Technology: Boon or Bane for East Asian Economic Prospects?

2018-10-02T01:57:00+00:00May 24, 2018|Blog|

Technology: Boon or Bane for East Asian Economic Prospects?

Authors: Chuin Hwei Ng, Lead Specialist, and Suan Yong Foo, Senior Expert

Is technology a boon or bane for ASEAN+3 economies as the pursuit of growth and resilience continues a decade after the onset of the Global Financial Crisis?

By the look of it, the most advanced economies, such as Japan, Korea, and Singapore, are much better-positioned than the rest of the region to face the challenges posed by technology. However, the impact of technology on growth and employment does not materialize in isolation, but rather interactively with ongoing changes in the nature of cross-border production and trade, and shifts in demographics. So the picture that emerges is a rather nuanced one, whereby technology-related challenges are stiff for economies across the region, and require well thought through solutions at national and regional level.

Today’s new technologies are mind-boggling: artificial intelligence (AI), three-dimensional (3D) printing and digitalization just to name a few. And the disruptions they bring about can have far-reaching implications, for both growth and employment – and across all ASEAN+3 economies.

In Cambodia, for which the textiles, clothing and footwear (TCF) sector accounts for about 90% of its manufactured exports, automation is threatening to take away many of the more than 600,000 jobs performed by workers who are working hard and struggling to move on from sewing machines to much newer, more advanced but also more technology-intensive machines. A saving grace at the moment is that there are limits on the extent to which the TCF sector can be automated or disrupted by technology because of the relatively unstructured nature of the work and the low wages of the workers. There is therefore a window of opportunity for developing economies with lower-skilled workers and more basic technological readiness to upgrade their skills and capacity. But that shift still has to happen in order to be prepared for the Information and Communication Technology (ICT) revolution.

Meanwhile, the Philippines has successfully harnessed the ICT revolution to drive its services-centered growth model. This is driven by business process outsourcing (BPO) industry which accounts for some 40% of exports and has created more than 1 million jobs with wages that are three to five times higher than the national average.  But here too, technology poses challenges as much as it creates opportunities. First, robotics is threatening to replace the simple operators and there is a need to go from simple call center services to a broader set of more complex services. Second, the country should consider branching out into knowledge process outsourcing in future, encompassing higher-value-added activities ranging from fraud analytics and project management to research and development.

Even in larger or more advanced ASEAN+3 economies, technology raises the bar for becoming competitive and staying plugged in. Rapid technological advancements have raised the bar for basic manufacturing and even more so for moving up the global value chains. With manufacturing processes and the products themselves having become more high-technology over time, it has become more difficult for emerging markets to join global value chains (GVCs) and maintain their competitiveness within GVCs. This challenges economies across the region, from Korea and Singapore to Indonesia and Vietnam – for products ranging from high-end consumer electronics to basic textiles and garments.

How can ASEAN+3 countries meet the technology challenge?

In our view, regional economies should strike a careful balance along three dimensions: building capacity for technology absorption quickly, yet managing the pace of technology adoption judiciously; recognizing the trade-off between near-term and longer-term economic outcomes; and balancing support for the manufacturing and services sectors.

Take a look at the automobile sector where even advanced or large economies are challenged. Globally, automobile production is becoming more capital- and technology-intensive. Deployment of technologies such as industrial robots, the “internet of things” in factories, and new techniques such as 3D printing is gathering pace. The end-product itself is changing too. Vehicles are becoming more sophisticated, with many more features and greater use of digital technology. The scale and depth of adaptation by businesses and workers are not easy to manage.

The travel and tourism sector is one area where ASEAN+3 economies from Japan and China to Thailand and Vietnam have made headway in combining technology, (semi-)skilled human capital and infrastructure to support the tourism sector; and balancing the pace of technology adoption with the priority of continuing to create jobs. So far, the outcomes have been encouraging. China and the larger ASEAN economies, despite lagging more advanced countries in infrastructure and connectivity, have done well in using tourism for spurring growth and lifting incomes. In Thailand for example, travel and tourism now accounts for about one-quarter of GDP, and some projections suggest this could rise to one-third in a decade.

All things considered, the challenges and opportunities which arise from rapid technological shifts come back to the central issue of human capital development and deployment. Ultimately, human capital uses machinery and tools, (re)designs processes for manufacturing goods and delivering services, and picks up new skills which raise productivity. Seen from this perspective, besides improving the overall institutional framework for businesses to absorb and adopt new technologies, authorities should also take steps to maximize the development of human capital and the effectiveness of its deployment. Domestically, this means striking good balances between schooling and technical learning, and putting in place mechanisms to facilitate constant upskilling or reskilling. Externally, it means further cross-border mobility of human capital, which may involve measured adjustments to immigration policies.

* This article is the third part of a blog series on growth and resilience in the ASEAN+3 region, which includes 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. Read Part 1 and Part 2 of the series.

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