Jeremy Rifkin, author of The Zero Marginal Cost Society: The Internet of Things, The Collaborative Commons, and the Eclipse of Capitalism, describes a world where privatized monopolies yield to collaborative Commons.
Over the last two hundred and fifty years, various social thinkers have envisioned the fall of capitalism either by revolution or through the system’s own internal contradictions. The latest one to do so is Jeremy Rifkin. In his recently published book titled The Zero Marginal Cost Society: The Internet of Things, The Collaborative Commons, and the Eclipse of Capitalism, Rifkin claims to have uncovered a new paradox at the heart of contemporary capitalism – the end of profit-making through the impact of the new technologies on the market exchange economy. In this exclusive interview to C. J. Polychroniou, Jeremy Rifkin, one of the most popular social thinkers of our time, shares his views on the new economic paradigm for Truthout readers. Rifkin is a bestselling author whose 20 books have been translated into 35 languages. He is an advisor to the European Union and to heads of state around the world and a lecturer at the Wharton School’s Executive Education Program at the University of Pennsylvania.
C.J. Polychroniou for Truthout: Your latest book, titled Zero Marginal Cost Society, seems to envision a world where in the future capitalism has eclipsed on account of the emergence of a technological revolution which will bring marginal cost close to zero. Can you elaborate a bit on the basic concept behind this idea?
Jeremy Rifkin: A new economic system is entering onto the world stage. The Collaborative Commons is the first new economic paradigm to take root since the advent of capitalism – and its antagonist socialism – in the early 19th century. The Collaborative Commons is already transforming the way we organize economic life, with profound implications for the future of the capitalist market.
Ironically, what’s precipitating the demise of the capitalist system is the extraordinary success of the invisible hand of the marketplace. There lies a paradox at the very heart of the capitalist ethos that has been responsible, in large part, for its great success over the past two centuries, but that is now leading to its potential downfall. Private enterprises are continually seeking new technologies to increase productivity and reduce the marginal cost of producing and distributing goods and services so they can lower prices, win over consumers, and secure sufficient profit for their investors. (Marginal cost is the cost of producing additional units of a good or service, if fixed costs are not counted.) Businesses, however, never imagined that extreme productivity might one day bring marginal costs to near zero, making many goods and services potentially nearly free – and no longer exchangeable in the capitalist market. That’s now beginning to happen.
Extreme productivity, brought on by a plethora of new smart technologies, is propelling the capitalist system to an endgame in which each additional unit of many goods and services are beginning to approach near zero marginal cost. The zero marginal cost phenomenon invaded the information goods sector in the past decade. Hundreds of millions of consumers turned prosumers, producing and sharing their own music, videos, and other forms of entertainment, as well as news and knowledge, at near zero marginal cost, bypassing the capitalist marketplace. Music industry revenues plummeted. Newspaper and magazine revenues also shrank, with many publications going out of business, unable to compete with web media and blogs, operating at near zero marginal cost. Similarly, book publishing shriveled while retail bookstores closed their doors as more prosumers published free e-books. More recently, the zero marginal cost phenomenon burst into the hallowed sanctum of higher education, wreaking havoc on the traditional learning model. Six million students are currently enrolled in free Massive Open Online Courses (MOOCs), that operate at near zero marginal cost, and are being taught by world-class academics, and receiving college credits.
A new general purpose technology platform is evolving with the potential of reducing marginal costs across large sectors of the capitalist economy.
Economists acknowledge the deep disruption that near zero marginal cost has had on the above mentioned industries but, until lately, have argued that the phenomenon would be restricted to information goods, and not spill over to the brick and mortar world of physical goods and services. No longer.
A new general purpose technology platform is evolving with the potential of reducing marginal costs across large sectors of the capitalist economy. The ubiquitous Communication Internet is expanding its global reach by connecting up with an incipient Energy Internet and an embryonic Logistics Internet, creating a distributed neural network, combining communications, power, and mobility in a single operating system. This more encompassing Internet of Things (IoT) is designed to connect every device across the economic value chain in an indivisible intelligent network that functions like a global brain. Twelve billion sensors are already attached to natural resources, road systems, warehouses, vehicles, factory production lines, the electricity grid, retail stores, offices and homes, continually feeding Big Data to the Communication Internet, Energy Internet and Logistics Internet. By 2020, Cisco forecasts that there will be upwards of 50 billion sensors connected to the Internet of Things. Another recent projection estimates that upwards of 100 trillion sensors will be connected to the Internet of Things by 2030.
Prosumers will be able to connect to the IoT and use Big Data and analytics to develop predictive algorithms that can speed efficiency, dramatically increase productivity, and lower the marginal cost of producing and distributing many physical things to near zero.
For example, the bulk of the energy we use to heat our homes and run our appliances, power our businesses, drive our vehicles, and operate every party of the global economy will be generated at near zero marginal cost and be nearly free in the coming decades. That’s already the case for several million early adopters who have already transformed their homes and businesses into micro-power plants to harvest renewable energy on-site. Even before the fixed costs for the installation of solar and wind are paid back – often as little as 2 to 8 years – the marginal cost of the harvested energy is nearly free. Unlike fossil fuels and uranium for nuclear power, in which the commodity itself always costs something, the sun collected on rooftops and the wind traveling up the side of buildings are nearly free.
The Internet of Things will enable prosumers to monitor their electricity usage in their buildings, optimize their energy efficiency, and share surplus green electricity with others on the Collaborative Commons.
Similarly, hundreds of thousands of hobbyists and start-up companies are already printing out their own manufactured products using free software, and cheap recycled plastic, paper, and other locally available feedstock at near zero marginal cost. By 2020, prosumers will be able to share their 3D printed products with others on the Collaborative Commons by transporting them in driverless electric and fuel cell vehicles, powered by near zero marginal cost renewable energy, facilitated by an automated Logistics and Transport Internet.
The distributed, peer to peer nature of the Internet of Things platform allows millions of small players – social enterprises and prosumers – to come together in a vast Collaborative Commons, erecting lateral economies of scale that eliminate the remaining middle men on the vertically integrated value chain, collapsing the markups that kept marginal cost high in the past. In the coming era, everyone becomes a prosumer, producing and sharing energy and physical goods and services more directly with one another, on the Internet of Things, at near zero marginal cost and for nearly free, just as we’ve done in producing and sharing information goods on the Internet.
Even if we assume that this new technology revolution – the Internet of things – materializes in the future in a way which is consistent with your forecast, why would it affect the logic of capitalism across the economy? Wouldn’t there still be a need for manual labor, for products and industries that are not based on this new technology that you envision?
We are in the midst of an epic change in the nature of work.
We are in the midst of an epic change in the nature of work. The First Industrial Revolution ended slave and serf labor. The Second Industrial Revolution dramatically shrank agricultural and craft labor. The Third Industrial Revolution is sunsetting mass wage labor in the manufacturing and service industries and salaried professional labor in large parts of the knowledge sector.
The wholesale substitution of intelligent technology for mass wage labor and salaried professional labor is beginning to disrupt the workings of the capitalist system. The question economists are so fearful to entertain is: what happens to market capitalism when productivity gains, brought on by intelligent technology, continue to reduce the need for human labor? We are seeing the unbundling of productivity from employment. Instead of the former facilitating the latter, it is now eliminating it. But since in capitalist markets capital and labor feed off of each other, how will society respond when so few people are gainfully employed that there are not enough buyers to purchase goods and services from sellers?
What kind of economic system would we need to envision to engage millions of people in meaningful employment in a world where much of the economic activity is automated, nearly free and shareable?
Over the next several decades, the massive build-out of the Internet of Things infrastructure in every region of the world will give rise to one last surge of mass wage and salaried labor. The maturation of the Communication Internet, the conversion of millions of buildings into renewable energy micropower plants, the reconfiguration of the electricity grid into a green Energy Internet, and the changeover to an automated Logistics and Transportation Internet, will require millions of skilled and professional workers and spawn thousands of new businesses. However, by mid-century, economic activity in the marketplace is going to be increasingly in the hands of intelligent technology, supervised by small groups of highly skilled technical workers. The question then becomes what kind of economic system would we need to envision to engage millions of people in meaningful employment in a world where much of the economic activity is automated, nearly free and shareable?
With fewer human beings required to produce goods and services in the market economy, millions of people around the world are beginning to migrate to new job opportunities in the burgeoning nonprofit sector growing alongside the evolving Collaborative Commons. The nonprofit sphere is already the fastest-growing employment sector in many of the advanced industrial economies of the world. In the United States, Canada, and the United Kingdom employment in the nonprofit sector currently exceeds 10 percent of the workforce. Despite the impressive growth in social commons employment, many economists disparage its significance, arguing that the nonprofit sector is not a self-sufficient economic force but rather a parasite, wholly dependent on government entitlements and private philanthropy. Quite the contrary. A recent study of 42 countries revealed that approximately 50 percent of the aggregate revenue of the nonprofit sector already comes from fees for services, while government support accounts for only 36 percent of the revenues, and private philanthropy for only 14 percent. For an increasing number for young people, the emerging social economy on the Collaborative Commons offers greater potential opportunity for self-development and promises more intense psychic rewards than traditional employment in the capitalist marketplace.
It is likely that by mid-century, a majority of the employed in many countries will be in the nonprofit sector, advancing the social economy, while purchasing at least some of their goods and services in the traditional marketplace.
So, what would be the nature of the political economy for a zero marginal cost society?
The Commons predates both the capitalist market and representative government and is the oldest form of institutionalized, self-managed activity in the world.
We are so used to thinking of the capitalist market and government as the only two means of organizing economic life that we overlook the other organizing model in our midst that we depend on daily to deliver a range of goods and services that neither market nor government provides. The Commons predates both the capitalist market and representative government and is the oldest form of institutionalized, self-managed activity in the world.
The contemporary Commons is where billions of people engage in the deeply social aspects of life. It is made up of literally millions of self-managed, mostly democratically run organizations, including charities, religious bodies, arts and cultural groups, educational foundations, amateur sports clubs, producer and consumer cooperatives, credit unions, healthcare organizations, advocacy groups, and a near endless list of other formal and informal institutions that generate the social capital of society.
While the capitalist market is based on self-interest and driven by material gain, the social Commons is motivated by collaborative interests and driven by a deep desire to connect with others and share.
While the capitalist market is based on self-interest and driven by material gain, the social Commons is motivated by collaborative interests and driven by a deep desire to connect with others and share. If the former promotes property rights, caveat emptor, and the search for autonomy, the latter advances open-source innovation, transparency, and the search for community.
What makes the Commons more relevant today than at any other time in its long history is that we are now erecting a high-tech global technology platform whose defining characteristics potentially optimize the very values and operational principles that animate this age-old institution.
The IoT is the technological “soul mate” of an emerging Collaborative Commons. The new infrastructure is configured to be distributed in nature in order to facilitate collaboration and the search for synergies, making it an ideal technological framework for advancing the social economy. The operating logic of the IoT is to optimize lateral peer production, universal access, and inclusion, the same sensibilities that are critical to the nurturing and creation of social capital in the civil society. The very purpose of the new technology platform is to encourage a sharing culture, which is what the Commons is all about. It is these design features of the IoT that bring the social Commons out of the shadows, giving it a high-tech platform to become the dominant economic paradigm of the twenty-first century.
How would the changes that you describe compare to the changes the world experienced under the Industrial Revolution?
Every great economic paradigm in history requires three elements, each of which interacts with the other to enable the system to operate as a whole: a communication medium, a power source, and a transportation mechanism. In this sense, infrastructure can be thought of as a prosthetic extension, a way to enlarge the social organism. Without communication, we can’t manage economic activity. Without energy, we can’t generate information or power transport. Without logistics, we can’t move economic activity across the value chain.
Together, these three operating systems make up what economists call a general purpose technology platform, or, in other words, the physiology of an economic paradigm.
General purpose technology platforms are the vital infrastructure businesses connect to and use to increase their productivity and reduce their marginal cost of production and distribution, so they can lower the price of goods and services and win over consumers and market share.
In the 19th century, steam-powered printing and the telegraph, coal-powered factories, and the locomotive meshed in a seamless general purpose technology platform that gave rise to the first industrial revolution. In the 20th century, centralized electricity, the telephone, radio and television, and the oil-powered internal combustion engine converged to create an infrastructure for the second industrial revolution. Today, the Communication Internet is merging with a fledgling green Energy Internet and an automated electric and fuel cell Logistics and Transport Internet in a seamless 21st century smart infrastructure – the Internet of Things.
The technology platforms of the First and Second Industrial Revolutions were designed to be centralized with top-down command and control. That’s because fossil fuels are only found in certain places and require centralized management to move them from underground to the final end users. The centralized energies, in turn, require centralized, vertically integrated forms of communication in order to manage the momentous speedup in commercial transactions made possible by the new sources of power.
The enormous capital cost in establishing centralized communication/energy/ and logistics infrastructures meant that the new industrial and commercial enterprises embedded in and dependent on these technology platforms had to create their own giant, vertically integrated operations across the value chain. This was the only way to ensure sufficient economies of scale to guarantee a return on the investment.
The high up-front cost of establishing vertically integrated enterprises in the First and Second Industrial Revolutions required large amounts of investment capital.
Still, the investment of huge amounts of capital paid off. Bringing the entire value chain under one roof allowed businesses to cut out some of the costly middle men, significantly reducing their marginal costs and the price of their goods and services sold in the market.
But the irony is that the same vertical integration allowed a few market leaders to emerge in each industry and monopolize their respective fields, often preventing startup companies from introducing even newer technologies to reduce marginal cost and the price of goods and services, and by so doing, gain a foothold and sufficient market share to effectively compete. The global Fortune 500 companies continue to consolidate control over the commercial affairs of the planet, with 2011 revenues exceeding one-third of the GDP of the world. The concentration of economic power in the hands of the management and board of directors of several hundred global companies has lead to greater income inequality, with the top 1 percent disproportionately benefiting at the expense of the multitude of human beings languishing in dire poverty in countries around the world.
The emergence of the IoT infrastructure of the Third Industrial Revolution, with its open architecture and distributed features, allows social enterprises on the Collaborative Commons to break the monopoly hold of giant, vertically integrated companies operating in capitalist markets by enabling peer production in laterally scaled continental and global networks at near zero marginal cost.
The fixed costs of building out a distributed IoT infrastructure, and a Third Industrial Revolution, while considerable, are far less than those required to build out and maintain the more centralized technology platforms of the First and Second Industrial Revolutions. While fixed costs are less, the Internet of Things also brings down the marginal cost of communication, energy, and logistics in the production and distribution of goods and services. By eliminating virtually all of the remaining middlemen who mark up the transaction costs at every stage of the value chain, small- and medium-sized enterprises – especially cooperatives and other nonprofit businesses – and billions of prosumers can share their goods and services directly with one another on the Collaborative Commons – at near zero marginal cost. The reduction in both fixed and marginal costs dramatically reduces the entry costs of creating new businesses in distributed peer-to-peer networks. The low entry costs encourage more people to become potential entrepreneurs and collaborators, creating and sharing information, energy, and goods and services on the Commons and, in the process, democratizing the local and global economy.
Some people may argue that the proposals you make in your new book serve as a distraction from the actual problems facing today’s world. How would you respond to this level of criticism?
Connecting every thing with every being – the Internet of Things – is a transformational event in human history, allowing our species to empathize and socialize as a single extended human family for the first time in history.
A new smart Third Industrial Revolution infrastructure, made up of an interactive Communications, Energy, and Logistics Internet is beginning to spread nodally, like Wi-Fi, from region to region, crossing continents and connecting society in a vast global neural network. Connecting every thing with every being – the Internet of Things – is a transformational event in human history, allowing our species to empathize and socialize as a single extended human family for the first time in history. A younger generation is studying in global classrooms via Skype; socializing with cohorts around the world on Facebook; gossiping with hundreds of millions of peers on Twitter; sharing homes, clothes, and just about everything else online in the Communications Internet; generating and sharing green electricity across continents over the Energy Internet; sharing cars, bikes, and public transport on the evolving Logistics Internet; and, in the process, shifting the human journey from an unswerving allegiance to unlimited and unrestrained material growth to a species commitment to sustainable economic development. This transformation is being accompanied by a change in the human psyche – the leap to biosphere consciousness and the Collaborative Age.