The Zero Marginal Cost Society

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Jeremy Rifkin. 2014. The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism. New York: St. Martin’s Press.

Jeremy Rifkin is the president of the Foundation on Economic Trends and a leading thinker on the transition to a more sustainable global economy based on new energy sources and infrastructure. In this latest of his many books, he predicts that capitalism will gradually decline and be largely supplanted by what he calls the “collaborative commons,” a system based on common access to cooperatively managed and shared resources. This sounds pretty utopian, but he bases his argument on some very real changes that are already occurring in how we produce and share information, obtain energy, and make things.

Rifkin’s version of the decline of capitalism is not based on its supposed failure, but on its success. The relentless quest for profit leads producers to raise productivity in order to lower unit costs and attract more buyers. Their competitors are forced to do the same. If the process is carried to its logical conclusion, productivity moves toward “the optimum point in which each additional unit introduced for sale approaches ‘near zero’ marginal cost…making the product nearly free.”

The information economy has already taken much of the profit out of some industries by making it so easy to obtain certain commodities; music and news are prime examples. Rifkin believes this is only the beginning:

The near zero marginal cost phenomenon has already wreaked havoc on the publishing, communications, and entertainment industries as more and more information is being made available nearly free to billions of people. Today, more than one-third of the human race is producing its own information on relatively cheap cellphones and computers and sharing it via video, audio, and text at near zero marginal cost in a collaborative networked world. And now the zero marginal cost revolution is beginning to affect other commercial sectors, including renewable energy, 3D printing in manufacturing, and online higher education. There are already millions of “prosumers”— consumers who have become their own producers.

In Part I, Rifkin reviews the history of capitalism, emphasizing the connections among energy sources, communication and transportation at each phase. The First Industrial Revolution depended on steam, printing and railroads; the Second Industrial Revolution relied on oil, the internal combustion engine and the telephone. In both cases, the trend was toward concentrations of economic power. “Vertically integrated corporate enterprises were the most efficient means of organizing the production and distribution of mass produced goods and services.” For a time, the only alternative to capitalism seemed to be another form of centralized power–state socialism.

Rifkin expects the Third Industrial Revolution, with its reliance on renewable energy and global electronic communications, to reverse the centralizing trend and distribute power more widely:

A new communication/energy matrix is emerging, and with it a new “smart” public infrastructure. The Internet of Things (IoT) will connect everyone and everything in a new economic paradigm that is far more complex than the First and Second Industrial Revolutions, but one whose architecture is distributed rather than centralized. Even more important, the new economy will optimize the general welfare by way of laterally integrated networks on the Collaborative Commons, rather than vertically integrated businesses in the capitalist market.

To put it simply, people will rely less on big corporations to meet their needs and more on one another.

A new infrastructure

When economists have thought about improvements in productivity, they have usually thought in terms of better machinery or better trained workers. However, economist Robert Solow found that changes in energy sources and infrastructure accounted for the greatest leaps in productivity. The Second Industrial Revolution was possible because of the electric grid, telecommunications network, interstate highway system, oil and gas pipelines, and water systems (all of which required government initiatives, by the way). Rifkin believes that the world is on the verge of a similar revolution that will take human productivity to a dramatically higher level.

First, he sees the creation of “a renewable-energy regime, loaded by buildings, partially stored in the form of hydrogen, distributed via a green electricity Internet, and connected to plug-in, zero-emission transport.” The cost of solar energy is now dropping exponentially, just as the cost of computing already has. All of the energy annually used in the global economy could be supplied by much less than one-tenth of one percent of the energy that reaches Earth from the sun. Rifkin expects 80 percent of our energy to be from renewable sources by 2040.

Another key development is the “Internet of Things,” which will connect “every machine, business, residence, and vehicle in an intelligent network,” enabling all of them to work smarter. Rifkin doesn’t provide detailed examples, but he cites studies that estimate the potential productivity gains:

Cisco systems forecasts that by 2022, the Internet of Everything will generate $ 14.4 trillion in cost savings and revenue.  A General Electric study published in November 2012 concludes that the efficiency gains and productivity advances made possible by a smart industrial Internet could resound across virtually every economic sector by 2025, impacting “approximately one half of the global economy.” It’s when we look at each industry, however, that we begin to understand the productive potential of establishing the first intelligent infrastructure in history. For example, in just the aviation industry alone, a mere 1 percent improvement in fuel efficiency, brought about by using Big Data analytics to more successfully route traffic, monitor equipment, and make repairs, would generate savings of $ 30 billion over 15 years.

Up until now, industrial manufacturing has required a lot of capital and large, vertically integrated organizations to produce goods economically. The development of 3D printing is changing that, making possible a transition “from mass production to production by the masses”:

Software— often open source— directs molten plastic, molten metal, or other feedstocks inside a printer, to build up a physical product layer by layer, creating a fully formed object , even with moveable parts, which then pops out of the printer. Like the replicator in the Star Trek television series, the printer can be programmed to produce an infinite variety of products. Printers are already producing products from jewelry and airplane parts to human prostheses. And cheap printers are being purchased by hobbyists interested in printing out their own parts and products. The consumer is beginning to give way to the prosumer as increasing numbers of people become both the producer and consumer of their own products.

The main thing one needs to be such a “prosumer” is access to the information that the printer needs to create an object, and that information is likely to be widely available in the information age. Rifkin also anticipates the expansion of low-cost education, as more learning occurs through “MOOCs”–massive open online courses.

The future of work

Rifkin acknowledges the potential of higher productivity to destroy millions of jobs by reducing the need for human labor. Jobs are disappearing because of a major structural change in the economy, not just because of a temporary recession or relocation of factories from one country to another. Although in the past, technological changes have created as many jobs as they destroyed–for example, creating factory jobs to replace farm jobs or white-collar jobs to replace blue-collar jobs–Rifkin does not see that substitution process continuing. The new information technologies are threatening white-collar and service jobs as much as manufacturing jobs.

The last book I discussed, Jaron Lanier’s Who Owns the Future?, argued that humans have to defend themselves against the smart machines by fully monetizing their own information contributions, that is, by charging for every idea, data, photo, etc., they share. Otherwise, a few owners and users of Big Data will get rich while the rest of us get poor. Rifkin’s solution is almost the opposite. He doubts that the capitalist, profit-centered model will work very well for anyone, and that all of us will end up exchanging information and things at little or no cost. Eventually, more of our time will be devoted to pursuing non-material ends, since obtaining the material necessities of life will have become so easy in a zero marginal cost world. While Lanier advocates a more thorough commodification of information, Rifkin expects less commodification and more sharing.

This will not happen overnight, and Rifkin makes an explicit distinction between time frames. “In the short and mid terms…the massive build-out of the IoT [Internet of Things] infrastructure in every locality and region of the world is going to give rise to one last surge of mass wage and salaried labor that will run 40 years.” A big part of this will be the transition to renewable energy sources and the conversion of existing buildings to use them. But in the latter half of this century, he expects most human labor to shift to nonprofit activities of one kind or another.


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