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The Next Industrial Revolution is Going to Hurt Us Real Bad & It is here with the Internet of Things

While the current buzz with the tech media globally is on the Internet of Things or Industry 4.0, we should also consider the perils of industrial revolutions. The first Industrial revolution, started in 1712, with the development of the piston steam engine which transformed Britain. There was a move away from an agrarian society, to an industrial one, spurred by Richard Arkwright’s development of the modern factory around 1770.

Britain leveraged the first Revolution to become a dominant power until the early 20th century. By 1930 Britain had lost its global position to Germany and the US, perhaps as a result of a poor education system. Of universities that continue in operation, we have Oxford which was founded in 1167 followed Cambridge (1209) but it was not until 1826 that University College London started. In contrast, US at the time of independence had 18 universities which included, Harvard which was founded in 1636.

In 1859, Edwin Drake developed a shaft drilling technique that sparked an oil rush in the US. Innovations followed, from Henry Ford’s car to naval ships, trucks, tanks and so much of the military apparatus of World War I. New uses for oil continued to be developed in the US; nylon in 1935 by Du Pont plastics in 1951 by Phillips Petroleum, creating new industries and great wealth for the founding companies.

In contrast to the technological advances of the West, what did the developing world have to offer? Simple, cheap labour, low cost infrastructure and tax benefits. This strategy brought investment dollars and created lots of jobs, which resulted in rising wages and improved standards of living. It seemed like a great ride for all, through the 1970’s and 80’s when products were more mechanical in nature and labour content was high. That was a strategy that worked for a while and spurred a building boom, in factories, roads and houses. The party is now over.

The impact of globalization has been that country borders become porous allowing for goods and services to flow freely, as does production capacity. It also means that products are now “uniformly priced” around the world. Take the iPhone for example. At US$549, for the iPhone 6 (16GB), the device is affordable for a Californian, where the minimum wage is US$9/ hr, or a British worker earning £6.70/ hr, but hardly fair to the Malaysian worker, where the phone costs RM2,400 and the hourly wage is RM4.50 – not a pleasant consequence of a global world!

The other consequence of globalization is the economic imbalance of labour output. A day’s labour of a software engineer in the US is exponentially higher than a farmer in the developing world, who grows fruit to be consumed locally. The economics supporting this is simple but brutal - the engineer’s efforts go into a larger, more valuable product or service that can be offered to multiple people over a long period of time. In contrast, the farmer who produces a banana, which can only be consumed by a few for little economic value.

We are now entering the next Industrial Revolution, which has been referred to as the Internet of Things (IOT). Whilst experts are uncertain if driverless cars will lead to an increase in car population, what is clear is that all new car technologies, including power trains, is coming from the developed world.

With increased robotics, there will be less requirement for labour. In practice this means countries like Malaysia, regardless of the label – developing, newly developed, etc. – that do not have a large enough services sector, which in today’s terms means +70%, are going to see a hollowing out of the manufacturing sector. Based on recent World Bank data, the contribution of the services sector for Malaysia is 50%, whilst for United Kingdom and USA, is 80% and 78%.

The Americans rode the oil technology curve, the computer chip wave and are now seeking to ride the IOT wave. The US is also aggressively pursuing trade agreements, to make it a “flatter world” to use Thomas Friedman’s term. Some might dispute this, but what we do know is that the “world is not fair”. Trade agreements, that “allow” Asian countries access to Western markets, are in fact a double edged sword. For the developing world, this could be equated to an invitation to send athletes to the Olympics for the 100m event, without having to qualify. Perhaps attendance is cause for celebration, but we know who will walk away with the medals!

The path for developing countries will be tough and there are no easy solutions. We need to learn from the experience of Wiki, and look for opportunities to free up creative and entrepreneurial thinking in our companies. Perhaps new thinking will collectively find a solution for us to get out of the middle income trap . . . before we get seriously hurt. Embedding some of what we call the Nine Entrepreneurisms that are; Self-efficacy, Risk Taking, Passion, Learning, Realism, Persuasiveness, Opportunism, Innovation and Energy-Action Bias, is what we are advocating.

[the full article is published on Digital News Asia, November 17, 2015]


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