The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism
Authors: Jeremy Rifkin
Additional Praise for
The Zero Marginal Cost Society
“An amazing work. . . . This insightful, surprising, and practical book helps us understand how the emerging Internet of Things is driving extreme productivity, the rush to a near zero marginal cost society, and the rise of a new economic paradigm. Rifkin solves the puzzle of what companies, nonprofit organizations, and governments need to do to reposition themselves on the new Collaborative Commons. The book is a must read for every citizen and decision maker.”
—Jerry Wind, the Wharton School
“Free-market traditionalists have trouble recognizing that the future of governance and economics lies with the Commons—a world of collaboration, sharing, ecological concern and human connection. Jeremy Rifkin deftly describes the powerful forces that are driving this new paradigm and transforming our personal lives and the economy. A highly readable account of the next big turn of the wheel.”
—David Bollier, author of
Think Like a Commoner:
A Short Introduction to the Life of the Commons
“Brilliantly tackled. . . . Rifkin describes how the dramatic lowering of transaction, communication, and coordination costs allow the global scaling of small group dynamics, fundamentally changing the choices that humanity can make for its social organization. Read it, rejoice, and take action to build the new world in which the market and the state are not destroying the Commons, but aligned with it.”
—Michel Bauwens, founder of P2P Foundation
“Jeremy Rifkin has always been ahead of the curve. In
The Zero Marginal Cost Society,
Rifkin takes us on a journey to the future, beyond consumerism to ‘prosumers’ who produce what they consume and share what they have on a Collaborative Commons, a contemporary expression of Gandhi’s ‘Swadeshi.’ His down to earth vision of democratizing innovation and creativity on a global scale, for the well-being of all, is inspiring and, equally important, doable.”
—Vandana Shiva, environmental activist and recipient of the Right Livelihood Award
“If you want to understand why we are in the midst of a massive paradigm shift from an age of top-down, centralized institutions to a world of distributed and collaborative power, I would highly recommend reading Jeremy Rifkin’s new book. He clearly joins the dots on how the likes of 3D printing, crowdfunding, and online education platforms are all connected and describes the disruptions that lie just around the corner for most sectors.”
—Rachel Botsman, author of
What’s Mine is Yours:
How Collaborative Consumption Is Changing The Way We Live
“Jeremy Rifkin understands that it’s people and communities who are at the heart of the new economic paradigm. People all over the world are building the collaborative economy and Rifkin’s thoughtful analysis further illustrates that this is an idea whose time has come.”
—Natalie Foster, executive director of peers.org
The
Zero Marginal Cost Society
The
Zero Marginal Cost Society
The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism
Jeremy Rifkin
THE ZERO MARGINAL COST SOCIETY
Copyright © Jeremy Rifkin
All rights reserved.
First published in 2014 by PALGRAVE MACMILLAN® in the U.S.—
a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010.
Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries.
ISBN: 978-1-137-27846-3
Library of Congress Cataloging-in-Publication Data
Rifkin, Jeremy.
The zero marginal cost society : the internet of things, the collaborative commons, and the eclipse of capitalism / Jeremy Rifkin.
pages cm
ISBN 978-1-137-27846-3 (alk. paper)
1. Capitalism. 2. Cost. 3. Cooperation. I. Title.
HB501.R555 2014
330.12’6—dc23
2013033940
A catalogue record of the book is available from the British Library.
Design by Letra Libre
First edition: April 2014
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.
Contents
1: The Great Paradigm Shift from Market Capitalism to the Collaborative Commons
Part I
The Untold History of Capitalism
2: The European Enclosures and the Birth of the Market Economy
3: The Courtship of Capitalism and Vertical Integration
4: Human Nature through a Capitalist Lens
Part II
The Near Zero Marginal Cost Society
5: Extreme Productivity, the Internet of Things, and Free Energy
6: 3D Printing: From Mass Production to Production by the Masses
7: MOOCs and a Zero Marginal Cost Education
9: The Ascent of the Prosumer and the Build-out of the Smart Economy
Part III
The Rise of the Collaborative Commons
11: The Collaboratists Prepare for Battle
12: The Struggle to Define and Control the Intelligent Infrastructure
Part IV
Social Capital and the Sharing Economy
13: The Transformation from Ownership to Access
Part V
The Economy of Abundance
Acknowledgments
I
would like to thank Lisa Mankowsky and Shawn Moorhead for the extraordinary work they did in overseeing and editing
The Zero Marginal Cost Society.
Virtually every book is a collaborative effort. An author’s effectiveness depends, to a great extent, on the individuals who work with him in the preparation of a manuscript. Mr. Moorhead and Ms. Mankowsky are a dream team. Mr. Moorhead paid particular attention to ensuring the proper integration of themes and conceptual details throughout the book. Ms. Mankowsky focused on ensuring a smooth editorial flow throughout the narrative and consistency in the presentation. Their dedication to the project, keen editorial advice, and wise counsel were instrumental in shaping the final content. Their contributions can be found on every page of the final book.
I would also like to thank Christian Pollard, who not only assisted in the editorial preparation of the book, but who also developed an elegant marketing and outreach campaign for its publication.
We had the opportunity of working with some very talented interns during the two-year preparation of
The Zero Marginal Cost Society.
Their contributions added significantly to the value of the final work. Thanks to Dan Michell, Alexandra Martin, Jared Madden, Elizabeth Ortega, James Partlow, Shuyang “Cherry” Yu, James Najarian, Daniel McGowan, Gannon McHenry, Kevin Gardner, Justin Green, and Stan Kozlowski.
I’d also like to thank my editor, Emily Carleton, at Palgrave Macmillan, for her enthusiasm for the project and her many insightful editorial suggestions along the way that helped hone the manuscript. Thanks to my publisher, Karen Wolny, for her unflagging support throughout the process.
Finally, as always, I’d like to thank my wife, Carol Grunewald, for the many fruitful conversations during the preparation of the book that helped shape my thinking and tighten the arguments in the text. Quite frankly, Carol is the best editor and wordsmith I’ve ever known.
Writing this book was a pleasure and a true labor of love. I hope readers will enjoy the book as much as I enjoyed writing it.
Chapter One
The Great
Paradigm Shift from
Market Capitalism to the Collaborative Commons
T
he 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. We are already witnessing the emergence of a hybrid economy, part capitalist market and part Collaborative Commons. The two economic systems often work in tandem and sometimes compete. They are finding synergies along each other’s perimeters, where they can add value to one another, while benefiting themselves. At other times, they are deeply adversarial, each attempting to absorb or replace the other.
The struggle between these two competing economic paradigms is going to be protracted and hard fought. But, even at this very early stage, what is becoming increasingly clear is that the capitalist system that provided both a compelling narrative of human nature and the overarching organizational framework for the day-to-day commercial, social, and political life of society—spanning more than ten generations—has peaked and begun its slow decline. While I suspect that capitalism will remain part of the social schema for at least the next half century or so, I doubt that it will be the dominant economic paradigm by the second half of the
twenty-first century. Although the indicators of the great transformation to a new economic system are still soft and largely anecdotal, the Collaborative Commons is ascendant and, by 2050, it will likely settle in as the primary arbiter of economic life in most of the world. An increasingly streamlined and savvy capitalist system will continue to soldier on at the edges of the new economy, finding sufficient vulnerabilities to exploit, primarily as an aggregator of network services and solutions, allowing it to flourish as a powerful niche player in the new economic era, but it will no longer reign.
I understand that this seems utterly incredible to most people, so conditioned have we become to the belief that capitalism is as indispensable to our well-being as the air we breathe. But despite the best efforts of philosophers and economists over the centuries to attribute their operating assumptions to the same laws that govern nature, economic paradigms are just human constructs, not natural phenomena.
As economic paradigms go, capitalism has had a good run. Although its timeline has been relatively short compared to other economic paradigms in history, it’s fair to say that its impact on the human journey, both positive and negative, has been more dramatic and far-reaching than perhaps any other economic era in history, save for the shift from foraging/hunting to an agricultural way of life.
Ironically, capitalism’s decline is not coming at the hands of hostile forces. There are no hordes at the front gates ready to tear down the walls of the capitalist edifice. Quite the contrary. What’s undermining the capitalist system is the dramatic success of the very operating assumptions that govern it. At the heart of capitalism there lies a contradiction in the driving mechanism that has propelled it ever upward to commanding heights, but now is speeding it to its death.
The Eclipse of Capitalism
Capitalism’s raison d’être is to bring every aspect of human life into the economic arena, where it is transformed into a commodity to be exchanged as property in the marketplace. Very little of the human endeavor has been spared this transformation. The food we eat, the water we drink, the artifacts we make and use, the social relationships we engage in, the ideas we bring forth, the time we expend, and even the DNA that determines so much of who we are have all been thrown into the capitalist cauldron, where they are reorganized, assigned a price, and delivered to the market. Through most of history, markets were occasional meeting places where goods were exchanged. Today, virtually every aspect of our daily lives is connected in some way to commercial exchanges. The market defines us.
But here lies the contradiction. Capitalism’s operating logic is designed to fail by succeeding. Let me explain.
In his magnum opus,
The Wealth of Nations
, Adam Smith, the father of modern capitalism, posits that the market operates in much the same way as the laws governing gravity, as discovered by Isaac Newton. Just as in nature, where for every action there is an equal and opposite reaction, so too do supply and demand balance each other in the self-regulating marketplace. If consumer demand for goods and services goes up, sellers will raise their prices accordingly. If the sellers’ prices become too high, demand will drop, forcing sellers to lower the prices.
The French Enlightenment philosopher Jean-Baptiste Say, another early architect of classical economic theory, added a second assumption, again borrowing a metaphor from Newtonian physics. Say reasoned that economic activity was self-perpetuating, and that as in Newton’s first law, once economic forces are set in motion, they remain in motion unless acted upon by outside forces. He argued that “a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value. . . . The creation of one product immediately opens a vent for other products.”
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A later generation of neoclassical economists refined Say’s Law by asserting that new technologies increase productivity, allowing the seller to produce more goods at a cheaper cost per unit. The increased supply of cheaper goods then creates its own demand and, in the process, forces competitors to invent their own technologies to increase productivity in order to sell their goods even more cheaply and win back or draw in new customers (or both). The entire process operates like a perpetual-motion machine. 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. If one or a few sellers are able to outgrow and eliminate their competition and establish a monopoly or oligopoly in the market—especially if their goods and services are essential—they can keep prices artificially high, knowing that buyers will have little alternative. In this situation, the monopolist has scant need or inclination to bring on new labor-saving technologies to advance productivity, reduce prices, and remain competitive. We’ve seen this happen repeatedly throughout history, if only for short periods of time.
In the long run, however, new players invariably come along and introduce breakthroughs in technology that increase productivity and lower prices for similar or alternative goods and services, and break the monopolistic hold on the market.
Yet suppose we carry these guiding assumptions of capitalist economic theory to their logical conclusion. 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” and what economists call the “optimum general welfare”—an endgame in which intense competition forces the introduction of ever-leaner technology,
boosting productivity to the optimum point in which each additional unit introduced for sale approaches “near zero” marginal cost. In other words, 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. For example, as an author, I sell my intellectual work product to a publisher in return for an advance and future royalties on my book. The book then goes through several hands on the way to the end buyer, including an outside copyeditor, compositor, printer, as well as wholesalers, distributors, and retailers. Each party in this process is marking up the transaction costs to include a profit margin large enough to justify their participation.
But what if the marginal cost of producing and distributing a book plummeted to near zero? In fact, it’s already happening. A growing number of authors are writing books and making them available at a very small price, or even for free, on the Internet—bypassing publishers, editors, printers, wholesalers, distributors, and retailers. The cost of marketing and distributing each copy is nearly free. The only cost is the amount of time consumed by creating the product and the cost of computing and connecting online. An e-book can be produced and distributed at near zero marginal cost.
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—
generating their own green electricity at near zero marginal cost around the world. It’s estimated that around 100,000 hobbyists are manufacturing their own goods using 3D printing at nearly zero marginal cost.
2
Meanwhile, six million students are currently enrolled in free Massive Open Online Courses (MOOCs) that operate at near zero marginal cost and are taught by some of the most distinguished professors in the world, and receiving college credits. In all three instances, while the up-front costs are still relatively high, these sectors are riding exponential growth curves, not unlike the exponential curve that reduced the marginal cost of computing to near zero over the past several decades. Within the next two to three decades, prosumers in vast continental and global networks will be producing and sharing green energy as well as physical goods and services, and learning in online virtual classrooms at near zero marginal cost, bringing the economy into an era of nearly free goods and services.
Many of the leading players in the near zero marginal cost revolution argue that while nearly free goods and services will become far more prevalent, they will also open up new possibilities for creating other goods and services at sufficient profit margins to maintain growth and even allow the capitalistic system to flourish. Chris Anderson, the former editor of
Wired
magazine, reminds us that giveaway products have long been used to draw potential customers into purchasing other goods, citing the example of Gillette, the first mass producer of disposable razors. Gillette gave away the razors to hook consumers into buying the blades that fit the devices.
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Similarly, today’s performing artists often allow their music to be shared freely online by millions of people with the hope of developing loyal fans who will pay to attend their live concerts.
The New York Times
and
The Economist
provide some free online articles to millions of people in anticipation that a percentage of the readers will choose to pay for more detailed reporting by subscribing. “Free,” in this sense, is a marketing device to build a customer base for paid purchases.
These aspirations are shortsighted, and perhaps even naïve. 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 reluctance to come to grips with near zero marginal cost is understandable. Many, though not all, of the old guard in the commercial arena can’t imagine how economic life would proceed in a world where most goods and services are nearly free, profit is defunct, property is meaningless, and the market is superfluous. What then?
Some are just beginning to ask that question. They might find some solace in the fact that several of the great architects of modern economic thinking glimpsed the problem long ago. John Maynard Keynes, Robert Heilbroner, and Wassily Leontief, to name a few, pondered the critical contradiction that drove capitalism forward. They wondered whether, in the distant future, new technologies might so boost productivity and lower prices as to create the coming state of affairs.
Oskar Lange, a University of Chicago professor of the early twentieth century, captured a sense of the conundrum underlying a mature capitalism in which the search for new technological innovations to advance productivity and cheapen prices put the system at war with itself. Writing in 1936, in the throes of the Great Depression, he asked whether the institution of private ownership of the means of production would continue indefinitely to foster economic progress, or whether at a certain stage of technological development the very success of the system would become a shackle to its further advance.
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Lange noted that when an entrepreneur introduces technological innovations that allow him to lower the price of goods and services, he gains
a temporary advantage over competitors strapped with antiquated means of production, resulting in the devaluation of the older investments they are locked into. This forces them to respond by introducing their own technological innovations, again increasing productivity and cheapening prices and so on.
But in mature industries where a handful of enterprises have succeeded in capturing much of the market and forced a monopoly or oligopoly, they would have every interest in blocking further economic progress in order to protect the value of the capital already invested in outmoded technology. Lange observes that “when the maintenance of the value of the capital already invested becomes the chief concern of the entrepreneurs, further economic progress has to stop, or, at least, to slow down considerably. . . . This result will be even more accentuated when a part of the industries enjoy a monopoly position.”
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