Authors: Jeremy Rifkin
Free-market economists would argue that a capitalist system wedded to private exchange of goods and services in the marketplace and driven by the profit motive is the most efficient means of allocating scarce resources for productive ends. However, when it comes to logistics—the means by which these goods and services are stored and delivered to customers—the process is so grossly inefficient and unproductive that it should at least give economists pause. Rethinking the way we store and ship materials and goods is especially important now, with the cost of energy careening to higher peaks, placing an ever-heavier burden on a logistics system that is already redundant and inefficient. The inefficiencies rack up a huge carbon dioxide bill. In 2006, U.S. trucks traveled 263 billion miles on billions of gallons of fuel, sending record amounts of carbon dioxide emissions into the atmosphere.
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If logistics were just a minor part of the economy, it might not matter so much. But logistics is the driver of the whole system—the process
by which suppliers and buyers connect and conduct business at every step of the value chain. In 2009, transportation represented “10% of the U.S. Gross Domestic Product, or roughly $1.4T (trillion).” Expenditures on freight transportation came in at $500 billion, packaging rang up at $125 billion, and warehousing accounted for $33 billion.
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Now, a new generation of academics and logistics professionals is looking to the distributed, collaborative, laterally scaled Internet communication system, with its open-systems architecture and Commons-style management, as a model for radically transforming global logistics in the twenty-first century. The irony of applying Internet lessons and metaphors to logistics is not lost on industry leaders as they recall that the IT and telecommunications industry borrowed metaphors from logistics to conceptualize their first forays into the Internet communication revolution. Soon after the World Wide Web went on line, vice president of the United States Al Gore talked about the need to create “an information superhighway,” noting that the creation of the interstate highway system a generation earlier had connected road transportation, with spillover effects that included suburban development, the geographic dispersal of manufacturing and retailing, and the growth in tourism—all of which gave the United States the period of greatest economic prosperity in its 200-year history.
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The open architecture of an interconnected interstate highway system—on which a car could travel coast to coast without a single stoplight—inspired techies to conceptualize an interconnected communication medium that would allow packets of information to travel effortlessly across various networks in a distributed system.
Today, the logistics industry is using Internet metaphors to rethink its own sector. Benoit Montreuil of the University Research Center on Enterprise Networks, Logistics, and Transport (CIRRELT) in Montreal, Canada, explains that just as the digital world took up the superhighway metaphor, now the logistics industry ought to take up the open-architecture metaphor of distributed Internet communication to remodel global logistics.
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Montreuil describes the essential features of a Logistics Internet, noting that many of the components are already in play but not yet connected in a single, transparent, open system. To begin with, a packet of information transmitted over the Internet contains information on both its identity and routing to its destination. The data packet is structured independently from the equipment, allowing the packet to be processed through different systems and networks, including copper wires, fiber-optic wires, routers, local area networks, wide area networks, etc. Similarly, with a Logistics Internet, all physical products would need to be embedded in standardized modular containers that could be transported across all the logistics networks. The containers would need to be equipped with smart tags and sensors for identification and sorting. The entire system, from warehousing to transport to end users, would need to operate by the same standard technical protocols to assure easy passage from one point to another.
On the Logistics Internet, conventional point-to-point and hub-and-spoke transport would give way to distributed, multisegment, intermodal transport. Instead of one driver handling the entire load from the production center to the drop off and then heading to the nearest location to pick up a shipment designated for delivery on the way back home, the delivery would be distributed. The first driver might deliver the shipment to a hub close by and then pick up another trailer and shipment and head back home. A second driver would pick up the shipment and deliver it to the next hub down the line, whether it be at a truck port, railyard, or airport, until the entire shipment arrived at the destination.
Montreuil explains that in the current system, a driver would travel from Quebec to Los Angeles and back on a 10,000-kilometer round-trip, racking up at least 240 hours, with the container reaching Los Angeles after 120 hours. In the distributed system, 17 different drivers would each drive an average of about three hours to the drop-off point and return home the same day. The hand-off system would get the container to Los Angeles in approximately 60 hours, or half the time of the traditional point-to-point system. Internet tracking of the container would assure quick relay at every distribution point, making sure there was no time lost in the handover.
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In the current logistics system, most private companies own one or a few warehouses or distribution centers, but rarely more than 20. Most independent warehouses or distribution centers usually contract exclusively with one private enterprise, but rarely handle the logistics of more than ten enterprises. This means that private firms have available to them only a few warehouses or distribution centers, limiting their operations in storing and moving goods across continents.
But what if any enterprise could use all of the 535,000 currently used warehouses and distribution centers in the United States?
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If those centers were connected in an open supply web managed by sophisticated analytics and algorithms, companies could use the system to store items and route shipments in the most efficient manner possible at any given moment of time. The improved energy efficiencies and productivity would be dramatic, as would the savings in fuel and the reduction in carbon dioxide emissions for every firm using the network.
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Montreuil points out that an open supply network allows firms to reduce their lead time to near zero if their stock is distributed among some of the hundreds of distribution centers that are located near their final buyer market. Moreover, as 3D printing advances, firms can transmit the code for the product to local 3D printers who can then print out the item and store it in a nearby distribution center for delivery to regional wholesalers and retailers.
The technology is already available. What’s needed is the acceptance of universal standards and protocols and a business model to manage a regional, continental, and global logistics system.
Only by joining together in logistics cooperatives or other forms of Commons management could each private firm reap the cost benefits that flow from being part of a larger network. Integrated transport service providers already exist and will likely increasingly take on the task of clustering clients in cooperatives to realize the potential of a Logistics Internet that facilitates lateral economies of scale. An open logistics infrastructure will give integrated transport service providers a universal playing field—made up of thousands of warehouses and distribution centers linked into a single cooperative network—that they can access to optimize each client’s logistical requirements.
Managing Temporal Resources on
the Three Internet Commons
All three of the critical infrastructures that make up the Internet of Things share a similar management task. Unlike most traditional Commons, where the primary self-policing concern is stewarding common physical resources to prevent a depletion of stock, the three infrastructure Commons of the collaborative era need to steward temporal resources to prevent congestion. The Communications Internet has to self-police against data congestion in the transmission of information across radio bands. The Energy Internet has to prevent congestion in the management of peak and base-load electricity and maintain a proper balance between storage of energy and transmission of electricity to avoid power surges, brownouts, and blackouts. The Logistics Internet has to coordinate logistical flows and balance storage and transport of physical material and goods to prevent traffic congestion and optimize delivery schedules on the roads, rails, waterways, and air corridors. In all three instances, the more players in the networked Commons, the more benefits that accrue to each Commons member, but also the greater need to guard against congestion.
The capitalist model of private ownership, in which each firm is an island unto itself and attempts to gather economic activity vertically under one roof to achieve economies of scale, is incapable, by dint of its very operational features, to manage activities that require the active collaboration of thousands of players in laterally scaled operations. In lieu of Commons management, each private firm will attempt to optimize its own temporal flow at the expense of others, leading only to greater congestion in the network and a loss in operability, affecting every company in the system and resulting in a tragedy that goes with an unmanaged Commons.
The kinds of cost benefits that come with the Communications Internet, the Energy Internet, and the Logistics Internet are simply not realizable in a purely market economy, where each company goes it alone. No company, regardless of how ambitious, could hope to engage in sufficient mergers and acquisitions to achieve the efficiencies and productivity gains available by being part of a laterally scaled networked Commons.
As briefly touched on
in chapter 1, to function, every society requires a means of communication, a source of energy, and a form of mobility. The coming together of the Communications Internet, the Energy Internet, and the Logistics Internet in an Internet of Things provides the cognitive nervous system and physical means to integrate all of humanity in an interconnected global Commons that extends across the entirety of society. This is what we mean when we talk about smart cities, smart regions, smart continents, and a smart planet.
The linking up of every human activity in an intelligent global network is giving birth to a wholly new economic being. The old being of the First and Second Industrial Revolutions relied on a communication/energy matrix and logistics grid that required huge sums of capital, and therefore had to be organized in vertically integrated enterprises under centralized command and control to achieve economies of scale. The capitalist system and the market mechanism proved to be the best institutional tools to advance the paradigm.
The new being of the Third Industrial Revolution, however, is of a very different nature. It requires less finance capital and more social capital, scales laterally rather than vertically, and is best implemented by a Commons management rather than by a strictly capitalist market mechanism. This means that 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. In the coming era, the long-standing partnership between government and the private sector to organize the economic life of society will give way to a tripartite partnership with Commons management playing an ever-greater role, complemented by government and market forces.
Part IV
Social Capital and the Sharing Economy
Chapter Thirteen
The Transformation from Ownership to Access
I
f private property is the defining characteristic of a capitalist system, then the privately owned automobile is the signature item. In many regions of the world, more people own automobiles than own homes. It’s often people’s most valuable piece of private property. Automobile ownership has long been considered a rite of passage into the world of property relationships.
The very term
auto
mobile
conveys the classical economic idea that human nature is driven by the quest for
auto
nomy and
mobil
ity, with every person desiring to be sovereign over his or her own domain. Americans have long associated the idea of freedom with autonomy and mobility. Nowhere is one’s sense of autonomy more keenly felt than when behind the wheel in an enclosed vehicle capable of amplifying one’s physical prowess by a magnitude of raw horsepower. To be autonomous is to be the master of one’s fate, to be self-sufficient, and not to be dependent on or beholden to others—in other words, to be free. The automobile represents the ultimate enclosure. The privately owned car reflects the desire to be an island to oneself, to be self-contained, and unencumbered. We also equate freedom with unobstructed mobility. The ability to travel anywhere without restriction has become intimately bound up with our sense of physical freedom. Every young person of my generation experienced the exhilaration of this kind of freedom the first time they took the wheel in their own automobile and headed out on the open road. In the capitalist era, we came to define freedom in negative terms as the right to exclude. The automobile became the symbol of our conventional notion of freedom.
The Internet generation, however, has come to think of freedom not in the negative sense—the right to exclude others—but rather in the positive sense of the right to be included with others. For them, freedom means the ability to optimize one’s life, and the optimal life is realized by the diversity of one’s experiences and the distributed reach of one’s relationships in the various communities to which one affiliates over a lifetime. Freedom is measured more by access to others in networks than ownership of property in markets. The deeper and more inclusive one’s relationships, the more freedom one enjoys. Having continuous access to others in social spaces like Facebook and Twitter gives one’s life meaning. Freedom for an Internet generation is the ability to collaborate with others, without restriction, in a peer-to-peer world.
For the doubters who question the generational shift in thinking regarding the nature of freedom—from the right to own and exclude to the right to have access and be included—consider the following eye-opening statistics. In a recent survey of drivers between the ages of 18 and 24, 46 percent said they would choose Internet access over owning a car. Equally revealing, “in 2008, 46.3 percent of potential drivers 19 years old and younger had drivers’ licenses, compared with 64.4 percent in 1998.” When 3,000 millennial consumers born between 1981 and 2000 were asked which of 31 brands they preferred, not a single car made it in the top ten, which mainly consisted of Internet companies like Google.
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The Car as Metaphor
A generation of young people are transforming their relationship to the automobile, preferring access over ownership. Car sharing has become popular among millennials all over the world. An increasing number of young people belong to car-sharing clubs in which they pay a small membership fee and, in return, are provided access to automobiles when they need them. Their membership comes with smart cards giving them access to vehicles scattered in various car parks across cities. Members reserve cars in advance over the Web or with a smartphone app. While some of the operations, like Zipcar and Chicago’s I-Go, are privately owned, many more are operated by nonprofit organizations, like Philly Car Share, City CarShare in San Francisco, and HourCar in Minneapolis.
In 2012, 800,000 people in the United States belonged to car-sharing services. Globally, 1.7 million people are car sharing in 27 countries.
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A recent study by Frost and Sullivan Consultants forecasts more than 200 car-sharing operations across the European Union by 2020, with a car-sharing vehicle fleet expected to increase from 21,000 to 240,000 vehicles. Car-sharing membership is projected to grow from 700,000 to 15 million in less than seven years, with revenue reaching
€
2.6 billion. Car-sharing revenue is expected to grow even faster in North America, topping $3 billion by 2016.
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As car-sharing networks expand, the number of vehicles owned by members drops. A study of 11 leading car-sharing enterprises found that 80 percent of the members sampled who owned a car before car sharing sold it after joining the network. Of those households that still owned cars, the number of vehicles owned dropped from 0.47 vehicles per household to 0.24 vehicles per household after joining a car-share club.
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Car sharing not only reduces the number of cars on the road, but it also lowers carbon emissions. In 2009, each car-share vehicle eliminated 15 personally owned cars. In addition, car-share members drove 31 percent less than when they owned a vehicle. These changes in car-traveling behavior reduced CO
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emissions in the United States by 482,170 tons.
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Car-sharing behavior also has significant crossover effects. According to a study done in 2011, once people car share they tend to change their other mobility behavior, increasing bicycling, walking, and the use of public transportation.
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Bike sharing, in particular, has taken off over the past five years, thanks in part to technological advances like smart cards, touchscreen kiosks for easy check in and deployment, and GPS tracking on the bicycle that allows the rider to integrate bike sharing with car sharing and public transit. The newest innovation, solar-powered electric bicycles, has generated rave reviews from a younger generation. As of 2012, there were 19 bike-sharing programs in North America with over 215,000 users.
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Globally, there are over 100 bike-sharing operations with 139,300 bicycles in service.
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In the United States and Canada, 58 percent of the new IT-based public bike-sharing operations are run by nonprofit organizations, 21 percent are privately owned, and 16 percent are publicly owned and contractor operated. The nonprofit operations are the heavy hitters, accounting for 82 percent of the membership and 66 percent of the bicycles used.
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Bike-sharing memberships can be taken out on an annual, monthly, or daily basis, or even be paid for on a trip-by-trip basis. Riders gain access to bikes by swiping membership cards or credit cards, or by checking in via their smartphones.
Bike sharing has become very popular in congested metropolitan areas where car traffic is often at a standstill during peak rush hours. In surveys conducted by Vélib’ bike sharing in Paris and Capital Bikeshare in Washington, D.C., the overwhelming majority of bike sharers said that traveling by bike was faster and more convenient. Bike sharing also saves money that would have gone into operating a car.
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Car sharing also saves households money. In the United States, the average car costs hundreds of dollars a month to own and operate and eats up 20 percent of household income, making it the second-most-expensive cost after housing. The steep rise in gasoline prices has only exacerbated the expense of car ownership. With car sharing, the user is freed from ownership costs as well as from the fixed operating costs, including maintenance, insurance, licenses, taxes, etc.
The average vehicle in the United States is idle 92 percent of the time, making it an extremely inefficient fixed asset.
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For that reason, young people are far more comfortable paying for mobility in time segments rather than in ownership.
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Car-sharing services are also pioneering the transition to electric vehicles. In 2013, the city government of Paris joined in a car-sharing collaboration with 46 neighborhood municipalities, making 1,750 electric vehicles (EVs) available at 750 charging stations throughout Paris and the suburbs.
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Autolib’ is one of a growing number of new car-sharing operations offering electric vehicles at zero carbon emissions to a user base that is increasingly committed to practicing sustainable mobility. Frost and Sullivan estimates that one in five new car-shared vehicles and one in ten total shared vehicles will be EVs by 2016.
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In peer-to-peer car-sharing practice, individual owners of cars register their vehicle online for free in networks like RelayRides and share them with users. The lender can set the price per hour and the hours available for renting, as well as screen any prospective users. RelayRides does background checks on the user and covers the insurance. The user covers the gasoline and road repair. The owner of the car gets 60 percent of what the user pays and RelayRides gets the other 40 percent. The lender is responsible for servicing and maintaining the automobile but because all new vehicles and many used vehicles come with free servicing and warranties for most of the basic systems maintenance, the lender is only paying for the fixed overhead of the car. Owners can earn between $2,300 and $7,400 annually based on car rentals that average $5 to $12 per hour. Since the average car owner spends around $715 a month on his or her vehicle, by peer-to-peer sharing, he or she can significantly reduce the cost of owning and keeping a car.
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Car-share clubs are increasingly using Integrated Transportation Provider Services (ITPS) to help their members switch from one mode of transport to another en route. A member might be routed by a car share and dropped off at a light-rail station where she will climb aboard the train. Several stops later, she will disembark at a bike-share rack where she will pick up a bike and pedal to another bike-share rack within blocks of her final destination. An ITPS app on the user’s smartphone will keep her from getting lost. If she wants to stop somewhere on route and change course, she programs the request and the app charts a new course in seconds, taking into consideration current traffic flows and congestion bottlenecks along the route.
Some of the big auto manufacturers have jumped onboard the car-sharing bandwagon. GM has teamed up with RelayRides. General Motors Ventures has provided the peer-to-peer car-sharing network with financial support and has made its Onstar system available so that users can gain easy access to any GM vehicles with their mobile phones. GM’s vice chairman, Stephen Girsky, says that the company is becoming involved in car
sharing because the “goal is to find ways to broaden our customer reach, reduce traffic congestion in America’s largest cities and address urban mobility concerns.”
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GM and the other automakers find themselves in the same untenable position that capitalist firms are facing in other sectors of the economy. The emergence of a networked Commons is driving down the cost of mobility. In the short run, no single automaker can afford to stay on the sidelines, for fear its competitors will jump in—which they are—and attempt to grab at least a part of the action in the new car sharing Commons. But any value the automakers reap by embracing car sharing has to be weighed against the fewer cars they will be selling. Recall that 80 percent of the members of car-sharing clubs who owned a car prior to car sharing sold it after joining the network and that each car-sharing vehicle eliminates 15 personally owned cars from the road. With car companies already experiencing razor-thin margins, and with little wiggle room to stay in the game, they can’t afford not to be in the car-sharing business even though the game itself is only going to reduce their car sales and diminish their already-slim margins.
Lawrence D. Burns, the corporate vice president of research, development, and planning at General Motors until 2009 and currently professor of engineering at the University of Michigan, gets to the nub of the contradiction facing the automobile industry. Burns did his calculations and concluded that
for a citizen of a city like Ann Arbor [Michigan], such a service [car sharing] could be more than 70% cheaper and would require residents to invest less than one-fifth of the amount needed to own their cars.
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Incredibly, Burns admits that “about 80% fewer shared, coordinated vehicles would be needed than personally owned vehicles to provide the same level of mobility, with less investment.”
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Yet he recognizes that from an efficiency perspective, shared vehicles providing comparable mobility at 20 percent of the cost of owning a vehicle optimizes the general welfare and is simply too good of a deal to pass up, even though it is likely to eliminate 80 percent of the vehicles manufactured and sold. Still, the former GM heavyweight enthusiastically supports the shift from car ownership in markets to car sharing in Collaborative Commons, knowing that it will result in a dramatic shrinkage in the number of vehicles on the road.
The privately owned automobile, the centerpiece of the capitalist marketplace during the Second Industrial Revolution, is falling victim to the distributed, laterally scaled opportunities of car sharing on a rising Collaborative Commons better suited to optimize the general welfare of society. Rather than the market taming the Commons, it is the Commons taming the market—a reality that has yet to be fully grasped by those who
continue to labor under the assumption that a sharing economy is a market opportunity rather than a devourer of capitalism.
The shift in personal mobility from ownership to access and from markets to shared Commons is likely to quicken in the years ahead with the introduction of driverless vehicles. In 2012, Governor Jerry Brown of California signed a law making it legal for driverless vehicles to operate on California roads. Nevada and Florida have also authorized driverless vehicles on their roadways. In signing the new law, Governor Brown declared that “today, we’re looking at science fiction becoming tomorrow’s reality.”
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