The Zero Marginal Cost Society by Jeremy Rifkin

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Summary

The age of Capitalism is coming to an end because of Capitalism's own success. In fact, new technologies increase productivity, allowing the seller to produce more goods at a cheaper cost per unit. However, Capitalism stops working if extreme productivity leads more goods and services to edge toward near zero marginal cost and become almost free.

What will replace Capitalism? A new economic paradigm, the Collaborative Commons, is rising in its wake that will transform our way of life.

The Collaborative 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 that generate the social capital of society. E.g. charities, religious bodies, arts and cultural groups, educational foundations, amateur sports clubs, cooperatives, etc.

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.

Humanity underwent several Industrial revolutions driven by the convergence of innovation in three fields: communication, transportation and energy.

The First Industrial Revolution was driven by steam, the telegraph and trains. The Second one by oil, the telephone and cars. The Third one will be driven by renewables, the Internet, and autonomous vehicles.

The Internet of Things (IoT) will connect everyone and everything in a new economic paradigm whose architecture is distributed rather than centralized. Using less of the Earth’s resources more efficiently and productively in a circular economy and making the transition from carbon-based fuels to renewable energies are defining features of the emerging economic paradigm. In the new era, we each become a node in the nervous system of the biosphere.

There are two wild cards that could undermine our best efforts to replenish the planet and replace scarcity with abundance: climate change and cyberterrorism.

Main Notes

The end of Capitalism

The capitalist era is passing - not quickly, but inevitably. A new economic paradigm—the Collaborative Commons—is rising in its wake that will transform our way of life.

Capitalism’s operating logic is designed to fail by succeeding. New technologies increase productivity, allowing the seller to produce more goods at a cheaper cost per unit. Cheaper prices, resulting from new technology and increased productivity, mean more money left over for consumers to spend elsewhere, which spurs a fresh round of competition among sellers. There is a caveat, however. These operating principles assume a competitive market.

Imagine a scenario in which the operating logic of the capitalist system succeeds beyond anyone’s wildest expectations and the competitive process leads to “extreme productivity”. The cost of actually producing each additional unit—if fixed costs are not counted—becomes essentially zero, making the product nearly free. If that were to happen, profit, the lifeblood of capitalism, would dry up. In a market-exchange economy, profit is made at the margins.

As more and more of the goods and services that make up the economic life of society edge toward near zero marginal cost and become almost free, the capitalist market will continue to shrink into more narrow niches where profit-making enterprises survive only at the edges of the economy, relying on a diminishing consumer base for very specialized products and services.

The Social Commons

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, health-care organizations, advocacy groups, condominium associations, and a near endless list of other formal and informal institutions that generate the social capital of society.

Because what the social Commons creates is largely of social value, not pecuniary value, it is often dismissed by economists. The social Commons is where we generate the good will that allows a society to cohere as a cultural entity.

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.

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 First Industrial Revolution

The coming together of steam-powered printing, the telegraph, and the steam-powered locomotive dramatically increased the speed and dependability with which economic resources could be marshaled, transported, processed, transformed into products, and distributed to customers.

An increasing number of mass-produced goods also required specialized after-sale servicing. The solution was to bring production and distribution all together, in house, under centralized management. The vertically integrated business enterprise took off in the last quarter of the nineteenth century and became the dominant business model during the whole of the twentieth century.

Vertically integrated companies introduced vast new efficiencies whose economies of scale lowered their marginal costs, enabling them to sell ever larger volumes of cheap mass-produced goods to an eager public.

The Second Industrial Revolution

At the very time the First Industrial Revolution was peaking in the last two decades of the nineteenth century, a Second Industrial Revolution was being born in America and Europe. The discovery of oil, the invention of the internal combustion engine, and the introduction of the telephone gave rise to a new communication/energy complex that would dominate the twentieth century.

With the telephone, businesses could supervise new and larger vertically integrated operations with even tighter centralized control in “real time.” The efficiency and productivity gains brought on by the new communications medium were spectacular.

The changeover from steam power to electrification of factories led to a whopping 300 percent increase in productivity in the first half of the twentieth century.

The automobile became the key “engine” of economic growth for the whole of the Second Industrial Revolution. The mass production of automobiles kicked the oil industry into overdrive.

Putting the economy on wheels also radically changed the spatial orientation of society. Steam-powered printing and coal-powered rail transport encouraged urbanization. The coming of the automobile and the construction of a national road system that could carry passengers and freight into rural areas outside the reach of railroad connectivity spawned suburban development in the first half of the twentieth century. Factories began to relocate away from dense urban centers—which had high real estate and labor costs—to rural areas, transferring deliveries from rail to trucking. The workforce followed.

The Third Industrial Revolution

The coming together of the Communications Internet with the fledgling Energy Internet and Logistics Internet in a seamless twenty-first-century intelligent infrastructure—the Internet of Things (IoT)—is giving rise to a Third Industrial Revolution.

The Internet of Things will connect every thing with everyone in an integrated global network. People, machines, natural resources, production lines, logistics networks, consumption habits, recycling flows, and virtually every other aspect of economic and social life will be linked via sensors and software to the IoT platform, continually feeding Big Data to every node—businesses, homes, vehicles—moment to moment, in real time.

Big Data, in turn, will be processed with advanced analytics, transformed into predictive algorithms, and programmed into automated systems to improve thermodynamic efficiencies, dramatically increase productivity, and reduce the marginal cost of producing and delivering a full range of goods and services to near zero across the entire economy.

Using less of the Earth’s resources more efficiently and productively in a circular economy and making the transition from carbon-based fuels to renewable energies are defining features of the emerging economic paradigm. In the new era, we each become a node in the nervous system of the biosphere.

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.

What’s next?

In the coming era, hundreds of millions of people will produce their own renewable energy in their homes, offices, and factories and share green electricity with each other on an Energy Internet, just as we now generate and share information online.

Open-source, sustainable, laterally scalable 3D printing [will take us away from] conventional centralized manufacturing. The ability to produce, market, and distribute physical goods anywhere there is an IoT infrastructure to plug into is going to dramatically affect the spatial organization of society.

Smaller urban centers of 150,000 to 250,000 people, surrounded by a rewilding of green space, might slowly replace dense urban cores and suburban sprawl in a more distributed and collaborative economic era.

The democratization of manufacturing means that anyone and eventually everyone can access the means of production, making the question of who should own and control the means of production irrelevant, and capitalism along with it.

Imparting knowledge is becoming less important than creating critical-learning skills. Students are encouraged to think more holistically. A premium is placed on inquiry over memorization. In the Collaborative Age, students will come to think of knowledge as a shared experience among a community of peers. Students learn together as a cohort in a shared-knowledge community.

Students are learning that the biosphere is the indivisible Commons within which all our other communities are embedded. After nearly two centuries of industrial curricula that emphasized the idea of the Earth as a passive reservoir of useful resources to be harnessed, exploited, manufactured, and transformed into productive capital and private property for individual gain, a new collaborative curricula is beginning to re-envision the biosphere as a Commons made up of myriad relationships that act in symbiotic ways to allow the whole of life to flourish on Earth.

If the steam engine freed human beings from feudal bondage to pursue material self-interest in the capitalist marketplace, the Internet of Things frees human beings from the market economy to pursue nonmaterial shared interests on the Collaborative Commons. Many—but not all—of our basic material needs will be met for nearly free in a near zero marginal cost society. Intelligent technology will do most of the heavy lifting in an economy centered on abundance rather than scarcity. A half century from now, our grandchildren are likely to look back at the era of mass employment in the market with the same sense of utter disbelief as we look upon slavery and serfdom in former times. The very idea that a human being’s worth was measured almost exclusively by his or her productive output of goods and services and material wealth will seem primitive, even barbaric, and be regarded as a terrible loss of human value to our progeny living in a highly automated world where much of life is lived on the Collaborative Commons.

In a world dominated by the capitalist market and its accompanying utilitarian ethos—which views human behavior as competitive and self-interested—the very idea that human beings might be drawn to a cooperative business model based on collaboration, equity, and sustainability seems hopelessly impractical. Yet much of humanity is already organizing at least some parts of its economic life in cooperative associations operating in Commons. It’s just that we never hear about it.

The capitalist market’s continued survival will depend on its ability to find value in a world where the new efficiencies and productivity lie in a society that is increasingly designed to be more distributed, open, collaborative, and networked. If the old system favored autonomous self-interest in the capitalist market, the new system that is emerging favors deep collaboration in networked Commons

[There are] two wild cards that could undermine our best efforts to replenish the planet and replace scarcity with abundance. Industrial-induced climate change is now compromising our ecosystems and imperiling our species’ survival as well as the survival of our fellow creatures. If that weren’t enough to contend with, the same IT and Internet technologies that are connecting the human race in a shareable economy of abundance are increasingly being used by cyberterrorists to wreak havoc on the evolving Internet of Things infrastructure, with potentially catastrophic impacts that could result in the collapse of modern civilization and the deaths of hundreds of millions of people.

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