Digital Green Industrialisation: Reconciling Global Equality and Sustainable Development? – Mateus L. Labrunie

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The environmental issue that I find most disturbing as a development economist is the claim that if developing countries’ consumption levels reached those of the world’s most developed countries, there would be insufficient resources on the planet to sustain it. Diamond calculates that this situation would be similar to having 80 billion people at current average consumption levels. While there can be some discussion as to whether we could sustain the consumption of slightly more than our current 7.7 billion people, it is pretty clear that there simply would not be enough resources, including energy, water, minerals and agricultural products to sustain 10 times more.

If we assume that current rates of resource use will remain constant, the world is either condemned to have a large group of countries in low levels of consumption, with a significant part of their populations in poverty, or bound to head towards an environmental catastrophe. This raises the question of whether it is possible to reconcile global equality between countries with environmental sustainability.

There are two contested ways to reconcile both of these objectives. The first involves a generalized change in mindset away from consumerism, reducing the consumption aspirations in developing countries and current averages in developed ones. This is argued by the authors of the de-growth literature. What is envisaged is a world of simpler lives, with more attention paid to basic human needs and less to what Veblen calls “conspicuous consumption” – goods and services designed for the public display of social status and economic power. The second approach would be a drastic increase in the efficiency of resource use, achieving a similar average output but with a drastically lower throughput, making it possible to sustain our current consumptions. 

The problem with the first option is that a generalized change in mindset is, in addition to being highly unlikely in the short-term, incompatible with capitalism. If one accepts the Keynesian principle of effective demand, it becomes clear that a generalized reduction in consumption in capitalist economies leads to a decrease in economic activity. This, in turn, gives rise to many social issues such as unemployment, wage reductions, less social welfare and financial crisis risk. These could even result in social unrest that would seek to dismiss the environmental agenda as a priority. Capitalist economies need a growth of demand in order to survive. This is not to say that an alternative should not be proposed or discussed, just that it is a much more long-term issue that would require profound systemic changes.

Within capitalism, therefore, the only way of reconciling these two objectives is through a drastic reduction in the rate of resource use, or throughput. That is where technological development comes in. Resource-efficient technologies can reduce the amount of non-renewable materials used to produce outputs. The question then is whether new technologies will be able to lower throughput at a faster rate than the growth of output. There are many reasons to doubt this, and to some extent a revision of our current consumption standards seems inevitable. However, we should not underestimate the power of human ingenuity. Those that have done so in the past have often been embarrassed, such as Malthus with his catastrophic demographic predictions.

In this regard, there are reasons to be optimistic about the impacts of the so-called Industry 4.0 on the rate of resource use. Industry 4.0 refers to the industrial application of new technologies such as artificial intelligence, internet of things, cyber-physical systems, and additive manufacturing. This enables smart, connected and adaptable production. This may greatly impact sustainability. Firstly, the digitization of supply chains optimizes the matching of supply and demand in real-time, avoiding material losses associated with overproduction, and optimizing the distribution of raw materials. Additive manufacturing can also be used to realize new, complex lightweight structures that can be applied to save materials. Secondly, more efficient energy consumption can be expected with the improvement in capacity utilization and in throughput times in factories. Energy efficiency can also be obtained with the use of the Smart Grid, reducing losses during grid transmissions. Thirdly, with the increasing traceability and monitoring of product usage, Industry 4.0 may support the realization of closed-loop life cycles, such as through the reuse of individual product components, and the facilitation of partnerships between companies and end-of-life stakeholders (e.g. recycling companies), making it easier to integrate the remanufacturing of individual parts into the life cycle. Every product, from electronics to plastic bottles, may be traced from its production to the end of its life cycle, and the state of its components monitored. Of course, this is not enough, but it is a great enabling step towards more resource-efficient production.

Conversely, there are also reasons to doubt the environmental sustainability of Industry 4.0. For example, although 4.0 technologies might lead to higher energy-efficiency, primary energy consumption may rise with the increasing use of data-centres, telecommunication networks, cloud storages, computer equipment, and the constant monitoring and adaptation of production processes. Additive manufacturing processes are currently highly energy-intensive, especially in the production of the starting materials used in these processes. In terms of quantity of materials used, the trend is also not clear. The increasing integration of sensors, actuators and transmission devices in new smart products and equipment will lead to an enormous demand for new and critical raw materials, such as “technology metals” that in general are non-recyclable.

As such, there is no consensus on whether new digital technologies can help create a more sustainable production.  There is uncertainty not only about their direct impacts, but also their indirect ones – the transformations they may induce in firm and consumer behaviour. The key point here is, however, that there is still time to influence the direction in which digital technologies are developing. Instead of asking how 4.0 technologies can impact sustainability, perhaps a more interesting question to ask would be how can sustainability principles orient the development of 4.0 technologies?

In addition to their effects on sustainability, there are reasons to believe that new digital technologies might represent windows of opportunity for some developing countries. Historical records show that technological paradigm changes have often allowed for new entrants to challenge the leadership of established firms and countries. At the firm level, think of Kodak, and its loss of leadership with the introduction of digital cameras. At the country level, think of the emergence of Japan and South Korea as leaders in the highly dynamic electronics industry in the 1980s. Or earlier, think of the US and Germany catching-up to the British leadership at the end of the 19th century by entering new industries such as chemicals and electric equipment, or by adopting new technologies in old industries such as steel production. This is the process of “creative destruction” that Schumpeter described as the central feature of capitalism. 

Taking advantage of the opportunities of Industry 4.0, however, requires a somewhat developed level of technological and production capabilities. Therefore, countries with a more established industrial base, such as some middle-income countries, seem better positioned to address the challenges of digitalization. Contrastingly, for most of the developing world the discussion refers more to the effective absorption and adaptation of these technologies to specific existing productive activities, than to completely overhauling their economies.

An intersection between these two issues of environmental sustainability and economic catch-up lies in the fact that it might be easier for new firms and industries in developing countries to adopt new greener production paradigms, than for established firms in developed countries to convert their old plants. After years of activity and incremental innovation, established firms are already competitive in the old resource-inefficient production paradigms, and therefore could be more resistant to technological and organizational changes. In that sense, jumpstarting processes of digital green industrialization in developing countries can represent an opportunity for tackling both global inequality and environmental sustainability at the same time.

It must be observed, however, that this adoption of greener production paradigms will not derive automatically from the workings of free forces in the market. Development and adoption of new technologies, especially frontier ones, involves committing large capital investments and facing radical uncertainty – situations where it is not even possible to make probabilistic calculations about the future. Consequently, if these processes are left purely to the market, they will most likely never happen. Furthermore, the path of less resistance to non-renewable and resource inefficient technology will mostly be taken. Thus, the crucial role of state in both driving productive development processes and in making sure that they are environmentally sustainable must be discussed. Historically, the state has been fundamental not only in promoting industrial and technological development through many policy instruments such as tariffs, subsidies, public procurement, and technological licensing, but also in giving direction to these developments. The state mission of getting the man on the moon led to the development and adoption of many space-related technologies. The state missions of defeating their opponents in combat led to the development and adoption of many warfare technologies. Why not expect the same with worldwide state missions of sustainable production?

It also doesn’t seem fair to make developing countries bear the full burden of cultivating green industries, given that developed countries did not have the same preoccupations when they were industrializing, and today they remain responsible for most of the world’s resource consumption and environmental issues. Imposing environmental restrictions for developing countries on top of all the restrictions they already have seems just another way of ‘kicking away the ladder’, that is, stopping developing countries from taking the path that developed countries took in their own development processes. This is even more problematic given that many restrictions that developing countries have today are due to their colonial past. A more welcome approach, then, would be a positive one, with financial and non-financial stimuli for developing countries to adopt greener technologies. This would not be aid, but international subsidies and technology transfers, which are closer to the policies that the developed countries of today used in the past. In some way, incentives for green industrialization could be a mutually beneficial opportunity for paying the colonial debt.

I know this is quite a utopian approach. I believe it is unlikely that developed countries will voluntarily facilitate developing countries’ industrialization processes – green or not. In the end, capitalism is a competitive system, and change is only achieved by developing countries through their own policies and efforts, in most cases against various and strong contrary pressures.  Most likely, the environmental issue will be addressed – of course not openly, and often not even consciously – by maintaining a large part of the global population in poverty, and with a much less drastic change in the rate of resource use. 

This might work for a while, and the emerging digital technologies may play a part in buying us some time. But overall, if we do believe in the possibility of a more equal global landscape, at some point we will have to face the daunting question of the compatibility of an ever-growing, ever-accumulating system, with the environmental limits of our planet.