Industry and trade under the fourth industrial revolution

[The fourth of a five-part series titled "Post-graduation globalisation trends and challenges for Bangladesh"]

As Bangladesh is set to graduate out of the Least Developed Country (LDC) status, a global-scale fourth industrial revolution powered by cutting-edge technology is also on the horizon. As 21st century world prepares for a new age economic transformation, mechanisation or automation has arrived as a credible problem for job creation that requires preparation. Previously what was thought to be simple "creative destruction" or "process of industrial mutation that incessantly revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one", is now showing signs of emerging with sheer magnitude, thereby disrupting the predictable trends of global economic output and livelihoods. Automation happens to be one of those issues that just might arise as an obstacle in path of achieving inclusive growth and beyond. And like any other country of the world, Bangladesh needs to be cautious and well-prepared about approaching this future.

Technology has dramatically altered what it means for many people to work. But at times, technological advancement also comes with automation. And its price: the many people whose livelihoods will be disrupted or destroyed by it. But the phenomenon of automation is nothing new to the world. Notable previous impact goes back to 19th century when handloom and other jobs of British textile workers were replaced by mechanised production. Innovations in production line automated many industrialised jobs during the boom of roaring 1920's. In that sense, automation has been a part of economic production that comes with technological advancement. But automation in new millennium comes with a completely different twist. Jointly with rise of artificial intelligence (AI), developments made in machine learning process and availability of industrial robots make the new waves of automation completely different from anything the world has ever experienced. While automation will result in more efficiency, faster production, lower costs, increased outputs and is meant to make life easier for people by completing mundane and repeated tasks, its absolute ability to displace human jobs across manufacturing, agriculture and service sector poses unprecedented threat for global employment levels.  

According to PricewaterhouseCoopers' (PwC) estimations, job displacement, or automation is likely to impact economies around the world in three phases. The first stage, termed as algorithm wave, has already started in developed economies. Powered by high functioning algorithms, simple digitalised tasks will be automated first. The financial, professional and technical services, and information and communications sectors are likely to be the most affected in this phase. The second phase of augmentation wave is likely to start by the end of next decade when repeated tasks in manufacturing, service and agriculture will be taken up by machines. And the third phase of autonomous wave will start in 2030's. Use of AI and robotics is going to be widespread during this phase. With driverless transports, self-checkout counters, and completely automated factories becoming more omnipresent around this time, chances are that more than half of traditional jobs will be destroyed for good. According to recent research by the McKinsey Global Institute, up to 800 million workers globally will lose their jobs by 2030, to be replaced by robotic automation.

It is important to note that the impact of automation is likely to be different for gender and educational backgrounds. In first two phases of automation, women are likely to be hit harder. In the algorithm and augmented phase, jobs that are considered female friendly, such as repeated tasks in service or manufacturing sector will be replaced quickly. By the third phase, impact will be wider, affecting all major fields and professions in the economy. Jobs that are traditionally held by men will be affected more in the third phase. For educational background, staying relevant to the new innovations will be important to alter impacts of automation. But it does not guarantee an employment when machines take over. By the augmentation and autonomy stages, groups of people with low education will be hit harder (Figure 8). Close to 60 per cent of jobs held by low-educated groups may not survive till the third phase.

University graduates, and especially graduates from science, technology, engineering, and mathematics (STEM) fields, are more likely to remain protected. Technological development will also result in the generation of a plethora of new jobs and novel professions. It is now quite clearly understood that commercialised use of machines will focus on displacing jobs where robots will have comparative advantage over human beings. But many jobs will require experts for maintaining or overseeing these machines. While jobs like elementary school teaching, health professionals for growing populations, therapists, social workers, strategists and jobs requiring empathy and creativity will be more powerful than they are now. But again, these jobs and new professions are likely to have an unequal distribution based on educational background. 

DEFEMINISATION OF THE MANUFACTURING LABOUR FORCE: Bangladesh's economy is also showing signs of the first stage of automation. The defeminisation of the manufacturing labour force is currently ongoing. The apparel industry in Bangladesh was marked by spectacular rise in the share of female wage-workers in the formal manufacturing sector. For quite a while, it was widely considered that women constituted around 80 per cent of RMG workers. According to the (LFS) labour force survey (2017), the female shares of employment in the sector fell from 57 per cent in 2013 to 46 per cent in 2016. This is in line with the findings of economists Sheba Tejani and William Milberg, who pointed to a global defeminisation process as a result of industrial upgrading. Their research shows that capital intensity in production, as evidenced by shifts in labour productivity, is negatively and significantly related to shifts in the female share of employment in manufacturing.

As things stand, Bangladesh needs to generate 2.0 million jobs every year to accommodate new entrants to its labour force. Close to 40 per cent of the workforce is still in agriculture, whose contribution to the gross domestic product (GDP) is only 15 per cent and shrinking. Underemployment and youth unemployment are already major issues in the country, with close to 29 per cent of youth being NEET (not in employment, education or training). These mean, non-farm activities will also have to absorb the influx of labour from agriculture. Productivity growth and a rise in the formalisation of informal activities may exert further pressure on the labour market situation. In a context where the 7th Five Year Plan has set a target of increasing the sector's share in total employment from 15 per cent to 20 per cent by 2020, emerging evidences suggest manufacturing growth and employment generation are not going hand-in-hand for Bangladesh. Between 2013-17, while adding more than Tk 648 billion-worth of output (in real terms using 2005-2006 prices), employment in manufacturing sector was increased by a mere 0.3 million according to LFS (2017).

STAGNANCY OF MANUFACTURING EMPLOYMENT: The stagnancy of manufacturing employment becomes more evident when we look at the RMG sector. During 2010-2018, the sector saw a staggering 144 per cent growth in export earnings (from $12.5 billion to $30.61 billion). But during the same period, growth in employment generation in the sector was only 11 per cent. This slowdown of employment generation happened as local workers became more productive, and producers invested in capital intensive technologies. In the early 1990s, a million-dollar apparel exporting organisation would require on average 545 workers. While in 2016, it has come down to 142.

Although this is not good news for the unemployment issue as it's suggesting a fall in labour absorption capacity of the sector, this change was inevitable in many respects. Without investing in capital-intensive machineries and becoming more reliant on automation (i.e. sewing bots, mechanised production line), Bangladeshi exporters will never become competitive in the international market. Comparators of Bangladesh, such as China (48), Viet Nam (48), India (59) and Cambodia (75) are far ahead in terms of lower employment intensity or number of workers per million of exported goods. Apart from Cambodia, all these countries have better economy-wide labour productivity than Bangladesh (Figure 9).

This is not to say that Bangladeshi producers should get rid of workers. It means as export production technologies across countries seem to converge, for Bangladesh there exists enormous scope to improve labour productivity driven by more technology-intensive and labour-saving production processes. In 2016, investment in machinery per unit of labour was the lowest in Bangladesh among the major apparel exporters (only $118). Compared to Bangladesh, Viet Nam ($1205), China ($700) were miles ahead; while Cambodia ($174) and India ($139) were slightly ahead (Figure 10). If flagship sector of Bangladesh's export is going to remain competitive in the global market, moving in the direction of comparators is perhaps unavoidable, which will further suppress its employment generation potential per unit of export.

TACKLING THE ISSUE OF AUTOMATION: Among the post-graduation challenges faced by Bangladesh, automation is perhaps the most challenging one in nature. With correct direction and planning, there is an opportunity to tackle this issue. Moreover, by managing necessary institutional transformation in changing the conventional ways of developing human capital, Bangladesh can stay well ahead of the curve by the time automation affects all industries. Some strong and revolutionary steps need to be undertaken to resolve an issue which is unprecedented in every aspect. Here are some suggestions:

• To remain consistent with the job creation targets of the 7th Five Year Plan, it is extremely important to realise a rapid expansion of exports through export diversification. Given the trends in production technologies, export diversification is perhaps now more important than ever before. Automation will affect all labour intensive exports, but an expanded range of production activities has the potential to generate new jobs.
  
  
• Automation is inevitable, and there should be no policy hesitancy about promoting competitiveness by supporting technological upgradation, particularly for export sectors. In some cases, technological advancement can lead to improvements in product quality with prospects for export expansion.
  
  
• Non-export and import-competing sectors also need to embrace more capital-intensive production techniques. Investment in machinery and equipment, as measured by import data, per unit of labour is much lower in Bangladesh, compared to Cambodia, Viet Nam or China.
  
  
• Despite ominous forecasts of employment generation, automation can open a new horizon of fast economic growth. Rapid manufacturing expansion can fuel this growth and create large number of employment opportunities. Therefore, automation can turn into an opportunity to augment growth. Bangladesh must materialise this window by persistently hitting double digit growth rates (above 10 per cent) per year. Small and medium enterprises, which are critical for livelihood generation, will need support to obtain better access to technology so they can raise their productivity and competitiveness.
  
  
• In many ways, the bigger question is not "will there be enough jobs in future?", but "will there be enough job for workers with the current skill sets in future?" Automation is likely to erode many conventional professions, or change the objectives of same professionals in future. The importance of updated curriculum in education and training cannot be overemphasised. Adapting with the forces of creative destruction requires future generations to be equipped with adequate education. In all levels of education, mandatory quantitative literacy, computing skills and basic STEM courses will become a necessity. As technological advancement will make many skills redundant in quick succession, norms like life-long educational and skill-development practices must be cultured in private-sectors.
  
  
• Transforming the social sectors to generate productive employment is another critical policy area. As investment in health, education and public social services remains low, quality of these services is widely perceived to be far from satisfactory. Careful policy attention to these sectors is a necessity in generating future jobs and developing the human capital needed to support socially coherent technological progress.
  
  
• Automation will lead to higher inequality with certain groups of people becoming significantly worse off in the process. Potential impact on women and low-education groups must be addressed with necessary government interventions. Policies focusing on training, education and social security of displaced workers will have to be dealt with utmost priority, while progressive taxation will help to ease the rising inequality.
  
  
• Future trade policies of Bangladesh need careful evaluation. There will be temptations and political-economic interests to shield the domestic economy from import competition, capital-deepening and technological upgradation. But an excessively protected environment could lead to mounting inefficiencies, with adverse welfare consequences.
  
  
• Finally, to enable informed policy-making, there is an exigency for comprehensive research based on quality data. Potential impact assessment of automation across industries of Bangladesh is relatively new and a less explored subject. Without the availability of timely, appropriate-robust data and quality research, it will not be possible to understand the complex interactions involved in labour market dynamism, capture potential changes brought about by technological changes and suggest required policy interventions to respond to those impacts.

Dr. Shamsul Alam is Member (Senior Secretary), General Economics Division, Bangladesh Planning Commission.

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