Authors: Jeremy Rifkin
AI scientists will tell you that the most challenging hurdle for their industry is breaking through the language barrier. Comprehending the rich meaning of complex metaphors and phrases in one language and simultaneously retelling the story in another language is perhaps the most
difficult of all cognitive tasks and the most unique of all human abilities. I have spent quite a bit of time over the years with translators at lecture presentations, in meetings, and even, when required, at social functions. I marvel at their ability to take what I’m saying—not just the text, but the subtle inferences in my tone of voice, my accentuations, and even my facial expressions and body language—and without hesitation convey its layers of meaning to others in words that resonate with the same intent that I expressed. Mediocre translators are literalists, attempting merely to match words and phrases in two different languages. Their translations seem machinelike and the meanings are garbled and confused. The best translators are artists who are able to live in two different cognitive personas simultaneously.
I have long been a skeptic when it comes to the prospect of AI besting world-class translators. Still, recent advances in AI are bringing that day ever closer. Lionbridge is a company that provides real-time translation for online customer support, allowing consumers to speak across languages via instant translation of user-generated content. Its GeoFluent plug-in software-as-a-service solution, which uses Microsoft translation technology, provides translations between 39 languages. While not yet as proficient as the best translators, GeoFluent is good enough to break the language barrier and bring one-third of the human race already online together in the first truly shared global conversation in all of history, speeding the transition into a universal Commons and Collaborative Age.
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Within a decade or so, businesspeople, workers, and travelers will be equipped with mobile apps allowing them to effortlessly have conversations online or face to face with someone who speaks a different language. Most of the 150,000 to 300,000 highly educated and costly translators will go the way of cashiers, file clerks, and secretaries, as AI provides translation services at near zero marginal labor costs, dead-ending still another professional labor category.
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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.
IT, computerization, automation, Big Data, algorithms, and AI embedded in the Internet of Things are quickly reducing the marginal labor costs of producing and delivering a wide range of goods and services to near zero. Barring an unforeseen blowback, much of the productive economic activity of society is going to be increasingly placed in the “hands” of intelligent technology, supervised by small groups of highly skilled professional and technical workers as we journey further into the twenty-first century.
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? What we are seeing is 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, what happens when so few people are gainfully employed that there are not enough buyers to purchase goods and services from sellers?
For starters, the emerging zero marginal cost economy radically changes our notion of the economic process. The old paradigm of owners and workers, and of sellers and consumers, is beginning to break down. Consumers are becoming their own producers, eliminating the distinction. prosumers will increasingly be able to produce, consume, and share their own goods and services with one another on the Collaborative Commons at diminishing marginal costs approaching zero, bringing to the fore new ways of organizing economic life beyond the traditional capitalist market model.
Secondly, the automation of work across every sector of the market economy is already beginning to free up human labor to migrate to the evolving social economy. In the coming era, deep play in the Collaborative Commons becomes as important as hard work was in the market economy, and the amassing of social capital becomes as valued as the accumulation of market capital. Attachment to community and the search for transcendence and meaning comes to define the measure of one’s life rather than one’s material wealth.
Lest this sounds fanciful and out of reach, know that millions of young people are just beginning to make their way from the old order to the new. Members of the Internet generation see themselves more as players than workers, regard their personal attributes more as talents than skills, and prefer to express their creativity in social networks rather than laboring away in cubicled assignments, performing autonomous tasks in markets. For an increasing number for young people, the emerging social economy on the Commons offers greater potential opportunity for self-development and promises more intense psychic rewards than traditional employment in the capitalist marketplace. (The migration of employment from the capitalist market economy to the social economy on the Collaborative Commons will be addressed more fully in chapter 14.)
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.
Chapter Nine
The Ascent of the Prosumer and the Build-out of the Smart Economy
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n a Collaborative Commons, sellers and buyers give way to prosumers, property rights make room for open-source sharing, ownership is less important than access, markets are superseded by networks, and the marginal cost of producing information, generating energy, manufacturing products, and teaching students is nearly zero. A central question arises: How is the new Internet of Things infrastructure that makes all of this possible going to be financed? (The issue of how a near zero marginal cost society is going to be governed and managed will be addressed separately in chapter 12.)
The Marginal Cost Controversy
This question of financing infrastructure has come up before, back in the 1930s and 1940s. It was referred to at the time as the “marginal-cost controversy” and unleashed a contentious debate among economists, business leaders, and government policy makers. At the time, it was more of an abstract issue. Today, it’s one of the most important political issues facing society. How we choose to finance a near zero marginal cost society will likely determine the way we organize economic, social, and political life for the remainder of the twenty-first century.
In December 1937, the economist Harold Hotelling, the retiring president of the Econometric Society, presented an esoteric paper called “The General Welfare in Relation to Problems of Taxation and of Railway and Utility Rates” at the association’s annual meeting.
Hotelling began with the observation that “the optimum of the general welfare corresponds to the sale of everything at marginal cost.”
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Of course, if firms were to sell their products at the marginal cost, they would soon be out of business because they would be unable to recoup their capital investment, so every entrepreneur builds in the up-front costs in the sale of each unit.
Hotelling observed, however, that there are certain kinds of goods—public goods—that are nonrivalrous because everyone needs to have access to them—for example, roads and bridges, water and sewage systems, railroad lines, electricity grids, etc. These public goods are generally of the kind that establish infrastructure for conducting all other economic activity and require significant capital expenditures. And because they are nonrivalrous goods, they favor natural monopoly. Competing grids for roads, bridges, water and sewage systems, and electricity transmission would be a colossal waste of resources.
All of which raises the question: How should infrastructure and public goods be paid for? Hotelling argued that since the general public would greatly benefit from only having to pay for the marginal cost of what they are using, the best way to finance the fixed costs of creating the public goods is through general taxation. Hotelling favored income taxes, inheritance taxes, and taxes on the value of land to pay for public goods. He reasoned that if government were to finance the overhead cost of nonrivalrous infrastructure development up front with taxes, “everyone would be better off.”
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Hotelling used the illustration of a bridge to make his case.
A free bridge costs no more to construct than a toll bridge, and costs less to operate; but society, which must pay the cost in some way or other, gets far more benefit from the bridge if it is free, since in this case it will be more used. Charging a toll, however small, causes some people to waste time and money in going around by longer but cheaper ways, and prevents others from crossing.
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Hotelling acknowledged that while using taxes to finance the overhead of public goods might adversely affect some taxpayers—depending on the type of tax—and especially the well-to-do, in the case of inheritance and land taxes, it would be a small burden for the nation’s wealthiest members to bear when measured against the gains to the general welfare.
Hotelling concluded that general government revenue should “be applied to cover the fixed costs of electric power plants, waterworks, railroads, and other industries in which the fixed costs are large, so as to
reduce to the level of marginal cost the prices charged for the services and products of these industries.”
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Many of the leading economists of the day agreed with Hotelling’s argument, convinced that it was the most rational approach to achieving the public good.
Not all economists, however, were won over to Hotelling’s pleadings. More traditional advocates of free enterprise recognized that public goods—especially those that constitute infrastructure—were non-rivalrous, and in those instances the average cost of bringing additional units to market continued to decline with prolonged demand. Charging for “declining average cost,” they argued, was more sensible, allowing firms to recoup their investment while keeping the government’s hands off the economic life of the nation.
In 1946, economist Ronald Coase stepped into the fray, taking exception to Hotelling’s thesis by arguing that the social subsidies Hotelling advocated “would bring about a maldistribution of the factors of production, a maldistribution of income, and probably a loss similar to that which the scheme was designed to avoid.”
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Coase did not disagree with Hotelling that price should equal marginal cost, but he also believed that the total cost needed to be covered. He suggested a multipart pricing scheme in which those using the public good paid an additional fee on top of the marginal cost price for carriage charges. That way, those using the service would pay a little extra for carriage rather than taxpayers, some of whom wouldn’t even use the service. Multipart pricing, Coase believed, would allow both the marginal cost and total cost to be covered.
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Without going into laborious detail on the nuances of the marginal cost controversy, suffice it to say that Coase turned the tide in favor of the free market. By 1946, conventional wisdom had seesawed back to the champions of the unencumbered market, who argued that natural monopolies should remain in the hands of the private sector and, in lieu of public subsidies, firms should be able to set prices above marginal costs to recoup their investments. That line of reasoning still holds sway today. John Duffy, a professor of law at the George Washington University Law School, says that “in short, modern public utility theorists generally do not recommend using pervasive public subsidies to chase the Holy Grail of global marginal cost pricing.”
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In reality, the argument that governments ought not to finance infrastructure that creates public goods and services and that natural monopolies ought to be able to set their prices above marginal costs to recoup fixed costs is more than a bit disingenuous. Many of the same market economists who oppose government subsidies turn a blind eye to the fact that the private firms characterized as public utilities and that enjoy near monopoly status are the most heavily subsidized by government taxes.
In the United States, over half of all federal tax subsidies go to just four industries—finance, utilities, telecommunications, and oil, gas, and
pipelines. With the exception of finance, they bear all the earmarks of public utilities. Between 2008 and 2010, gas and electric utilities received more than $31 billion in government subsidies, telecommunications got more than $30 billion, and oil, gas, and pipelines weighed in with $24 billion.
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Before the move to deregulation and privatization in the 1980s, these three industries were, in fact, government owned and financed in most industrialized nations—allowing the consumer to enjoy relatively cheap prices. In the United States, however, they remained, for the most part, in the private sector. Electricity and gas utilities were regulated by government but allowed to set prices above the marginal costs, allowing them to make profit while enjoying rich government subsidies.
Those subsidies don’t even include intellectual-property protection afforded by the government in the form of patents. Although originally conceived to encourage invention and allow entrepreneurs to recoup their investments, intellectual property has long since served a different function, allowing natural monopolies to enjoy a second monopoly over goods and services they deliver, enabling them to charge prices far in excess of their marginal costs.
All of this might have gone unseen were it not for the meteoric rise of the Internet, which brought the marginal cost of securing information to near zero. This was followed in quick succession by the plunging marginal cost of harvesting the sun and wind and other abundant renewable energies, the 3D printing of “things,” and online courses in higher education.
The Internet of Things is the first general purpose technology platform in history that can potentially take large parts of the economy to near zero marginal costs. And that’s what makes the marginal cost controversy so pivotal to humanity’s future. Whether the new potential inherent in the IoT infrastructure can be realized will be determined by who finances the platform. The struggle for control is already well underway, mostly behind the scenes, in regulatory commissions, courtrooms, legislatures, corporate boardrooms, civil society organizations, and academic circles all over the world. As of yet, only snippets of the discussion have bubbled up to public consciousness. That is likely to change in the next few years as a younger generation squares off with itself on what kind of economic future it favors.
Power to the People
The question is whether, on the one hand, prosumers weaned on open-source access and peer-to-peer collaboration will find a financing model that can optimize the new infrastructure’s potential of achieving a near zero marginal cost society. Or, on the other hand, whether corporate interests wedded to an older capitalist model will use intellectual-property protection, regulatory policy, and other legislation to bend the
infrastructure their way, keeping prices well above near zero marginal costs and profits flowing.
To get a handle on which of these two forces is likely to triumph, follow the money. In the First and Second Industrial Revolutions, the amassing of private capital allowed a growing entrepreneurial class to underwrite and seize control of the vital infrastructure and, along with it, the legislative, judicial, and executive powers that would regulate it. Although the government subsidized much of the infrastructure development as well as the critical industries that grew up around it, private capital ran the game, at least in the United States. As mentioned, in Europe and elsewhere, governments owned many of the critical infrastructure industries, particularly those involved in the delivery of nonrivalrous public goods—that is, until the Reagan/Thatcher push to sell off public enterprises to the private sector in the great deregulation shuffle. The selloff continued for nearly 30 years under the guise of encouraging free markets.
The financing of the IoT infrastructure, however, is coming not so much from wealthy capitalists or corporate shareholders, but from hundreds of millions of consumers and taxpayers. First, let’s begin with the Internet, the communication medium of the IoT infrastructure. Who owns it? Actually, everyone and no one. The Internet is a system organized by an agreed-upon set of protocols that allows computer networks to communicate with one another. While there is a physical network—an Internet backbone—made up of big companies that lay the cable, provide wired and wireless connections, route the traffic, and store the data, the companies are merely providers and facilitators. There are also Web companies and nonprofit Web organizations that inhabit the Internet and coordinate the content. The Internet itself, however, is a virtual public square where anyone who pays for an Internet connection can gain admission and join the conversation. The Internet has already brought 2.7 billion people into the coveted zone where the marginal cost of accessing and sending various forms of communication is nearly zero.
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Now that the Internet is converging with distributed renewable energies to create a nervous system for a new economic paradigm, the question shifts to who is financing the Internet of Things? By and large, the evolving smart infrastructure—and especially the Energy Internet—is being financed by consumers, with lesser amounts being ponied up by governments, primarily to stimulate research and development of new enabling technologies.
The green feed-in tariff has become the primary tool for advancing distributed renewable energies. Local, regional, and national governments guarantee a premium price above the market value of other energies for a set period of usually 15 to 20 years to encourage early adopters to invest in the installation of wind, solar, geothermal, biomass, and small hydro renewable energy generation and feed the new green electricity back to the transmission grid. As more individuals bring renewable energy online, the
industry scales, encouraging new investments by manufacturers to innovate their harvesting technologies, increase their efficiency and productivity, and drop their costs, all of which stimulates a growing market.
Increased efficiency and productivity reduces the cost of generating renewable electricity, allowing the new green-sourced electricity to move closer and closer to parity with the market price of conventional fossil fuels and nuclear electricity. As the new renewable electricity approaches parity, governments can begin to reduce the feed-in tariff premium and, eventually, when parity is reached, phase out the tariff altogether.
Sixty-five countries have instituted feed-in tariffs, and over half of them are in the developing world.
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Feed-in tariffs have proven to be a powerful policy instrument in moving renewable energy online. Nearly two-thirds of the global wind and 87 percent of global photovoltaic capacity has been spurred by feed-in tariffs.
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The funding for feed-in tariffs generally comes from a slight increase in the price of electricity on everyone’s monthly electricity bill or from taxes. In other words, either the power companies pass the additional cost along to the consumers, who finance the shift to renewable energies, or the taxpayers pay via government subsidies of the feed-in tariffs. In the early years of the feed-in tariffs, big solar and wind companies were the most likely to take advantage of the premium by establishing large, concentrated solar and wind energy parks and reaping profits, all financed by rate hikes charged to millions of small electricity consumers. On occasion, power and utility companies even set up their own subsidiaries to generate wind and solar energy, which they fed back to the parent company at a premium, all paid for by the company’s electricity consumers—allowing the company to profit at the expense of the millions of ratepayers.