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Developing countries like Bangladesh, India, Pakistan, and Indonesia are facing four mammoth development challenges.
The first one is about growing graduate unemployment. That is followed by the one (2nd) related to erosion of age-old competitive advantage -- labour and material advantage -- due to advent of the fourth industrial revolution (4IR). Attaining sustainable development goals forms the 3rd challenge. And the fourth one is to keep increasing per capita income at a rate of over 7 per cent over the next 30 years -- doubling in every decade.
These countries are losing their value addition capacity out of labour and raw materials. They need to keep increasing their economic outputs while causing less harm to environment and leaving no one behind. What should then be a unified strategy in addressing these conflicting goals that appear to be a daunting challenge facing these countries?
According to data from advanced countries, there is a strong correlation between level of education and per capita income. For example, data compiled by the USA's Economic Policy Institute show, college graduates, on average, earned 56 per cent more than high-school graduates in 2015. And it has increased 51 per cent in 2019, reaching the highest gap since 1973.
To replicate such effect of education on income level, developing countries have been increasing investment in tertiary education, producing an increasing number of graduates. But unfortunately, the income gap between high-school dropouts and university graduates has been falling, as opposed to rising, in most of the developed countries. For example, in Bangladesh, such a gap has already reached zero for fresh graduates, raising the question about the role of education on income. It means that developing countries cannot keep increasing the income level by producing more graduates. Growing graduate unemployment also poses barriers to attainment of Sustainable Development Goals (SGDs).
In the age of the fourth industrial revolution, the technology stack comprised of robotics, automation, and artificial intelligence has been transforming productive activities. As a result, labour content in producing and consuming virtually every product has been falling.
Moreover, the attainment of SDGs demands us to reduce wastage and pollution. As a result, competitive advantage out of labour, causing harm to air, soil, and water, and wasting energy as well as the material has been eroding. Such reality is weakening the existing production strategy of developing countries. Within the given context, attaining SDGs and keep increasing per capita income in the age of 4IR appears to be conflicting in nature.
Conventional means like investing in infrastructure, offering subsidy, and being lenient to environmental policies are not going to scale up past success. As a result, the suggestion of borrowing to scale up the existing way of doing things does not succeed. Instead, the challenge is to increase capacity of value addition and increase profit, while consuming and wasting less is the necessary core competence.
It could also be recommended that developing countries should increase research and development (R&D) investment. Like education, there appears to be no natural correlation between R&D investment and economic growth. The conventional economic thinking that the expansion of education and investment in R&D will exogenously contribute to economic growth does not appear to be functioning in developing countries in this age of 4IR. Measures should be taken in establishing explicit linkage (endogenous) between higher education, R&D investment, and economic growth so that both economic outputs and employment keep growing meeting SDGs, given the 4IR.
The unified strategy of addressing conflicting situations should focus on creating economic value out of ideas by harnessing mental capacity of a growing number of graduates. Instead of lowering corporate tax and import duty, the incentive should be destined for redesigning products and processes so that material and energy consumption decreases, and yield increases. And it should be achieved not by importing ready to use technology. Rather the focus should be on absorption of the state-of-the-art technologies, adapting them with local context, and advancing them further so that cost and quality advantage of products of Bangladesh and other developing countries keep increasing through value addition out of ideas, as opposed to tax adjustment, or cash incentives.
Such value addition out of ideas must be attained by engaging local graduates in R&D, consequentially creating new jobs for them. As a result, economic outputs will be expanding at a faster rate due to quality enhancement and cost reduction, creating new jobs. Additional job creation in production will likely outweigh probable job loss due to automation. Moreover, high-income jobs will be created in performing R&D.
It appears that the technology stack powering the fourth industrial revolution has tremendous underlying potential to support ideas for redesigning products and processes for offering higher quality products at lower cost while causing less harm to environment. The challenge is to exploit them by developing local R&D capacity contrary to importing ready to deploy labour-saving machinery from advanced countries.
As opposed to following the linear model of innovation in innovating completely new products out of basic research, the unified approach should develop the strategy of redesigning existing products and processes out of ideas of technology stack powering the fourth industrial revolution. For example, local research on image processing and machine intelligence leading to innovations of smarter fishing will lead to higher income, lower wastage of marine sources, and new R&D jobs for university graduates. Such redesigning capability by leveraging the 4IR technology stack will lead to acquisition of advanced productive knowledge paving the way for attaining capability of producing more complex products, adding increasing value.
It's being observed that SDG attainment discussion in developing countries is being dominated by additional resource allocation. For example, it's being estimated that Bangladesh needs close to a trillion dollars by 2030 to meet SDGs. From where should Bangladesh get this fund? And most importantly, for what purpose will such a fund be utilised? As usual, should Bangladesh keep borrowing from international lenders to scale up existing ways? If Bangladesh labour starts losing competitive advantage, how will Bangladesh succeed to repay? Instead of asking for more money to scale up existing productive activities, the focus should be rather on value addition capacity enhancement out of ideas, by consuming and wasting less. In doing so, developing countries should go back to the basics of producing economic outputs.
Instead of relying on correlation between education, R&D, employment, and economic growth of other countries, the developing countries should investigate underlying causes, and figure out how they can replicate in their local context. The subsidy and expenditure driven development thinking should be replaced by value addition capacity-driven one. The strategy of the redesign of existing products and processes out of 4IR ideas through local R&D in improving both quality and cost advantage, while causing less harm to environment and leaving no one behind, has the potential to meet four mammoth development challenges simultaneously.
M Rokonuzzaman, Ph.D., is an academic and researcher at Technology, Innovation and Policy.