Professor Lisa De Propris (GVC Cluster, Birmingham Business School, UK) offers some highlights from the Smart Industry Conference jointly hosted by OECD and Vinnova (Stockholm, November 2016).
Academia, policy makers, industry and representatives from international organisations such as OECD, UNIDO and EU have gathered in the sunny -albeit chilly- city of Stockholm to discuss the implications, opportunities and challenges that the New Production Revolution is presenting to advanced economies.
A two year long project kicked off by the OECD culminated in a report to be launched in 2017, and this conference was a chance to present and validate its findings.
Terminology first. The OECD has framed the debate in the context of a “new production revolution (NPR)” which others have referred to as the 4th industrial revolution (REF) leading to a new manufacturing model that in different countries has been labelled in different ways: “Industrie 4.0” in Germany, “smart industry” in Sweden, or “Fabbrica intelligente” in Italy.
The common understanding is nevertheless that there is a bunch of new technologies that once adopted by firms in all manufacturing and service sectors will fundamentally change the nature of those sectors.
The new technologies
It is well accepted now that our economies are about to be hit by a wave of new technologies that will radically change the techno-economic paradigm of our economies, as well as some aspects of our societies.
This technological wave is very much technology-pushed and there is a consensus on the fact that we cannot yet fully appreciate and anticipate the impact of these new technologies on our life.
Speakers from academia and industry have helped us visualise such technologies. Crucially, digitalisation is the most pervasive of all new technologies and probably the one that most people tend to experience first-hand in all walks of life. This includes the Internet of Thing, cloud computing, datafication, and artificial intelligence.
Disruption or transformation?
The transformative potential of synthetic biology has been compared to the introduction of steam power in the first industrial revolution. For example, the emergence of bio-based technology from chemistry to pharma to materials, is making the ambition of a carbon-free world more possible.
Meanwhile, robotics and automation will transform the organisation of factories and value chains by altering again the relationship between capital and labour.
Those who have written about the 4th industrial revolution have stressed the disruptive power of these technologies (something of a real cut from the past).
Others are pointing to their transformative muscle instead. On the front line, big businesses have suggested that companies that do not invest in these new technologies will be outcompeted, disrupted by smart ones. The jury is still out.
A new production model?
Once rolled out and fully adopted by firms, these new technologies will change the parameters of our production model. A new manufacturing model will take shape.
Smart Industry or Industry 4.0 will change the organisation of production inside factories thanks to the adoption of robotics and automation, the integration of digital technology to connect people with machine as well as machine with machine.
Scaling up and down will be possible. Productivity with be coupled with flexibility and customisation. Large firms seem to be up to the challenge but small and medium sized firms are more exposed to inertia.
Some large multinationals described their intention to talk about the implications and opportunity of all the new technologies in the Smart Industry model to their suppliers to raise awareness and to prompt change.
A new production value chain model?
The adoption of the Smart Industry model by large firms only will not be enough to deliver the productivity gains that everybody expects (or hopes for). The change has to occur throughout value chains.
Production processes are functionally and spatially fragmented with supply chains spreading globally through webs of first, second and nth tier suppliers.
Less discussed over these two days was how the new technologies will change the distribution of value creation along the supply chain. Will the buyer push their suppliers to adopt new technologies?
Many times during these two days ‘the manufacturing sector’ has been mentioned with a renewed understanding on its socio-economic value.
With Brexit and the Trump election in the US fresh in everybody’s minds, many conversations and debates in and out the sessions echoed a revived passion for manufacturing in advanced economies.
From the German experience mentioned many times, we have become aware of the socio-economic benefits of a resilient and competitive manufacturing sector.
It is not by chance then that it is Germany that has coined the term Industrie 4.0 to reiterate the advantages of manufacturing which in advanced economies has to be constantly on the technological frontier. Hence the term ‘Industrie 4.0’.
The Swedish host also has been very committed to its manufacturing industries and the vision and engagement of the innovation agency Vinnova is testimony of that. Its programmes reconcile the need to diffuse frontier technologies across the country’s core industries which are the backbone of communities’ socio-economic wellbeing.
Manufacturing in the US
The deindustrialisation of American rust belt had devastating implications for millions of people and it showed how manufacturing is not like any other sector. It is the skeleton of an economy and its society. Deindustrialisation caused long term joblessness, the thinning of manufacturing value chains, and finally the de-linking of manufacturing from related innovation and service.
The Advanced Manufacturing Programme launched by the Obama’s administration is meant to create an institutional infrastructure (with the Advanced Manufacturing Institutes), collaborative mechanism and a process to upgrade what is left of its manufacturing base.
Two big challenges: one, only 5% of US venture capital is directed to manufacturing activities preventing the translation of the start-up model in ICT to manufacturing; and two, the ‘extended pipeline model of innovation’ allows public support for the entire innovation process only for defence procurement projects.
Jobs and skills
The skills gap, education, training, and re-training: these were concerns that kept popping up over and over again at the conference. Creating new skills and enabling re-skilling is crucial for a) unleashing the ‘production revolution’ b) maintaining jobs and c) creating new jobs.
And what about job destruction or job creation? Productivity gains thanks to robotics and automation will lead jobs based on routine tasks being displaced.
There are fears of job destruction, but evidence was presented of huge opportunities for job creation in the longer term. And this is crucial.
New technologies will create new sectors, new products, new markets; this will require new skills and if skills are available they will translate in new jobs. The passage from new technology to new jobs is neither automatic nor instantaneous.
So what should policy do?
Over and over again three things emerged as crucial to create the conditions for firms to be able to adopt this new manufacturing model.
First of all, skills. Education, training and re-training will be crucial to be feed firms with the relevant and demanded skills. Matching the skills required by firms will go some way towards creating new jobs and saving some of the existing ones.
Secondly, public investment in technology infrastructure and creating a clear regulatory framework fit for the new digital age.
And finally, governments have to be aware of their role in managing the societal change that this technological revolution will bring to ensure social cohesion and diffused benefits.
General consensus suggested that doing nothing is not an option. Risky times require the government to hold the hand of businesses to share some of that risk and leverage the immense opportunities that lie ahead.