"4th Industrial Revolution": Expensive costs for poor countries that reject changes

VietNamNet Bridge - The fundamental change of the knowledge-based economy is leading to the risk that the rich countries can get richer by taking away resources from the poor countries without having to directly invade these nations. The poor countries can retain their oil wells and their coal mines, but the oil wells and coal mines are hollow.

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Recently, some people have talked about the so-called the "4th industrial revolution" and they said that this revolution will create tremendous benefits from new products and services with negligible costs to serve customers, to make human life easier and more productive. The "Revolution" is expected to be a big trend that will have an impact on economic and social development on a global scale, in every nation, in every region, including Vietnam.

It is very disturbing, even dangerous, if we do not have a clear understanding and vision about the nature of the so-called "revolution" because if you accept it without thorough understanding it will lead to mistakes in making policies, economic and social development strategies, which may affect the future and destiny of the country.

In 2011, the term "Industry 4.0" appeared for the first time in a high-tech strategy of the German government to promote computerization of production through connecting machines and intelligent control systems. Less than five years later, the concept of "Industry 4.0" was expanded and the 4th industrial revolution was chosen as the theme of the World Economic Forum held in January 2016 in Davos, Switzerland.

Many international organizations and scholars, notably Klaus Schwab, the founder and chairman of the World Economic Forum 2016, forecasted that "this revolution will fundamentally change the way people live, work, and have connections with each other" [1], so many countries have been considering and building new policies and strategies to be compatible with the 4th industrial revolution.

However, there is no clear definition of the so-called the 4th revolution apart from some ideas that it is based on a number of technologies such as the Internet of Things, Internet of service [2], artificial intelligence, cloud computing or 3D printing technology ... [3]

First of all, to say a phenomenon becomes a revolution, especially a revolution of global nature, one of the classical methods, the most reliable way is to study the political-economic nature of the phenomenon.

By definition, a revolution is the elimination of the old in order to replace with the new and the more progressive thing. It implies fundamental, radical and significant changes with widespread impact occurring in a relatively short time, and in particular, there is a fundamental change of productive forces and production relations, including the ownership of material for production and production tools as well as the division of labor.

Production forces

Human history has witnessed three revolutions: the agricultural revolution, the industrial revolution and the IT revolution, which created the agricultural economy, the industrial economy and the knowledge-based economy, respectively, making fundamental change in the way people work and produce. The 4th industrial revolution is said to be based on the development of many technologies, especially the Internet of Things, cloud computing and information technology (IT), artificial intelligence (AI), 3D printing technology, automation ..., so in terms of technology, it is IT. Therefore, we can say that the so-called 4th industrial revolution is the next stage of development of the IT revolution, not anything else.

Changes in production methods through IT like e-working, e-learning, e-business, e-government, machines replacing people, and virtualization ... have been discussed extensively in the academic article on the IT revolution, so we will not mention it in this article.

The biggest difference compared to other revolutions, if it occurs, is located in a change in the relations of production, especially possession, possession of production tools, production materials and the division of labor, although the change has taken place since the service revolution began in the 1960s, which developed particularly strongly in the late 20th century and early 21st century, in the so-called "knowledge-based economy".

Speaking broadly, the knowledge-based economy is an economy creating human capital, including knowledge-based goods and services, with intangible nature and high exchange value (for example electronics, computer software, training, consulting, loans ...) in exchange for other goods, including material goods, mainly natural capital. The exchanges are protected through national, multinational and international institutions via trade agreements, notably WTO trade agreements.

If in the industrial economy of the 19th century, the means of production belonged to employers, and workers did not hold materials for production and both subjects were in the same country, in the current knowledge-based economy, materials for production and production tools belong to rich countries, or multinational groups of rich countries, while employees and workers are in the poor countries.

Thus, in the knowledge-based economy of the 21st century, there is a change in the division of labor globally instead of the division of labor in the national territory and this leads to a divergence between rich countries and poor countries rather than the differentiation between the capitalist class and the proletariat of the 19th century and the class contradictions within a nation have gradually been replaced by conflicts between nations.

Some may say that this argument runs counter to the trend of globalization, with many new kinds of trade agreements. However, the phenomenon of nationalism and protectionism is gradually spreading in many countries such as China, Russia, the Brexit in the UK, Duterte in the Philippines or Trump in the US. These are testament to this trend. 

The poor in poor countries seek to counteract this trend by moving to rich countries to become citizens of rich countries. This has resulted in immigration movements that are taking place in Europe and this is a typical example of the new movement of nationalism and protectionism.

A new point in the knowledge-based economy is the change in the way of appropriating materials for production and natural resources. Many scholars believe that the knowledge-based economy is non-physical economy, under which knowledge of high-value is more important than material goods. Therefore the economic sectors based on high technology must occupy higher positions than the traditional sectors such as agriculture, mining. Economic development strategies have to give priority for the new technology sectors like the 4th industrial revolution.

The question is whether the people in rich countries need to eat, wear, and use material goods or not? I'm sure the answer is yes. However, how will they get this kind of goods? By means of exchange of knowledge goods or services to obtain material goods (what I call exchange of Mind for Mass).

Notably, the method of exchange is always unequal, discrimination between material goods and immaterial goods. The "double standards" in globalization are showed through a variety of WTO’s institutions such as the General Agreement on Trade in Services (GATS), the Agreement on Agriculture (AoA), and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) [5].

These double standards have been manifested more clearly in the neoliberal trade agreements such the Trans-Pacific Partnership (TPP). In these agreements, material goods subjected to the HS code for across-border control, quality control and other kinds of control while the knowledge goods and services such as IT services and e-commerce do not bear an HS code, so when they are exchanged cross-border, they are not under any control, no tax pressure, as well as no quality barriers.

Another important point in the knowledge-based economy is that material goods always have cheap value (although the price can be very high), even very cheap compared to non-physical goods. A typical example:  the value of Vietnam’s 2.6 tons of rice is equal to one iPhone 7+ cell phone. And how many tons of rice Vietnam should be sold to buy a Boeing 787 Dreamliner? The difference in price is completely contrary to the most basic rules of the traditional economy, the law of value and the law of supply and demand in economic theories, including the theory of Marx.

According to the law of value, the production and exchange of goods are based on necessary social labor consumption, while under the law on supply and demand, the price of goods depends on the adjustment of the market when it reaches a balance between supply and demand. Under these rules, high-value goods are goods with high demand or goods with scarce supply or have high social labor consumption and vice versa.

However, in reality, material goods are always in high demand. There are many commodities that are used just onetime by one user, thus they are becoming scarce, even permanently exhausted. Knowledge goods are not scarce at all. A software, a service, an intellectual product can be copied for the use of a lot of people multiple times. This shortage is artificially created through provisions on the protection of intellectual property.

Thus, in the knowledge-based economy, the institutions are contrary to the most basic economic laws of supply – demand and value, signaling a wrong signal about the abundance of material goods and the scarcity of non-material goods, while it supposes to be the opposite. Thus, the knowledge-based economy is benefiting the rich, who own production materials.

Concerning labor: manual labor is gradually replaced by special machines and robots. New technologies may be able to create new jobs, but might not create new jobs. The replacement of humans by machines, especially IT and automation, will become more intense, leading to worsening unemployment, especially low-skilled workers, if we don’t have timely and appropriate responses. Therefore, the training of human resources in terms of knowledge and new technologies as well as building an environment that supports innovation is vital to adapt to the technology revolution.

The fundamental change of the knowledge-based economy has led to the risk of resource depletion, threatening the survival of poor countries while the rich countries can keep resources for the future, which were sucked from poor countries like a spider that stretches its trunk to suck all the blood of its prey clean until death without directly invading these countries. Poor countries like Vietnam can retain their oil wells and coal mines, but they become hollow wells and mines.

Thus, the 4th industrial revolution is just one phase of the IT revolution, the knowledge-based economy. The knowledge-based economy is the development of the capitalist economic model with fundamental changes on value creation, resource possession and global division of labor. These fundamental changes will require Vietnam to soon have thorough, comprehensive and timely studies about this economy in order to have appropriate policies. 

Dr. Nguyen Thanh Tuyen and MA. Truong Huu Chung

"4th Industrial Revolution": Expensive costs for poor countries that reject changes, vietnam economy, business news, vn news, vietnamnet bridge, english news, Vietnam news, news Vietnam, vietnamnet news, vn news, Vietnam net news, Vietnam latest news,