Episode 4 – Localizing the Impacts of the 4th Industrial Revolution
Rick Weddle: Welcome to Site Selection Matters where we take a close look at the art and science of site selection decision-making. I’m your host, Rick Weddle, the executive director of the Site Selectors Guild. In each episode, we introduce you to leaders in the world of corporate site selection and economic development. We speak with members of the Site Selectors Guild, our economic development partners, and our corporate decision makers to provide you with deep insight into the best and next practices in our profession.
And in this episode, we have as our guest, Gregg Wassmansdorf, senior managing director for global strategy with Newmark and a member of the Guild’s 2019 board of directors. Gregg is a corporate real estate specialist, a lead accredited professional in sustainability, a cross-border FDI business expert, and a leader in Newmark Knight Frank’s Global Strategy Division, which provides a wide array of real estate consulting services and a substantial platform for providing fully integrated location strategy, site selection, and cities and real estate solutions. Today, Gregg will talk with us about the fourth industrial revolution and the impacts that will have both globally and locally. Join me as we welcome Gregg Wassmansdorf to Site Selection Matters. Gregg, we hear a lot about the Fourth Industrial Revolution these days, or as it’s been termed Industry 4.0. What exactly is Industry 4.0, what does it mean to you or to me or to anyone?
Gregg Wassmansdorf: That’s a great question. It’s a foundational question because in school, I think most of us learn about the Industrial Revolution and we’re talking about the 1800s. And a more refined and updated version of that story is that we’ve actually gone through multiple Industrial Revolutions over the last 150 or 200 years. So, what we typically call the Industrial Revolution was call it Industry 1.0 where industry first began to mechanize with steam power and the weaving looms and what we begin to think of as the mechanization of production. But going forward in time, there was really Industry 2.0, which we now often call the, the mass production era and with the evolution of the assembly line and electrical energy and a more modern production world. But after that, there’s also what we now call Industry 3.0, which is where we get now mainframe and then later desktop computing and automation and electronics. And so now we’re really into the 1970s and now fast forward another 40 years. So today what we call Industry 4.0, the Fourth Industrial Revolution, where we’re in the midst of it, and sometimes it’s easy to detect that Industry 4.0 or the Fourth Industrial Revolution is happening around us and sometimes it’s not so easy to detect, but we’re seeing now the evolution of automation, the rise of big data, data being collected from sensors [SP] that are being deployed around the world, the Internet of Things, wireless technology through cloud and mobile computing, and increasingly now machine learning and artificial intelligence or AI technologies that we sometimes experience through cyber-physical systems or human machine interface, where we interface with a computer and the computer is anticipating or even predicting what it is that we want or need. So, it it’s this latest iteration of the evolution of our economy and the technologies that we’re deploying that are called Industry 4.0. And no less than the World Economic Forum says that the technological revolution that we’re seeing right now is and will be at a scale scope complexity and with a transformation that will be unlike anything humankind has ever experienced before. So, they’re not shy about how they feel about the evolution that’s happening right now.
Rick: Boy that’s if it’s unlike anything we’ve ever seen or be held before, I think that’s a big bite to kind of unpack in that. Let me ask a couple follow-up questions. One, it seems that in each of these revolutions that there was a whole new set of terms and terminology that probably seemed as foreign to the next…to the previous one as it did to the new ones, because listening to you go through cyber and Big Data and AI, lots of new terms that really, we didn’t deal with in the mass production or the mainframe or the steam engine days.
Gregg: Right. Right. Yeah. So, a new vocabulary is part of it, for sure. And, but yeah, we’ve gotta be careful that we’re not talking about the same thing, but just under a new name. And really, if you think about economic theory and Joseph Schumpeter was an Austrian economist whose idea, but frankly he builds upon Karl Marx’s, ideas but in the 1940s and ’50s, but Schumpeter’s idea of creative destruction in the economy was a label that he coined that, you know, expresses this idea that the economy goes through long waves or through long cycles. And as we exit one cycle and begin another there’s disruption and there’s change and what he called creative destruction, and that is the evolution and development of new technologies, new methodologies, new eras of competition and different geographies, all of these things would to some degree in their creation destroy the thing that came before.
So that overall theoretical idea is not new, but the technical application I think of what we’re seeing is very new. We see it in the industrial setting, right, with robots and production automation, driverless trucks now coming, automated storage and picking. But and I think people can imagine production being automated. And when we think Industry 4.0, we think, oh, we’re talking about stuff getting made, but it’s also in the office setting where, you know, human resource groups are using machine learning to, in a sense, read resumes and choose who would be good candidates. Legal firms and legal departments are using artificial intelligence to read through case law and help build the documentation for a legal case. Insurance companies in fact, have been quicker to adopt a new C-suite title called Chief Digital Officer who’s responsible for, among other things, artificial intelligence and predictive analytics in the insurance industry. So, we see it in industrial settings, we see it in the office setting, healthcare, for sure, adopting artificial intelligence and new technologies. And in retail, it’s not just cashierless stores where you can scan an item and walk out the door, but where stores and online retailers are looking at your social credit score, your social and mobility behavior and your online behavior to in fact predict what you will buy, predict what you will need and build loyalty programs in the background that you don’t even know about and present to you products and pricing that’s built to your own individual tastes and interests. So, in all aspects of our lives, we’re starting to get touched by these new technological innovations.
Rick: It is really something to behold. I had lunch yesterday at a restaurant and I paid with a credit card and the waitress brought her machine over and right at the table and took my card right there and didn’t go away and take the…at least I don’t ever lose my credit card again because it never leaves the table. They did the transaction fulfillment right there. So, everything seems to be different. Let me ask you this. In recent…
Gregg: Rick, I’m sorry, didn’t you pay with your watch?
Rick: I didn’t. I didn’t. That’s next on my agenda, but I should have probably in that.
Gregg: That’ll be the wave.
Rick: Or just by a blink of an eye, maybe in that part of…Hey, you wrote about this in a recent article in fDi Intelligence and you say geography matters. And I think we always thought it did, but I think this is maybe different. Can you unpack that statement a bit? Tell me what you mean exactly. What does that mean for our country, our regions or cities, maybe even you and me, how geography matters in this new, new thing?
Gregg: Yeah. And I say geography matters not only because I was educated as a geographer, but this idea that geography is dead is something that has come up and been around for awhile. Go back to 2005, a lot of people read a book by Thomas Friedman called ”The World Is Flat.” And one of the arguments he was making in that book was that geography has become less relevant in particular with the rise of the internet. All these internet and global connective technologies, he calls them world flatteners, meaning you can…what he said was you can innovate with no need to immigrate, meaning really from anywhere on the planet now, the technology and the internet, you could build a business, sell product, provide services, and you didn’t have to be just in a few major cities or a few leading countries. You could do it literally from anywhere. And therefore, geography is less relevant. And I accept that to a point. But interestingly, in the same year, 2005, Richard Florida, who was not the, you know, uber megastar academic and policy guy that he is today, but he wrote an article that said, no, the world’s not flat. The world is actually very spiky. And he published that lengthy article in “The Atlantic.” And he said, no, I see what you’re saying about technology being a bit of an equalizer and a flattener, but globalization in fact is more uneven and unequal than ever. And in fact, those differences will probably be exacerbated as we go forward because culture, education, innovation and wealth and competitiveness are actually very localized issues and characteristics of place. And being a geographer and being site selector, you know, this is our tradecraft, right, is the geography of competitiveness. And we see this around the country and around the world where countries continue to compete with one another with tax policy, with labor and immigration policy, with regulatory and the funding of institutions and places of innovation. We see that at the country level, we see it at the city, at the urban level, and the research that’s being done now shows that the likelihood or the ability of countries and cities to be innovators with technology is going to become a greater and greater point of differentiation and competitive advantage in that in fact, with respect to artificial intelligence, just to take that slice of it, of Industry 4.0, leading AI countries could capture 20% to 25% more benefit in economic growth and wealth capture than laggard countries who are not able to adapt and adopt those technologies. And the gap between those places who are leaders versus laggards will continue to grow. So, I’m still very much the proponent that geography matters. And when it comes to Industry 4.0 and artificial intelligence, we do see countries like the United States, but also China and Korea and Canada being world leaders now in developing cluster strategies around artificial intelligence and Industry 4.0 technologies. And they’re doing that to be strategic and to try to capture competitive advantage.
Rick: So, it seems like there’s gonna be clearly winners and losers, maybe fewer winners but the winning is big and maybe more losers and the losing is big. I don’t know, it seems that way. But let me ask you this, in your view, does this mean more or less opportunity for us to compete for these new Industry 4.0 jobs and investments?
Gregg: That’s such a tough question, isn’t it? The idea that there are winners and losers, that certainly will not go away. It’ll be exacerbated, I think. I tend to be the optimistic person in this debate. I see that there will be, through disruption, more opportunity, but I’d also say the opportunity is highly, highly contingent. It’s contingent on how individuals and groups be the unions or trade groups or companies and countries, how they choose to adapt to the change that is coming, that we’re seeing today, and also whether investments are going to be made in people, in people’s education, in their training and retraining, in how people adjust as dislocation occurs with jobs, because for sure it will, and how we support people who are displaced through the change.
So, here’s just a couple of examples of what we’re seeing. Capgemini studied or surveyed 1,000 organizations that have deployed AI technologies into AI-based systems, and they found that 4 out of 5 have actually created more jobs than they dislocated. So, and 2/3 of the respondents in that survey said there’s been no overall reduction in jobs through the deployment of AI. Okay. So that sounds positive. On the other hand, the OECD in their study show that, and this is recent just in the last couple of years, they say that 9% of jobs are highly at risk of automation. And here’s one of the most important points. Sometimes it’s not that an entire job goes away, but it’s that some of the tasks associated with a job disappears. And in fact, the OECD study says that up to 70% of tasks in jobs that are at risk could be automated. If you think of that as an individual, and you say, well, I’m good at my job, but now my job keeps changing and I can’t keep up with the change. And I’m struggling to sort of learn these new technologies. And I’m sort of considered an old cat in my firm, and I’m not being shown the way to adapt. And over time, 30% of your job basically disappears or half, or as the OECD says, 70% of your job is now something that you don’t even understand. You’re now in a very precarious position as an individual. So, if you then multiply that, you know, McKinsey has estimated that upwards of 70 or 80 million people may need retraining midstream in their career and countries have not been really built to create that scale of training and retraining opportunities within their labor pool, within their job force. So that’s something that we’re gonna struggle with, I think, and… Yeah, go ahead.
Rick: I was just gonna say, I couldn’t agree with you more. You know, I’ve always talked to a lot of people in economic development who maybe had been displaced through whatever set of reasons, and oftentimes they will tell you, I don’t want another job. I want my job back. And it sounds like what you’re saying is it’s not gonna come back as it was. You’re gonna have to move forward with new skillsets or new capabilities to be able to compete in this world.
Gregg: So yes, 100%. And the Bureau of Labor Statistics in the U.S. has found in recent years, that as it compiles its list of job functions in the marketplace year by year, about 1% to 1.5% of occupations that they identify and measure each year are jobs that did not exist the year before. That’s 1% to 1.5%. And you think, well, that’s such a tiny fraction. What’s the big deal? Well, you take a kid who’s entering high school and he, or she now has four years of high school and maybe four years of university, right? Eight years from now, they’re coming out into the job force or they decide to then do a master’s degree, 10 years goes by, and now 10% to 15% of the jobs that are available didn’t even exist or have a name when they entered high school. So, at the high school and university and college level, are we training… We’d always talk about this. Are we training people for the jobs of tomorrow? That’s hard when you don’t even know what they are or what they’re called. So that’s part of this ongoing challenge of adapting to change and being ready to pivot as things change around you.
Rick: Yeah. It’s amazing. There’s so much uncertainty as all this… At the same time, there is certainty. We know it’s gonna change. We know it’s gonna be different. We have to deal with that. Let me follow up on that and say, because people say, well, this is…there’s always a newfangled this or a newfangled that coming along, and this is the same old, same old all over again. But Gregg, it seems like this time around it really is different. It does seem different. It’s come more quickly, it’s of larger scale and greater scope. What do our cities, states, regions have to do to respond to these challenges and compete in this new economic order?
Gregg: You know, and I’m not the measurer of all things. I trust other people in the research that they’re doing on these things. And I like to quote Stefan Bungart, he’s the head of digitalization strategies at Siemens, and he’s got this great statement that has been quoted widely, where he says, you know, you go to bed working for an industrial company and you seem to wake up in the morning and you now work for a software company. So, what happens? It seems to be happening overnight. And sort of an expression that I’ve coined recently is that we, you know, we seem to live in an era of big adjectives where every time we turn around, we hear more statistics or see more data. And we hear it described, these Industry 4.0 and larger economic transformations as being either highly negative, right? We’re gonna restructure, disrupt, destroy, disintermediate, dislocate, right, in a massive way. But we also hear the opposite that these technologies will create and connect and empower, transform and mobilize people and help to create innovation. So, you know, do we fall on the negative side of the perspective or the positive side of the perspective? And I think it depends partly on how you’re wired and does your DNA tend to fall to the positive or negative side of any debate, but it also goes back to what I was saying earlier, how will we as a society, right, as communities respond? And so, you know, the changes are happening all around us. We’re moving toward a more informal, what some people call the gig economy, right, where we’re moving to more…moving toward more non-standard work, more social inequality. Our social protection systems that we have in the traditional labor force, often those same support systems don’t apply in the informal job or labor market. So, these are things that we’re gonna have to adapt to. And there’s a growing discussion around this idea of overcoming the digital divide, right, because some people are good at technology. They’re trained in it. They adapt to it; they’re schooled in it. Their companies help them move along that path and their economies or [inaudible 00:22:49] their country has helped them to do that, and others not so much. And so, there is this digital divide that is happening, and I think it’s real. So, we have to think more than ever about how people get taught, onboarded, trained and retrained throughout the life of their career.
Rick: And we hope that enough people react favorably and positively to this change to be able to respond and adjust accordingly. You know, you’ve given us a lot to think about today, Gregg, but that’s really all the time we have today. This is really a thought-provoking discussion, but let’s thank you. I wanna thank Gregg for being with us on this episode of ”Site Selection Matters.”
Gregg: Thank you, Rick. I’ve really enjoyed it. Talk to you again soon.
Rick: Thanks for listening to this episode of Site Selection Matters and a special thanks to Gregg Wassmansdorf for giving us a great explanation of the Fourth Industrial Revolution or Industry 4.0 and what it will mean going forward for our states, our regions and our cities. What an informative and maybe a bit provocative discussion, leaving us with a lot to think about. Again, I’m Rick Weddle, executive director of the Site Selectors Guild. We hope that you’ll subscribe to Site Selection Matters podcast on iTunes, Stitcher, Spotify, or wherever you listen to your podcasts. We look forward to bringing you some great discussions in the year ahead. Until next time, good day.