Getting to 4.0: Why the revolution is not digital

Recently, The Nation and other media organisations have challenged Thais to make a “digital revolution” in order to escape the middle-income trap where we have been caught for a “lost decade”. The government has gone so far as to create a digital ministry to organise and manage the revolution. The aim, everyone tells us, is to transform the economy into a “4.0 innovation economy”.

There is a big problem here.

True, the developed economies that we want to emulate – South Korea, Singapore, Taiwan – are digital economies today.

But they were rapidly developing economies long before the Internet existed and were innovation economies by the time someone coined the cute moniker “4.0 economy”.

The “revolution” is not digital.

Today 4.0 economies may be digital, but digital technologies only facilitate their functioning; they do not constitute them. You can build all the digital networks you want, buy all the digital technology your heart desires, Wi-Fi your whole world if you like, and it will not move you one step closer to becoming a globally competitive 4.0 economy. Forget digital, it’s just technology. Think global transformations – and national transformation.

Let me start with a story.

Fifty years ago three small Asian countries faced an uncertain future and a fourth looked like a certain winner: Still crippled by war, South Korea had been written off by American aid officials as too corrupt to develop; reeling from the loss of the Royal Navy and its Malaysian hinterland, Singapore was dead in the water; and in the long shadow of “Red China”, Taiwan looked to remain stunted. Then there was Thailand, favourite to be the champion of Asia – untouched by war, unthreatened from outside, undivided inside and on the gravy train of American largesse.

Today no one mentions Thailand in the same breath as South Korea, Singapore or Taiwan. They are now developed countries richer than most members of the EU. Thailand struggles to stand out among lesser developing countries such as Malaysia, Philippines and fast-rising Vietnam.

What happened?

South Korea, Singapore, Taiwan and Thailand all went through the same first three steps of economic development/global integration – what people now call 1.0, 2.0 and 3.0. Each transitioned from traditional exports (1.0) to labour-intensive light manufactures (2.0) and finally to more capital-intensive national heavy manufactures (3.0).

Each story is unique. But each shares a critical common denominator. National development policies depended on governments’ capacity to control exchange rates and tariff barriers. With these powerful policy levers they created the incentives that enticed private sector investment into first light and then heavy industry.

By the dawn of the 21st century, however, the International Monetary Fund and World Trade Organisation had banned these once essential development tools. Countries like Thailand that want to escape the middle-income trap must find new tools.

What will they be?

Let’s start by asking two questions: 1) what is the 4.0 global economy and what determines success in it? And 2) what did South Korea, Singapore and Taiwan do to make the leap to the 4.0 world that Thailand has not done?

What is 4.0 all about?

The 4.0 economy is entirely global; it is fully integrated by communications, supply, production, logistics and markets. In this, comparative advantage that traditionally defined the patterns and profitability of trade among countries has been virtually eclipsed by competitive advantage – the capacity of companies to build and defend a superior ability to produce value in a global marketplace. 

Where does value reside? Not in cheap labour (where countries sell the poverty of their citizens). Not in nationally based heavy manufacturing (where markets smaller than Asia, the EU or North America no longer provide sufficient demand to meet required economies of scale). Value resides in ideas, in innovation, which derive from people.

What characterises successful 4.0 economies is that innovators are to be found everywhere, at all levels of society. Successful 4.0 economies are characterised by an innovation culture, the opposite of the hierarchical cultures of traditional, light manufacturing and national heavy manufacturing (1.0, 2.0 and 3.0) economies.

This brings us to my second question: what did South Korea, Singapore and Taiwan do to succeed in the 4.0 global economy that Thailand has failed to do? Why are South Korea, Singapore and Taiwan today innovators and producers of cutting-edge technologies, while Thailand remains a peddler of sea and sand, a staple-food-crop exporter and a low-cost manufacturer of other people’s technology?

All three countries recognised that to advance they had to meet or beat global standards. They subsidised exporters generously – but also demanded that the exporters succeed. Failure to succeed carried dire consequences even for the best connected. All three set and enforced global-outcome standards from the outset. They designed political control systems to ensure that self-enrichment did not trump the national requirement for competitive success.

All three also recognised that they could not advance globally as producers of commodity products. Although they started this way – T-shirts, sneakers and basic steel – they understood that to improve their global standing required pushing higher up the value-added product “food chain”. To do this, they had to create their own value added products, products that embodies value created at home, local intellectual property.

As they did this South Korea, Singapore and Taiwan discovered that the only way to advance was through national education systems able to provide the human capital. 

What characterised their educational policies? Universal access to high-quality education at every level and strictly enforced meritocracy that stressed outcomes. Critical to national educational success was the political will to ensure equal access geographically and meritocratic promotions to ensure that the self-interest of the rich, the powerful and the government bureaucrats did not overshadow the interests of the nation. Strong government support for international education and foreign language education helped prepare all three small countries for success in a global marketplace where English is the lingua franca, as did the clear understanding that education should serve national development.

What about Thailand?

Anyone who follows Thai education will recognise that our education system – passive, disengaged and aimless – is the perfect opposite of those that powered these three countries into the small club of developed countries. 

This is why we love technology. “4.0 is digital!” means that we can buy a quick fix. A million computers? Ten thousand kilometres of cable? No problem. In five years, who will stop to ask: “How exactly did those billions of baht advance our development?” Does anyone remember all the P1 notebooks or ask how far they advanced education?

Yet such schemes are much more satisfying than facing up to the 50 years of high and enforced expectations, to say nothing of investment, that South Korea, Singapore and Taiwan put into schools and universities to produce graduates capable of world-quality innovation.

According to Unesco, two-thirds of Thai high school students are not capable of the basic maths necessary to function in daily life!

In universities? Among the top 100 research universities in Asia, South Korea, Singapore and Taiwan boast 26, including four of the top 10. (Singapore National University ranks 26th in the world; Thailand does not have a university ranked in the top 500.)

We are stuck in the ranks of the middle-income not because we are not digital enough; we are stuck here because development does not rank high among our real priorities. Until we decide to put the nation first, to make development the real priority, we will keep ourselves right where we are, digital or not.

 

Michael Shafer is director of the Warm Heart Foundation based in A Phrao, Chiang Mai.