle of appropriation of blame.

Trade unions should also think carefully and innovatively about how they represent the best interest of their members. For instance, should re-skilling of workers for new generation jobs not be considered as part of restructuring/retrenchment deals negotiated?

Governments will also have to consider the implications for their tax income models, especially during the transition period to the ‘new economy’, reflected in the ‘jobless growth’, currently experienced in countries across the globe.

While profit margins of companies are likely to go up, governments will lose the secondary income stream of income tax from workers who have become redundant.

Challenges during transition

During the transition, growth in GDP simply does not ‘trickle down’ to the man in the street, and it is unlikely to change in the short to medium term.

It is unlikely to change until the opportunities in ‘new-generation’ jobs really start taking off and the workforce at large has been sufficiently educated and re-skilled to take up these opportunities.

For individuals there might also be opportunities to turn themselves into freestanding ‘business units’, or efficient freelancers, if you want, provided they stay at the cutting edge of technological developments. This will also impact on how they structure their individual long-term survival plans as the company medical and pension plans disappear.

Finding answers

There are also advantages to be gained from the IoT for even the informal trader. The informal trader geared to receive payment via a connected smart phone is more likely to make the sale than the guy in the next stall on the sidewalk that is not connected.

Probably the biggest challenge that government policy makers face is to develop a model that during this transition to the new economy strikes a balance between mitigating the socio-economic impact of the new industrial revolution and empowering people for survival.

The answer is not in a form of welfare socialism effecting simple redistribution of wealth, which makes people dependent on the state. On that score President Jacob Zuma is correct when he says that people should not just depend on government grants for an income.

The fundamental question to ask is: Is it government’s task to look after people or to facilitate an environment in which people are empowered to look after themselves?

The challenge is to find a balance between care for those who fell on hard times on the fringes of the changing formal economy on the one hand and on the other hand empowering, through education and skilling, and incentivising them to look after themselves.

One of the lessons of the previous big industrial revolution and the way it played out over many decades is to be found in the words of ex-United Kingdom prime minister Margaret Thatcher who once said, “The problem with socialism is that you eventually run out of other people's money.”  

The South African government is already discovering that the socialist welfare state is not sustainable and it has it right when it talks about ambitions for a “reindustrialisation” of the country.

What is not clear at this stage is what the model for that reindustrialisation will or should look like.

One thing is sure, however, globally on the back of the IoT the new industrial revolution is well underway and nothing will stop it or turn it around. Government will do well to invest in a multi-sector think tank initiative, involving leaders from academia, government, business and trade unions to develop policies and models to meet the challenges.

South Africa is well positioned to in the medium to longer term be one of the winners in the new industrial revolution if we get our act together. The alternative is to be overrun by the revolution and descend into social chaos, conflict and the disintegration of our diverse society.

Also read: Technology watch and Final Word

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