Thursday, May 01, 2014

Jeremy Rifkin on an economy where energy, information and things cost next to nothing

Jeremy Rifkin’s latest book ”The zero marginal cost society” looks at how the economy could change as an increasing part of what we consume is produced in ways, where the marginal cost is near zero. We know that once a piece of information has been produced, it can be copied and distributed for nearly free.
Jeremy Rifkin argues that the same logic will apply to 3D printed physical objects and to renewable energy.
It will be expensive to establish the infrastructure and the machinery for producing and delivering, and it will take investments to design and create the first version of a product – but from there on, all the following copies are essentially free.

As Rifkin writes:
”Like the communications internet where the up-front costs of establishing the infrastructure were considerable, but the marginal cost of producing and distributing information is negligible, the up-front costs of establishing an energy internet are likewise significant, but the marginal cost of producing each unit of solar and wind power is nearly zero. Renewable energy, like information, is nearly free after accounting for the fixed costs of research, development, and deployment”.

Obviously, this completely changes the conventional logic in business:
”As more and more of the foods and services that make up the economic life of society edge towards 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”, Rifkin writes.

One consequence of this is that the need for human labor to reproduce will be very limited. To be of use, you must create variety and novelty – you can’t make money on the second item.
A lot of people will find it very hard to find employment or earn an income – yet we will live in an era of abundance:

”When the exchange value of producing additional units of a good or service is nearly zero, it means that scarcity has been replaced by abundance. Exchange value becomes useless because everyone can secure much of what they need without having pay for it. The products and service have use and share value but no longer have exchange value”.

In my opinion, Rifkin tends to gloss over the risk of creating an economy in which a very small group of people own the infrastructure, and have the capital and intellectual resources to operate the machinery that delivers at near zero cost. Business will need VERY large-scale operation to get a return on their investment, when every transaction is so small – so the monopoly tendencies are extremely strong.
Only the superstars will be able to make money by creating designs that are so novel, that everyone will want to use them for a small fee.

Rifkin acknowledges the risk, but only in a sketchy way:
”Whether the new potential inherent in the Internet of things infrastructure can be realized will be determined by who finances the platform”.

”The prospect of a new economic infrastructure and paradigm that can reduce marginal costs to near zero makes the private firm, whose very existence depends on sufficient margins to make a profit, less viable. Cooperatives are the only business model that will work in a near zero marginal cost society”.

The solution he points to is cooperatives – however, there’s not much in terms of description of what a plausible type of cooperative. He does link the zero margin cost logic to the explosion of the ”collaborative economy” with sharing, makers, open source and social entrepreneurs exchanging value in new ways.
And I completely agree, that this is perhaps the most important trend pointing the way to an economic model for the 21st. Century.

I have a bit of a love/hate relationship to Rifkin. He has a particular knack for sensing new major shifts in the way our societies operate long before most others. He’s very good at big picture thinking, and when he is at his best, he really delivers great vision and insight.
I just wish he wasn’t so pre-occupied with promoting himself and making sure we all understand his magnitude.

Luckily, if you want a quick overview, there’s an excellent podcast where Jeremy Rifkin explains hisideas in a conversation with Paul Saffo. In fact, his ideas seem a lot crisper in this hour-long talk than in the book, which in sections tends to get overly detailed, and to spread out in too many directions.

I strongly recommend starting out with the podcast.

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