The indystry 4.0 and a new version of the economics
TRƯỜNG ĐẠI HỌC HẢI PHÒNG
THE INDYSTRY 4.0 AND A NEW VERSION OF THE ECONOMICS
Assoc. Prof. Dr. Nguyen Thuong Lang
National Economics University
ABSTRACT
Since 2010, the 4th Industrial Revolution called the Industry 4.0 (I4.0) has been making some
great changes in all spheres of the society by taking advantage of the digital-based technological
progress. Its basic pillars consist of big data, cloud computing and internet of things that convert
the visible physical resources towards the invisible digital ones. The former is endowed by natural
force like land and other natural resources and the later are made by people with unlimited source
of creativity. In fact, the scarcity of physical resources is more commonly mentioned than that of
digital source, hence, that the contemporary economics deals with the scare resources1 becomes
inappropriate. Such this point of departure, despite its being ambiguous to some extent, is revealing
a new version of economics on the basis of non-scarcity of digital resources. In other words, the I4.0
does not end the mission of the economics but gives it a new version.
Key words: Industry 4.0, new version, economics
1.INTRODUCTION
The economics, in the most popular meaning, includes a set of principles, definitions,
concept and laws that base on the scarcity of the resources and the trade-off among the choices in
the economy as a whole to make their best choice. That means the scarcity is the basic assumption
for the science of economics to be developed. In parallel with it, three questions in the economics
appear naturally. When the scarcity became not scared, the rational choice for the three economic
questions might be unreasonable; then, the new approach to the economics being arisen to substitute
the old one would be taken into consideration. Possibly speaking, one of the strongest factors having
impact on the scarcity and the trade-off among choices is the Industry 4.0 officially initiated by
Germany Government in 2010.
The researches on I4.0 range in a wide spectrum. BCG (2015) points out nine technologies that
transform industrial production including the autonomous robots, simulation, horizontal and vertical
system integration, the industrial internet of things, cyber security, the cloud computing, additive
manufacturing, augmented reality and big data and analytics and as a result, change the future of
manufacturing industries. UNIDO (2016) analyses the opportunities and challenges for developing
countries and economies in transition like improving the wealth and living standard, educating the people
and facing with cyber security. WEF (2015) finds I4.0 will change the basis of competition, redraw
industrial boundaries and create a new wave of disruptive companies. In accordance with the economics,
such this research says about the emergence of the outcome economy fueled by software-driven services
and innovation in hardware. PwC (2016) involves I4.0 from the perspective of building the new series of
digital enterprise as a new quantum for the change of the economy as a whole. IAB (2015) tries to make
clear effect of I4.0 on the structure of the economy in line with increasing the service sector, then it can
make change in labor market in terms of the occupational and qualification structure. The research
distinguishes between I4.0 and Economy 4.0 (E4.0) in which I4.0 moves from analog towards digital and
E4.0 creates all new spheres of the society. Reiner S., Michael M., Ralf-Christian H., Christopher R.,
Pascal N., and Philip J., (2015) proves that potential use of I4.0 has been influenced by different factors
including production time improvement, business process complexity, level of automation, mass
customization, idle data and the technology use. The research result is significant to all of the stakeholders
specifically for managers to innovate their business.
1 The three questions of the economics are that what are produced, and how and for whom they are produced (Mankiw,
1997).
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TRƯỜNG ĐẠI HỌC HẢI PHÒNG
Obviously, at present, there was a lack of researches on the impacts of I4.0 on the economics
while there have had a lot of ones on the economy as a whole in terms of artificial brain with
unlimited memory capacity, atomization and simulation. To the question how to produce the
products is answered by I4.0 in an effective way. As a result, the quantity of products at any scale
can be met. Clearly, under I4.0 the economics has been moved towards a new situation in which the
basic problems are solved in new direction, and to a greater extent, there is no existing economic
problems or questions.
2. THE RESEARCH METHOD AND DATA
The purpose of the paper is to find a new version of the economics from perspective of I4.0
by using the analytical and synthetized method. I4.0 perhaps, would make chaos in all of the spheres
of the society including the economics. The sequence of the research method is illustrated in the
FIGURE 1. The database used in the paper would be taken from researches of experts or
downloaded from internet.
Departing
precondition:
scarcity and
trade-off
Reviewing
contemporary
basic economic
questions
Analyzing the
foundations of the
economics under
I4.0
Identifying a
new version
of the
Suggesting the
possible
responses to the
new version
economics
(Source: Author)
FIGURE 1: The sequence of research method
Departing from preconditions for establishing the economics including the scarcity of the
resources and trade-off between the selections of the agents like government, household, enterprises
and individuals to maximize their benefit is clear and inevitable. Such these preconditions are
supplementary to each other. The scarcity requires the trade-off or provides the opportunity to make
the best choice for all of the related agents and the trade-off, in turn, leads to another choice of the
scarcity to economize the cost of resources. The interaction between scarcity and trade-off lays the
internal momentum for developing the economics for some centuries and if there would have the
change in the momentum the economics would jump into a new version as an automated process.
Reviewing the contemporary basic economic questions or the research ones would be undertaken
by evaluating the nature and the interaction among them from the point of view in economics. This step
also points out the necessity of a deep understanding about underlying thought in economics as a unified
system. Its advantages and disadvantages of the contemporary basic economic questions would be clearly
analyzed.
Analyzing the foundations of the economics under I4.0 is done by investigating the new
preconditions of economics greatly differed from that of the contemporary one. I4.0 focuses on digital
platform for developing new structure of the physical world in which the scarcity and trade-off would be
substituted by new dimensions. This is the base for identifying a new version of the economics. When
having determined the new version of economics, the new responses or new missions of the agents to the
new version of economics would be suggested.
3. THE RESEARCH RESULTS
3.1. The nature of I4.0 constructs a new departing point of the perception on the resources
From perspective of the visible ones, the resources for economics are limited but in digital one, the
resources seemed to be unlimited simply because the former is provided by the nature and the latter by
people of unlimited creativity. The digital resource becomes a new and decisive one for economic
development. The nature of I4.0 is the industry of digitalization then it brings to the world of perception of
people a new definition “not scarcity” of digitalized resources. The economy operating in the base of the
digitalized resource never faces with the “scarcity” situation but the abundance of the resources. The big
data, cloud computing and internet of things are the main forces of I4.0 and they supply the instruments for
the new processes and product like simulation, artificial intelligence and system integration. The derived
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TRƯỜNG ĐẠI HỌC HẢI PHÒNG
products are 3D printing, autonomous machine and system, and humane -machine integration (Alistair,
2016). From such the abundance of the resources, that the new departing point of the perception will be
established needs a new regard to all of the agents.
3.2. Partial “out of date” being of the preconditions of the contemporary economics
Differed from Mark2‟s point of view about the preconditions of goods producing including
the social division of labor and separate ownership of the goods producers, the contemporary
economics departs from the precondition of the scarcity of the resources. The biggest advantage of
the latter leads to the research questions as mentioned above as the methodology to respond to the
“scarcity” situation in all spheres of the society. According to this line of the economic thought, the
knowledge on the deep economics has been developed. The scarcity is gradually converting to “not
scarcity” although the scarcity does exist like that of land, coal, petroleum and other natural
resources due to the overexploitation of the human activities. However, the digital resource has been
appeared in the huge amount under the I4.0 in the form of big data, cloud computing and internet of
things that provides the definition “abundance” of resource. Obviously, all of the spheres of the
society are influenced by the digital resources. In other words, the precondition of the contemporary
economics has been being substituted by I4.0.
3.3. The economics at a new turning point of its departure
The economics has been standing in a new turning point of its departure. On the one hand, it
tries to keep the existing shape of the curve of production possibility frontier (PPF) to adapt to the
scarcity; on the other hand, it converses the shape of PPF to response to new precondition - the
abundance of the digital resources (FIGURE 2). In order to provide a general insight into basic and
fundamental trade-off between the “classical” goods - gun and butter that reflects the latent
definition “opportunity cost”. That means, if the amount of guns increased, that of butter would be
decreased simply because of the scarcity of the resources. The big data, cloud computing and
internet of things would make great change of the scale of the resources. That means, both amounts
of guns and butter can be increased as the same time under the base of I4.0.
PPF under contemporary economics
Gun
PPF under I4.0
Gun
Limited
Unlimited
Butter
Butter
(Source: Author)
FIGURE 2: The shape of PPF under contemporary and I4.0 economics
The three questions of contemporary economics are (1) what kinds of product are produced? (2),
How the products are produced, and (3), for whom the products are produced? Such these questions are
suitable with the scarcity or with the economized framework to avoid the economic waste. Followed these
questions, the range of branches of the economics developed includes macroeconomics, microeconomics,
2 Mark C., (1848) said about the goods producing from the political- economic point of view in the Communist Party
Manifesto.
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TRƯỜNG ĐẠI HỌC HẢI PHÒNG
economics of development and international economics, etc. However, under the framework of abundance,
the questions are changed basically and they can be understood as the derived questions. The questions
arisen here are how to get the biggest scale of the production all over the world? How the digital
instruments can be used to produce them in an effective way? And how the price of the products is
determined to respond to “zero-arbitrage” situation in price speculation by the light speed of the
information transmission?
3.4. New version of the economics
The new version of the economics has been, clearly, established from three components including
“not scarcity” or abundance of resources, the unlimited PPF and three new economic questions. Such these
components have interrelations to each other and provide the new platform for the economics develop
towards new direction. The branches of the economics in the age of digitalization are changed in
diversified way. (FIGURE 3)
Not scarcity or abundance of
resources
New three
questions
Unlimited PPF
Digitalized PPF
Digitalized
How to get the
biggest scale?
How to apply
digital tools?
How to set
price?
resources
(Source: Author)
FIGURE 3: New version of the economics
3.5. The responses prepared by the agents to the new version of the economics
According to the economics, the agents include scientist, government, enterprise, household
and individual. In the new version of economics, they must take their actions to effectively respond
to the fast changes of the situation. Each agent has their missions related to the new version of the
economics under I4.0. The economics is a kind of perception on the activities of the economy,
therefore, it must be developed ahead to make the pioneering guidelines for the societal perception
on doing all of the activities of the economy.
For the scientist especially the economist, it is necessary to conduct the research projects to
provide the deep and synthetized analysis on impact of I4.0 on the economics to provide the
scientific and practical base for reforming the content of the economics in all of its branches
especially the new theories, doctrines and models. The economist should build the forecasting vision
on I4.0 that base on the research results on long-term trends of interdisciplinary development. The
international scientific conference, forum, symposium and workshop should be organized to assist
the scientists in exchanging their ideas and initiatives on I4.0. Simultaneously, the research results
on I4.0 should be published to supply the updated information for all of the stakeholders. In addition
to the section on I4.0 of the national level of each country, the international section responsible for
I4.0 should be built at least in the United Nations Educational, Scientific and Cultural Organization
(UNESCO) to supervise the progress of I4.0 to announce to all stakeholders or any interested
people. The higher educational institutions in charge of economics should invest more in making
change on the contents of the economics in connection with the progress of I4.0 to avoid the “left
behind” situation in comparison with the trend of development of the economics.
For the government, the effort to mobilize all of the resources to get the PPF may be changed
to that to take advantage of the abundance of unlimited digitalized resources. The “think tank” and
group of elites should be built to do consulting services for the policymakers in term of I4.0. The
policy framework on all levels of authority should be wider enough to cover all fields arisen from
I4.0 and the nature of unlimited PPF. The new models of policy should be built to take effective
usage of I4.0. At the same time, the human resource working in the government agencies should be
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TRƯỜNG ĐẠI HỌC HẢI PHÒNG
equipped by the advanced knowledge on I4.0 to complete their responsibilities in new version of the
economics.
For the enterprise, to take advantage of new version of the economics, it needs to make the
forecasting activities about future of the market and economy that may be the best way to
proactively implement the appropriate solutions to overcome the difficulties and to exploit the
opportunities originated from I4.0. The Board of Management should approach the progress of I4.0
by developing a new vision to reform the governance and to restructure the range of the products
and services in the lean direction to catch up with the trends of the domestic and global market.
Besides, the competition should be changed from the stability-based approach towards continuous
innovation-based one, hence, its vision on the future would be basically changed. The qualified and
skilled human resources are the main factor to be much attracted to serve the purpose of the
enterprise. The basic economic questions of a new version of the economics may be the strategic
objectives of the enterprise.
For the household, it is the smallest unit of final spending the products of I4.0 and the
supplier of the humane resource for market and economy as a whole that should pay much attention
to improvement of quality of life for all members in terms of education, health and spiritual life
development. The size of the family and the responsibilities of each member might be adjusted in
line with the promotion of their autonomy and creativity in rapid economic circulation and
accelerated technological progress. Moreover, the household is also the entity to make order for the
market in terms of goods and services for the enterprises or it is the demand stimulator for the
economy as a whole. The household should be the center of interests from all of other agents of the
economy.
For the individual, it is the agent and the engine of the creativity considering as the heart of
I4.0. The individual and to a greater extent, the individualism needs to be encouraged to
continuously launch new progresses in line with the trend of technological development. The key to
develop the individual is to provide him/her best working conditions to promote their talents in
parallel with feeding their passions in the innovation in the leading fields of the technology. The
national policy especially the education one should pay more attention to individual capacity
building.
CONCLUSION
I4.0 is making great change in all spheres of the society by setting a new platform for
development of the mankind based on the digital perspective. The limited knowledge has been being
converted into unlimited and the capacity of mankind becomes indefinite. The changes of I 4.0 is
opening new version and perspective for all entities and perception in the world including the
economics.
Under I4.0, a departure of a new version of the economics will be established from a new
definition such as the “not scarcity” and three new economic questions that much focus on the
digitalization of the economic activities, and the converse shape of PPF. Based on the basic change
of preconditions of the economics, the economic theories, doctrines, models and the approaches to
economics have a lot of opportunities to be developed. The new missions of the economics have
been revealed.
In order to respond to a new version of economics, all agents must redesign their visions and
missions. For the scientists, they must concentrate all of their efforts on building scientific and
practical base for further development of the economics by launching the new economic theories,
doctrines, models and approaches to digitalized economic activities. Other agents like government,
enterprise, household and individual must take their actions in the best way to maximize their
interests suitable with the new vision of the economics.
References
1. Alistair Nolan (2016), Senior Economist, Directorate for Science, Technology and
Innovation, OECD Enabling the Next Production Revolution: Implications for Policy, Presentation in the
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TRƯỜNG ĐẠI HỌC HẢI PHÒNG
International Conference on Vietnamese study organized by Hanoi National University of Vietnam on the
16th December 2016.
2. Mankiw. G., (1997), Economics, McGraw Hill Company
3. Mark C., (1848), The Communist Party‟s Manifesto.
4. The Boston Consulting Group (BCG) (2015), Industry 4.0: The future of productivity and
growth in manufacturing industries, Retrieved on the 5th September 2017, from:
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the consequences for labor market and economy, Retrieved on the 5th September 2017, from:
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2017, from: <
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(2015), Industry 4.0 – Potential for Creating Smart Products: Empirical Research Result,
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