Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Industry 4.0: We Don’t Need A New Industrial Policy But A Better Regulatory Framework

Ansgar Baums 21st October 2015

Ansgar Baums © HP

Ansgar Baums © HP

Good economic policy rests on a clear idea of what the state and business should do or leave to others. This clear division is missing in Industry 4.0. During a recent conference in Berlin, an industry leader quipped “Industry 4.0 is the first industrial transformation to be enacted by the state”. Surprisingly, the audience’s reaction was rather thoughtful nodding than giggling. If frequency of meetings and speeches which raise the topic Industry 4.0 is any indicator, one should assume that governments indeed play a key role in digital transformation. No wonder more and more managers have a slightly uneasy feeling.

So what is the fuss all about? The key to understanding Industry 4.0 is the development of digital platforms. Platforms establish “two-sided markets”, in which platform owner, a provider who adds services on top of the platform, and customer interact. Nothing new in that – Jean Tirole won last year’s Nobel economics prize for his analysis of this triangular relationship. Digitization has certainly injected a wholly new dynamism into platformization. Amazon and Ebay have turned shopping into a platform experience, Uber is doing the same with the taxi market, Airbnb in the hotels business. German carmakers are buying “Here” in order to guarantee access to ultra-precise geo-data which will be a core technology of future mobility platforms. Elsevier is changing from a publishing house into a knowledge platform, integrating the contents of other publishers – the list goes on endlessly.

Digital platforms are more than just facilitators: they determine the rules of the game in the market and alter value added structures. At this point everything gets political – and often broad-brush: Will German SMEs turn into slaves of a digital platform they can no longer control? Will we see the rise of unassailable digital monopolies, immune to competition due to strong network effects? Will value creation for the most part quit Germany because of the platformization process?

This horror scenario is increasingly tied to a demand for an “active government.” The argument is not hard to guess: The bleaker the vision of Industry 4.0, the easier to justify state interventionism. So, do we need a new competition policy to trim the power of platforms? Is any ex-ante regulation of platforms justified? Should governments actively promote the development of national digital platforms?

Just about as black is the image of “platform capitalism”. For Sascha Lobo and Byung-Chul Han digital platforms are the main drivers of a “hyper-capitalist” world. This produces a surprising alliance between leftist-orientated critics of platform capitalism and those – up to now – economically liberal-minded politicians favouring support for the industrial base. What unites them is a fear of the structural changes that digital platforms trigger.


Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content. We will never send you spam and you can unsubscribe anytime.

Sign up here

The core problem is this: Both points of view are based on a rather simplistic definition of digital platforms, which ultimately leads to false conclusions. “Platformization” indeed is a mega-trend. Nevertheless, it is also a process leading to very diverse outcomes. We therefore urgently need a more nuanced understanding of platforms.

This holds true above all for the architectural principles of digital platforms: while some concentrate decision-making power and value-creation at the core of a platform – that is, with their operators – there are many other platforms doing the opposite: they push power and value-creation to the platform’s periphery. In many markets, such different types of platforms compete directly with each other. A good example are PC operating systems – one of the oldest and most versatile digital platforms: Whereas Apple OS X is a very closed system (inter alia it can only be used on Apple hardware), Linux represents the exact opposite: it offers almost limitless opportunities for inter-connectedness and leaves all options to the app-developer as well as the end-user.

Platformization does not lead automatically to monopolies, either. A historical analysis of platformization processes shows a remarkable consistency: many markets are structured by three to five platforms, featuring a rather even distribution of market shares. Competing platforms emerge rapidly when market players view existing platforms as too restrictive. The best example of this is the success of Android as an alternative to Apple’s closed iOS operating system for mobile phones. Android isn’t open enough for you? Well, Cyanogen is setting itself up as an Android offshoot that presents platform operator Google with fewer and fewer opportunities for encroachment.

Another misunderstanding: Platformization is not always a disruptive process. Sure, there are disruptive platforms such as Uber that are attracting lots of public attention. In many cases, though, platformization is an evolutionary process. Interestingly, hardware plays a key role in some markets. Digital platforms in agriculture are dominated by large equipment manufacturers like Claas or John Deere. Newcomers find it tough to enter the market due to the importance of very expensive hardware. In Marc Andreessen’s words: Software might eat the world – but some chunks of hardware are definitely not easy to digest.

And finally: Platforms are not unassailable. The horror scenario of a platform that due to network effects can no longer be challenged is probably a very unlikely scenario. The main reason: innovation! We tend to under-estimate the power and tempo of digital innovation. Remember the “Browser War”? In the late 1990s it was taken for granted that the internet browser was a key technology, prone to be a tool for market exclusion strategies. Legal action  was taken against Microsoft’s bundling of its Internet Explorer browser with the Windows operating system (vertical integration).

As we know today, digital innovation did not stop with Internet browser technology – the latter becoming less and less important due to the rise of the mobile internet. Today, 35m Germans connect to the Internet via their smartphone. Many of them do so with apps, bypassing any browser. A technology that loomed large as the “commanding heights” of the digital economy seems to be completely harmless just 15 years later – there might be a lesson here.

Such a more nuanced interpretation of platforms leads to very different policy conclusions than the apocalyptic vision of a world dominated by a few platform monopolies. First and foremost, it would be foolish if governments actively engaged in platform building. Platform management is a highly complex task that requires a deep understanding of markets, which bureaucracies lack.

Arguing for government-sponsored national platforms is equally misguided. For a German SME it is irrelevant where the headquarters of a platform operator is located. It might matter much more whether a platform guarantees market access and a fair share of revenue for those who are operating on its periphery. Rather than engaging in national platforms, we should encourage German companies to get involved in international organizations.


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

Policy-makers should focus instead on drawing up the best parameters for digital platforms to be set up in Germany. Here there’s a crying need for action: Court judgments have severely cut back liability privileges for platform operators in recent years. The more platforms are subjected to regulatory recourse the less and less attractive Germany as a place for platforms becomes – and all the harder it is for start-ups to build new platforms.

We should also be careful with regard to any rash reform of competition law. First, digital platforms are not comparable to broadband infrastructures, and should therefore be treated differently. Such a demand, euphemistically described as “platform neutrality”, fails to recognize that platforms are not infrastructures but rapidly evolving business models. Plans to regulate platforms ex ante are the wrong way to go. Second, demands to measure market power via soft criteria such as “data power” would lead to a highly untransparent market environment and, finally, fewer investments in potentially fast-growing platforms. Rather, an evidence-based ex-post regulatory policy focusing on abuse of market power is the right approach.

This leads to a more nuanced message: Yes, Industry 4.0 and platformization is a major trend, of huge importance to management, and it might even be disruptive in some markets. But there seems to be little evidence to support the call for a major overhaul of our economic policy strategy. Getting the regulatory framework right and adapting it to the needs of a platform economy is a much more promising strategy than an “industrial platform policy” approach. Economic principles laid out in Germany’s post-war era might be more relevant today than ever.

This contribution is part of our project on the future of work and the digital revolution.

Ansgar Baums

Ansgar Baums is Head of Government Relations EMEA, HP Inc.

You are here: Home / Economy / Industry 4.0: We Don’t Need A New Industrial Policy But A Better Regulatory Framework

Most Popular Posts

European civil war,iron curtain,NATO,Ukraine,Gorbachev The new European civil warGuido Montani
Visentini,ITUC,Qatar,Fight Impunity,50,000 Visentini, ‘Fight Impunity’, the ITUC and QatarFrank Hoffer
Russian soldiers' mothers,war,Ukraine The Ukraine war and Russian soldiers’ mothersJennifer Mathers and Natasha Danilova
IGU,documents,International Gas Union,lobby,lobbying,sustainable finance taxonomy,green gas,EU,COP ‘Gaslighting’ Europe on fossil fuelsFaye Holder
Schengen,Fortress Europe,Romania,Bulgaria Romania and Bulgaria stuck in EU’s second tierMagdalena Ulceluse

Most Recent Posts

HMPs,CMR,hazardous medicinal products,carcinogenic, mutagenic and reprotoxic,health workers Protecting health workers from hazardous productsIan Lindsley, Tony Musu and Adam Rogalewski
geopolitical,Europe Options for Europe’s ‘geopolitical’ futureJon Bloomfield
democracy,democratic Reviving democracy in a fragmented EuropeSusanne Wixforth and Kaoutar Haddouti
EU social agenda,social investment,social protection EU social agenda beyond 2024—no time to wasteFrank Vandenbroucke
pension reform,Germany,Lindner Pension reform in Germany—a market solution?Fabian Mushövel and Nicholas Barr

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

ETUI advertisement

Social policy in the European Union: state of play 2022

Since 2000, the annual Bilan social volume has been analysing the state of play of social policy in the European Union during the preceding year, the better to forecast developments in the new one. Co-produced by the European Social Observatory (OSE) and the European Trade Union Institute (ETUI), the new edition is no exception. In the context of multiple crises, the authors find that social policies gained in ambition in 2022. At the same time, the new EU economic framework, expected for 2023, should be made compatible with achieving the EU’s social and ‘green’ objectives. Finally, they raise the question whether the EU Social Imbalances Procedure and Open Strategic Autonomy paradigm could provide windows of opportunity to sustain the EU’s social ambition in the long run.


DOWNLOAD HERE

Eurofound advertisement

Eurofound webinar: Making telework work for everyone

Since 2020 more European workers and managers have enjoyed greater flexibility and autonomy in work and are reporting their preference for hybrid working. Also driven by technological developments and structural changes in employment, organisations are now integrating telework more permanently into their workplace.

To reflect on these shifts, on 6 December Eurofound researchers Oscar Vargas and John Hurley explored the challenges and opportunities of the surge in telework, as well as the overall growth of telework and teleworkable jobs in the EU and what this means for workers, managers, companies and policymakers.


WATCH THE WEBINAR HERE

Foundation for European Progressive Studies Advertisement

Discover the new FEPS Progressive Yearbook and what 2023 has in store for us!

The Progressive Yearbook focuses on transversal European issues that have left a mark on 2022, delivering insightful future-oriented analysis for the new year. It counts on renowned authors' contributions, including academics, politicians and analysts. This fourth edition is published in a time of war and, therefore, it mostly looks at the conflict itself, the actors involved and the implications for Europe.


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube