Blogs

Dismantling the Myths of Digital Technologies Blog Series

Ghassan Dibeh is contributing with a series of blogs aimed at initiating an informed discussion on the knowledge economy and the digital revolution. The blogs aim at deconstructing some of the generic narratives around these issues and to inform readers about various dimensions that need to be considered for Arab countries to benefit from the value-added and the competitive edge that digital technologies would create.

 

In an article on the Second Machine Age, the authors said "Many of the biggest ideas in technology over the past decade have centered on how people communicate, consume, transact and travel. Over the next decade, however, the most profound innovations—and investment opportunities—could be on factory floors, in operating rooms, at mining sites and energy facilities."[1] In effect, although we are still at the early stages of the Fourth Industrial Revolution, it is now entering a new phase where new technologies jump from consumption and entertainment to production and investment in productive and efficiency enhancing technologies. And this is the phase of the revolution that is most promising for advanced capitalist countries as well as for developing countries like Lebanon.

Smart phones and Apps may be superbly convenient and have transformed our daily lives, our commercial activities and how we interact with others, but they have not yet transformed the industrial landscape where the growth opportunities of the new technologies lie. Robert Gordon, a techno-pessimist, has argued that the new technologies, for all their pizzazz, have not had the same impact on productivity or life changing impacts as much as older technologies such as electricity, air travel, household appliances or even indoor plumbing in the 20th century.

In this respect, the new phase will not only allow such changes in productivity in countries that have already participated in the first phase of the revolution but will also allow countries that have missed out on it, to catch up and use it as a vehicle for economic development and competitiveness. The question then that begs an answer: Is Lebanon ready for the Fourth Industrial Revolution? And more specifically, can it reap the benefits of this "second phase"? Well, the answer is a complex one.

Services economy trap

For one, Lebanon has not only missed the first phase but it in effect has an economy that is skewed towards low-productivity sectors, does not generate enough jobs for the highly skilled university graduates, and scored quite low on competitiveness, ranking 10th amongst fourteen Arab countries in the WEF 2019 global competitiveness report.[2] Furthermore,  according to the World Bank MILES report in 2012,  35.4 % of wage employees and 61% of the self-employed work in low-productivity services sectors such as retail and wholesale trade compared to only 14.3% of wage employees and 3% of the self-employed working in high productivity services sectors such as information and communication, financial and insurance activities, and professional, scientific and technical activities; while only 11.3% and 8% respectively work in manufacturing.[3]

These figures do not bode well for a country that aspires to join the next phase of this industrial revolution. To add to this laggard status, Lebanon does not even qualify for what can be called "passive" joining of the industrial revolution (IR) that some less developed countries may have the opportunity to join through automation. In this respect, the World Bank (2016) estimates that the share of jobs that could be lost to automation could be higher in developing countries than in developed countries.[4] To that effect, a study by Schlogl and Sumner (2018) introduces a model of a dual economy divided into an automation-prone sector (APS) consisting of jobs that are susceptible to automation such as agriculture and an automation-resistant sector (ARS) such as services that require non-routine work and human interaction. In this model, the agricultural sector is the most susceptible to automation. Applying it to the Lebanese case, we see that Lebanon is dominated by ARS i.e., its economic structure does not allow for such passive adoption of automation.[5] If we take this fact, we can say that Lebanon is stuck in a services economy trap similar to the familiar "middle income trap".

A way out

Lebanon must then find a way out of this "trap" to benefit from the second phase of the IR. This also must happen, as the leading sector now, which is banking, will be a declining sector as big data and its informational content will substitute for the role of prices, and hence money, in market economies as argued by Viktor Mayer-Schönberger in his book Reinventing Capitalism in the Age of Big Data. Even though this is a far-fetched prediction and ignores the role of money as capital in capitalist economies, Lebanon, and as must be realized from recent events, must move away from its over-reliance on finance and banking.

As the new technologies are bound to production, we have to structurally change the economy towards increasing the share of the productive sectors mainly manufacturing. This will put Lebanon at the path of economic development and higher standards of living as manufacturing growth is tied with rising incomes in developing countries as argued today by many development economists such as Ha Joon Chang and Dani Rodrik. In this respect, Lebanon is latently ready for such a structural change as it has a large pool of educated labor force both internally and in the diaspora that can be utilized in building a technologically advanced industrial sector. Today the challenge then is to make technology catch up with education in Lebanon.

The specter of Preobrazhensky

In the 1920s a debate aptly called the "industrialization debates" erupted in the Soviet Union. The country was still dominated by agriculture and was backward industrially and the question was "how do we industrialize?" One economist who was party to the debate was Evgeny Preobrazhensky. His argument was simple but complex at the same time: the USSR can only industrialize by "exploiting" the agricultural sector for the benefit of the industrial one, i.e. resources must be transferred from one sector to another. This argument is still relevant today in developing countries. In Lebanon, an economy dominated by services and rentier economic activities, resources can be transferred to the technologically advanced sector through the tax system. The government hence needs to play a major role in the readiness of Lebanon for the 4th IR. The free market alone simply will not do it and a modern industrial policy is needed that gradually shifts the economy from a rentier one through taxation on rents and on wealth, especially financial wealth that is abundant in Lebanon, and then channeling it to the IR sectors.[1]

Lebanon, like most countries, understandably missed out on the first phase of the 4th industrial revolution as it was mainly centered in areas where winner- takes-all markets dominate such as Apps, communication, software and other purely digital forms. Now, with the new phase where such technologies will be paired with industry and material production, Lebanon has the chance to "upgrade" it's productive structures through such technologies. Lebanon is ready to do this "upgrade" as it has the know-how and a latent scientific-technological base. Given the immense challenges to that move, in terms of weakening the current dominant financial and rentier interests, what will be actually needed is no less than a new economic revolution to make Lebanon join the 4th industrial one.

[1] Morgan Stanley. 2019. The Second Machine Age Hits the Tipping Point. [ONLINE] Available at: https://www.morganstanley.com/ideas/fourth-industrial-revolution [Accessed December 2019].

[2] World Economic Forum. 2019. The Global Competitiveness Report. [ONLINE] Available at: http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf [Accessed December 2019].

[3] The World Bank. 2012. Republic of Lebanon Good Jobs Needed: The Role of Macro, Investment, Education, Labor and Social Protection Policies (“Miles”). [ONLINE] Available at: http://documents.worldbank.org/curated/en/230521468089355499/pdf/760080ESW0GRAY0C0Disclosed030200130.pdf [Accessed December 2019].

[4] The World Bank. 2016. World Development Report: Digital dividends. [ONLINE] Available at: https://www.worldbank.org/en/publication/wdr2016 [Accessed December 2019].

[5] Schlogl, L. and A. Sumner. July 2018. The Rise of the Robot Reserve Army: Automation and the Future of Economic Development, Work, Wages in Developing Countries. Center for Global Development. Working Paper487. [ONLINE] Available at: https://www.cgdev.org/sites/default/files/rise-robot-reserve-army-automation-and-future-economic-development.pdf [Accessed December 2019].