Industry 4.0 and the Economy

Kompas/Didie SW

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Industry 4.0 transformation is a change of industry, both in increasing productivity and destructive power, in transforming the conventional industry.

Digital technology is becoming the main driving force behind economic development now and in the future. The economy and society in general cannot escape the revolution (rapid change) of digital technology that practically affects all aspects of our life.

The utilization of digital technology (conversion of various processes by digitization, with one and zero binary numbers) touches various aspects of our life in the way we communicate and to make production and distribution more effective and efficient.

The 4G (the fourth generation) telecommunications that we currently using will soon transform to 5G, the IoT (internet of things), where various communication media are integrated into one internet network and the use of robotics and AI (artificial intelligence) in industrial processes are becoming increasingly widespread. Moreover, if quantum computers (processes with one and zero binary numbers that take place simultaneously) are applied, then the industrial revolution will run even faster.

Indonesia, whose economy is still expanding with per capita income at the middle level, cannot avoid this digital revolution. Society’s utilization of 4G communications on their mobile phones is widespread. The industry has also begun to apply robotics and AI within a limited scope. This trend will continue to grow. The development of digitalization is a necessity.

Government policies

Since the 1998 economic crisis, Indonesia has had no clear industrial policy. Road maps stopped at description and were practically irrelevant to economic developments, particularly the development of the industry. The policies of liberalization and import restrictions were applied back and forth. Therefore, it is not surprising that the growth of the manufacturing sector, which accounts for 20 percent of the economy, is lower than economic growth.

Many parties jumped the gun when they declared that de-industrialization would not happen. The industrial policy became much clearer and the Industry 4.0 transformation was prepared and applied when Airlangga Hartarto became the industry minister. The manufacturing industrial sector is also now starting to show improvement.

Of course it is not easy to harmonize between encouraging the national industry growth and facilitating greater foreign investment. Nor is it easy to harmonize the development of digital technology use that is oriented to the domestic market, especially in the telecommunications sector, and the desire to increase exports to equalize trade and payment balances.

Harmonizing the national industry

As a great nation, of course, we want to expand our national industry. However, we must also be realistic about global economics and technological developments, despite efforts to block them by the leaders of major countries like the United States.

In reality, industry development is increasingly linked across state borders in production, in the pattern of global supply chain distribution and especially the development of e-commerce and product markets.

A country that succeeds in developing its national industry is one that can synergize those aspects to the greatest benefit of its people. Not only developing countries, like Indonesia, but also developed countries, like the US and Japan, are facing this problem and striving to overcome it.

The government is beginning to realize that the national industry must be developed, where we have the advantage, by utilizing foreign investment, global supply chains, the transfer of technology from outside and expanding employment opportunities especially for young workers. The leading industries are food and beverages, textile and garments, electronics and chemicals.

The growth of the food and beverage industry is impressive and is competitive in the domestic and export markets. Only several policies and regulations, such as taxation and imports of raw materials, still hinder their further development. The same case applies to the textile and garment industries.

The problems they face are commonly associated with tax incentives, which are only given to new investments. In reality, these industries are expanding their investments to improve technology, productivity and product innovation, which is important for maintaining competitiveness.

The electronics industry is being left behind as the investment trend moves to other ASEAN countries where they successfully improve technology and product innovation by adjusting to the global supply chain system. The rapidly rising minimum wage and lack of incentives make them move to other locations outside Indonesia.

The chemical industry is also being left behind by other ASEAN countries. In fact, Indonesia has the base and great potential for the development of the chemical industry.

With a more flexible and consistent understanding of global supply chain development, efforts to improve local content can be in line with industry developments. Software contribution can also be defined as local content. Thus, the participation of young workers from the millennial generation, who are very creative in following the development of software, can be accommodated.

Similarly by accommodating the global supply chain, large scale enterprises especially electronics and chemicals will stay in Indonesia, which has a large and integrated market -- at least regionally.

With regard to expanding employment opportunities, skills and knowledge become the most important elements. With a young workforce, the improvement of their skills and knowledge is very important.

The link-and-match program between education and industry will be revitalized by improving the quantity and quality through greater involvement of the industry, with vocational schools (SMK) and polytechnic becoming the main source. In every industrial estate, an SMK is developed and is equipped with a training pattern that is closely related to industrial development. Training is also conducted not only within, but also overseas in cooperation with other state institutions whose skills programs are well-developed. The synergy between the policies of the Industry Ministry and the Education and Culture Ministry is important.

In the development of knowledge, which is in line with Industry 4.0 transformation, the quality of education -- mainly science and technology -- becomes very important in high schools and universities. The government policy to cooperate with world renowned universities will be an effective tool. Research cooperation with the industry and international collaboration is important in developing innovations of high economic value. Here a synergy between the policies of the Industry Ministry and the Research, Technology and Higher Education Ministry is also important.

Sustainable legacy of Jokowi era

If the first period of President Joko "Jokowi" Widodo\'s administration emphasized the development of infrastructure, then the second period should have Industry 4.0 transformation as the main theme.

It will be a legacy for the next government in the post-Jokowi era. Industry transformation will determine whether Indonesia can realize its potential and prospects as a developed country in the future.

Industry 4.0 transformation can be realized due to the large economic scale (potential to be the world\'s top 10 and even five major economies), a young population (demographic bonus), greater access for many people to financial and market resources (e-finance and e-commerce), and governance with a clear and sustainable agenda and policies.

Umar Juoro, Senior Fellow, The Habibie Center