Industry 4.0 and inequality: What could possibly go wrong?

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DEMONSTRATORS taking part in the Occupy Wall Street have staged demonstrations protesting income inequality. — REUTERS

By Timothy Roy C. Medina, Multimedia Editor

THE ARGUMENT for adopting new technology often comes with many utopian promises like flying cars, nuclear power without consequences, social media that brings people together instead of tearing them apart, and so on. Here’s an update in 2019: Self-driving cars, the highest point in the technology’s evolution so far, keep crashing. Nuclear power plants sometimes blow up, while the fuel becomes a target for terrorists or is otherwise difficult to dispose of safely. And, needless to say, have you been reading about Brexit lately?

So it’s only prudent to question the consequences of adopting any new wave of technology, and the Fourth Industrial Revolution is no different. The greater adoption of artificial intelligence, automation and robotics as well as the substitution of algorithms for human judgment raises ethical questions that have troubled people since at least as far back as Isaac Asimov (1920-1992), whose First Law of Robotics states that robots must not harm humans. We don’t even need to imagine killer robots roaming the streets like Terminators — the potential harm anticipated from automated systems can be as mundane as being unable to reach a human operator on a help line, or a minor data privacy leak. Some of the worst-case scenarios may already be with us — unemployment, discriminatory algorithms rejecting credit or job applications, facial recognition false positives that tag innocent people as terrorists.

The question at hand is how new technology affects inequality. Specifically, whether the adoption of new technology creates a privileged few with access to the technology who can weather or even profit from the disruption while many others fall behind — via unemployment caused by mechanization, say. The First Industrial Revolution, which mechanized British factories in the 18th and 19th Centuries, also gave rise to the Luddites, a secret society of textile workers who tried to block the adoption of automated looms by destroying them. The word survives today to describe someone who is comically resistant to new technology, which tends to minimize the tragedy of being thrown out of work. Consider also the false legend behind the word sabotage, which allegedly originated with French manufacturing workers who threw their wooden shoes (or sabots) into factory machinery to destroy it. From language clues alone, we can glean how new ways of doing things can sometimes upend society, which is why some thought needs to be put into anticipating change, getting ahead of the curve, and mitigating the negative effects before they overwhelm society.

Other evidence from history suggests that the industrial revolutions of the past have done little to curb inequality, even in the places where the revolution has taken root most deeply. The First Industrial Revolution that mechanized manufacturing and linked the world by telegraph and steam power also created London, the global center of capitalism that funded factories and railways, but also colonialism. London stayed rich even after the industries went away, leaving large swathes of the industrial north of England hollowed out. The Second Industrial Revolution created mass production which enabled mass markets, the logical consequence of which was outsourcing to the most efficient producer, making coastal China the workshop of the world but leaving the Chinese hinterland underdeveloped and poor. The Third Industrial Revolution gave us the Bay Area, with its staggering concentrations of tech-industry wealth in San Francisco, alongside homelessness and unaffordable rents for the working class.


The GINI coefficient, a measure of income distribution developed by an Italian statistician named Corrado Gini, is a useful, though imperfect, way of capturing a snapshot of income inequality in any given country, in one convenient score. The basics are that a GINI score closer to zero indicates perfect equality while a score closer to 100 (or 1 in some scales) suggests perfect inequality.

By this measure, the Philippines was among the most unequal countries in Southeast Asia at the dawn of the Fourth Industrial Revolution, behind only Malaysia. The Philippine score of 40.1 in 2015, as calculated by the World Bank, gives us an inequality profile akin to Argentina (40.6 in 2017) or Kenya (40.8 in 2015). The Philippines is also just a touch less unequal than the United States, which at 41.5 in 2016 is the least equal major economy in the world. (For what it’s worth, the Philippines’ other former colonial master, Spain, came in at 36.2 in 2015, lagging many other European Union economies)

The caveat is that it’s difficult to imagine what a typical unequal country looks like because they range all over the map. It would surprise many that a relatively well-off country like Malaysia is actually more unequal than we are. The most unequal country on earth is South Africa (63.0 in 2014), which probably suggests that the rich resources of the country were captured by a privileged few. The flip side is that for some countries that look good on GINI, like Pakistan (33.5 in 2015), the real problem might actually be worse than inequality — almost everyone is poor in near-equal measure.

The problems with GINI are hinted at by the absence of a World Bank GINI score for well-off places like Singapore, who are the inequality index’s conscientious objectors. The government of Singapore officially declines to be included in GINI league tables because it argues that “the full range of Government policy interventions that are unique to the Singapore context” such as low taxes and targeted support for lower income classes make its society more equal than the score indicates. The suggestion that Singapore considers its inequality data to be a bit of a state secret, too embarrassing if it ever leaks out, means that for our purposes, we will need to find a GINI calculation compiled by an organization that is skilled at acquiring state secrets — the Central Intelligence Agency, for instance. The CIA World Factbook lists Singapore’s GINI score at 45.9, which would make it the most unequal society in Southeast Asia by some distance.

This raises the possibility that some very wealthy places can indeed be extremely unequal — Hong Kong’s CIA GINI score is a horrific 53.9, putting income inequality in a rich city that many Filipinos know very well at nearly African or worse than Latin American levels. For the record, the CIA pegs Hong Kong as the ninth-most unequal territory on the planet, behind seven African states, Haiti and the Federated States of Micronesia, and just ahead of Guatemala. By way of contrast, Hong Kong’s mother country, China, had a World Bank score of 38.6 in 2015.

The striking thing about inequality is that the Philippines’ GINI scores over time are relatively stable. The World Bank’s GINI series dates back to 1985, when the Philippines had a score of 41. In 1997 GINI spiked to 46, before settling back to the low 40s in the new century. There is even a hint of a downtrend in inequality since peaking in 1997 — during the Ramos administration, a time we don’t particularly associate with widespread inequality — and even the possibility the score will dip below 40 by the next tabulation.

Think of how much the world has changed since 1985. Very little seems to have impacted on the GINI score since then — not the change of government in 1986, not the acceleration of OFW deployments (which first breached the 1 million mark per year sometime in 2005 or 2006), not the spread of the internet at the start of the 21st century.

Many extravagant claims have been made for the internet since it first became available — that it will make the world “flat,” evening out the availability of information and negating the advantage of centers where information tends to concentrate. All over the world, it is thought by many reasonable and intelligent people that if only small businesses took advantage of the Internet to sell their goods, it will make the countryside more prosperous and spread the wealth out of places like Metro Manila because it won’t matter where your business is located.

One such center of thoughtful planning to mitigate the effects of an unequal world is the Oxford School of Government’s Pathways for Prosperity Commission on Technology and Inclusive Development, of which Melinda Gates is a commissioner. The commission, which estimates that 3 billion people worldwide will remain offline in 2023, has propagated the Big Idea that the main challenge is connecting the offline population depends much on the so-called “last mile” — the final link between a telecom backbone and people’s homes and offices. The commission has found that 80% of the global population lives near some sort of cellular tower, suggesting that the solution would be to build out the infrastructure and develop business models to promote connectivity to the “next 3 billion” while exploring ways to “make it profitable to serve the lowest-income consumers.”

“The fact that the digitally excluded are usually poor, rural, old, less educated or female, compounds the urgency of the situation,” the commission said in its 2018 Digital Lives report. “If unaddressed, digital inequalities will exacerbate existing socio-economic inequalities. Crucially, unlocking these benefits will not only require access to cellular network coverage and an affordable mobile phone, but also the take-up and effective usage of digital technology. And in turn, this will be driven by digital architectures: choices made by governments and businesses.”

The problems of connecting the offline are illustrated by the case of the Philippines, where access is unevenly distributed. The Social Weather Stations polling organization estimated in the first quarter that internet penetration among the adult population is about 46% nationwide, with the equivalent regional number ranging from 64% for Metro Manila to 34% for the Visayas. The nationwide urban-rural gap was 56% to 38%, respectively. Understandably, penetration is highest among younger people — 86% for 18-24 age group, as opposed to 14% for the 55-and-over bracket. Couple this with the astonishing statistic that Filipinos top the global rankings for hours spent on the internet (10 hours and 2 minutes a day in the year to January 2019, as estimated by Hootsuite) and a picture emerges that the internet in the Philippines is dominated by a minority, who moreover spend a disturbing amount of time on it and presumably reap disproportionate benefits from it and whatever new technologies pop up.

And it’s not just the internet either. Cellular technology is often cited as a “leapfrog” opportunity, a means by which a laggard country can surge ahead in connectivity by ditching legacy technology altogether and pushing phones out to every rural community. The particular subset of cellular phones that enable internet access — smartphones — has a take-up rate of about 44% for the Philippines, about half the take-up of leading countries. Think of all the indicators that are a good proxy for prosperity and doing business, such as the possession of a bank account. In 2018, the central bank estimated that the country’s banks had 57.1 million deposit accounts in 2017. Or take automated teller machines. The World Bank estimated that the Philippines had 19.31 ATMs per hundred thousand adults in 2009-2013, lagging Southeast Asia by a wide margin and suggesting that the country’s peers in this indicator are Angola and Paraguay.

If we assume wealth is a good predictor of how well a region will take to new technology, then the distribution of gross domestic product ought to forecast roughly how well the regions will adapt to the Fourth Industrial Revolution. According to Gross Regional Domestic Product data from 2018, the National Capital Region (NCR) was by far the Philippines’ most productive region, accounting for 37.5% of the national total. The next-richest region was Calabarzon with 14.8%. The poorest region, the Autonomous Region in Muslim Mindanao as it was then known, accounted for less than 1%.

Globally, another way to look at the problem is to list the things that the Philippines is good at, and try to imagine what sort of technology is coming up to render the Filipino competitive advantage obsolete. The Business Process Outsourcing (BPO) industry’s worries about the future are among the best-documented, largely because AI is being developed that can eliminate BPO jobs in the Philippines, which numbered just under 600,000 in 2016. Oxford Business Group reckons that the industry accounted for 6% of the economy in 2015. The industry itself estimated in 2015 that it generated revenue of $22 billion, closing in on overseas worker remittances ($25.8 billion) as the country’s main source of foreign exchange. Automated banking help lines are the least of its problems; hundreds of thousands of back office jobs hang in the balance while AI starts to be applied to skilled white-collar tasks like credit analysis, legal and accounting functions, and regulatory compliance.

There are legitimate reasons for AI to replace humans in such jobs — AIs are getting to be more accurate than human judgment in applications that are repetitive and rules based, the ideal conditions for robots and AI to thrive. Machines can definitely do things faster already. In medical diagnostics, for instance, an AI can evaluate a blood test in hours or even minutes, thereby eliminating the need to return to the clinic in a day or so for the results, particularly in countries like the Philippines where health care professionals are routinely attracted overseas by better pay, leaving their homeland with a worker shortage. With the Philippines about to implement a Universal Health Care Law, and key medical specializations growing scarce on the ground, the need to turn to AI for assistance is very real.

Worker shortages, or workers who become too well-paid and less cost-effective, are often the motive behind much new tech, which is part of the reason why Japan, with a rapidly aging population, is so invested in robotics. Japan, in fact, modified its immigration law this year to massively expand its worker recruitment from Southeast Asia, suggesting that automation can’t solve all problems.

Sometimes worker shortages aren’t the main drivers of tech decisions — efficiency is — and in competitive capitalist economies that has led companies to seek out advantage in low-wage countries, or to bring in immigrants from those countries. The downside is that when the tech becomes available to outweigh the cost advantage of low wages and the troublesome nature of operating overseas, the very same companies have shown a willingness to bring the jobs back to the rich world, a process known as “reshoring.”

One such technology — 3D printing — has been cited as a direct threat to manufacturing in poor countries. A consumer in the rich world who needs a certain product might simply print a copy, thus bypassing an entire global supply chain that pays the wages of millions of workers in poor countries. By doing so, the rich-world owner of a 3D printer trades off the cost of investing in such a printer for the convenience of owning objects made to his specifications, with no need to wait at the end of a long supply chain that stretches across the world. Home 3D printing also means every home will be its own factory. Which raises the question of whether many of the “reshored” manufacturing jobs will ever return to the rich world.

Whatever the reason for going native and automated, many of the things that Filipinos do well — nursing, the merchant marine, and so on — are also threatened by technologies that could potentially wipe out these jobs, including robot nurses and self-driving ships. When they invent harvesters that can pluck delicate fruit from trees without damaging them, that might be it for the mango industry as well. It’s no accident that TESDA, which has to configure its courses for what is sees as the future of work, said it is conducting a survey of the training needs of two industries, suggesting that it believes these industries, construction and BPOs, might be most subject to change.

Of the two, the need to innovate and retrain the work force in construction is clearly shortage-driven. In late 2017, the Department of Trade and Industry (DTI) estimated that the construction work force was short of about 2.5 million workers, which opened a lot of eyes because many people assumed you can pull anyone off the street and make him a construction worker. The CIA World Factbook estimates that the Philippines has the 15th largest labor force in the world of 42 million, so workers shouldn’t be in short supply. But construction work is harder than it looks — some trades, like masonry and handling heavy equipment, require specialist training — and what’s more, there is an entire construction industry in the Middle East siphoning off our best workers with offers of much better pay. The worker shortage underlies the entire controversy about Chinese construction workers in the Philippines, illustrating the potential for such disruption to upend society, particularly with a government so invested in infrastructure. Given a choice between expensive Chinese workers who had to be imported, housed and fed, and cheap Filipino workers who might be scarce on the ground, the Chinese contractors went with the added expense. Construction hasn’t even been as automated as it can be, so you can imagine the degree of displacement when the machines finally come for the jobs.

Meanwhile, the BPO industry is much more sensitive to political developments. A recent case was the election of US President Donald J. Trump, who scolded US companies at the outset of his term for hollowing out US heavy industry, much of which is located in electorally important Midwestern states, by manufacturing in China or elsewhere. The uncertainty about Trump’s policies (and over Philippine tax policies) kept US investment in the Philippines on hold for a time. The new US policy direction was also accompanied by immigration restrictions to ensure that US citizens captured most of the benefits of newly reshored jobs. Many other countries that traditionally relied on immigrant labor are also tightening the screws, including Saudi Arabia, which is pursuing the “Saudiization” of its work force as a hedge against some distant future when oil might no longer be driving the world economy’s engine, adding a political dimension to the future employment prospects of Filipino construction workers.

A research group at Oxford University estimates that 40% of European jobs are under threat from artificial intelligence, and 50% of US jobs, which provides a useful benchmark. If these highly automated economies still stand to lose that much work, what more for economies that depend on performing labor-intensive tasks? Ian Goldin, a professor of globalization and development studies at the university, has expressed fears that AI threatens economic growth in much of the developing world.

“I am becoming increasingly concerned,” he wrote in an analysis for the BBC, “that AI will, in fact, block the traditional growth path by replacing low-wage jobs with robots.” He cited the automotive industry, where half the work force has been replaced by robots.

It’s not hard to see why, because the most advanced countries are incentivized to innovate. The history of innovation tells us that inventors stand to get rich on patents, and in more recent years on taking an immature technology to market by organizing a company to harness with an IPO as the end goal. Companies, on the other hand, have an interest in doing things more efficiently, without necessarily realizing the consequences, and often become a new technology’s biggest champions. During the so-called Jasmine Revolution that swept the Arab world, platforms like Twitter or Facebook reaped the best possible PR from reports that the revolutionaries used social media to organize their protests, thereby allowing them to position their technology as a force for good and for spreading freedom across the world. Oppressive countries responded by learning how to use the new technology to their advantage — China by blocking and censoring, Russia by allegedly going on the offensive and interfering in other countries’ elections.

Often it is left to society, including governments, to pick up the pieces afterwards, long after the worst of the social impacts have become apparent. We are seeing the consequences play out right now in the US and the UK, open societies whose vulnerabilities online may or may not have been exploited by outside powers in recent years. It is actually a positive sign that some of the very same people who profited from previous generations of technology (such as the aforementioned Melinda Gates) are anticipating the consequences of new tech, and are acting accordingly.

As this article was going to press, news broke that Blackstone Group LP CEO Stephen A. Schwarzman, a billionaire, made a donation of 150 million pounds to Oxford University to bankroll a Humanities Center, a gift that was reckoned as the most generous cash bequest in the University’s near millennium of existence. Hidden in the fine print was that the Center, due to open in 2024, will also house an Institute for Ethics in AI.

This would be a minor footnote in the history of philanthropy, except for the fact that in 2018, Mr. Schwarzman also made a $350- million donation to help fund the Massachusetts Institute of Technology’s new college of computing. At the time of the donation, MIT President L. Rafael Reif said in a statement: “As computing reshapes our world, MIT intends to help make sure it does so for the good of all.” Forbes, reporting on the donation, reported that “In most universities, the study of artificial intelligence is centered in engineering and computer science departments. The new MIT school will seek to cultivate AI scholarship across disciplines, including the sciences and the humanities.”

“There is no more important opportunity or challenge facing our nation than to responsibly harness the power of artificial intelligence so that we remain competitive globally and achieve breakthroughs that will improve our entire society,” Mr. Schwarzman said in the statement.

So just to be clear, there is no doubt that a number of thoughtful and intelligent people are anticipating some sort of social upheaval from AI and other new technologies, and seem to have decided that, when possible, the technologies need to be applied humanely.