In The Zero Marginal Cost Society, New York Times bestselling author Jeremy Rifkin describes how the emerging Internet of Things is speeding us to an era of nearly free goods and services, precipitating the meteoric rise of a global Collaborative Commons and the eclipse of capitalism.
Rifkin uncovers a paradox at the heart of capitalism that has propelled it to greatness but is now taking it to its death―the inherent entrepreneurial dynamism of competitive markets that drives productivity up and marginal costs down, enabling businesses to reduce the price of their goods and services in order to win over consumers and market share. (Marginal cost is the cost of producing additional units of a good or service, if fixed costs are not counted.) While economists have always welcomed a reduction in marginal cost, they never anticipated the possibility of a technological revolution that might bring marginal costs to near zero, making goods and services priceless, nearly free, and abundant, and no longer subject to market forces.
Now, a formidable new technology infrastructure―the Internet of things (IoT)―is emerging with the potential of pushing large segments of economic life to near zero marginal cost in the years ahead. Rifkin describes how the Communication Internet is converging with a nascent Energy Internet and Logistics Internet to create a new technology platform that connects everything and everyone. Billions of sensors are being attached to natural resources, production lines, the electricity grid, logistics networks, recycling flows, and implanted in homes, offices, stores, vehicles, and even human beings, feeding Big Data into an IoT global neural network. Prosumers can connect to the network and use Big Data, analytics, and algorithms to accelerate efficiency, dramatically increase productivity, and lower the marginal cost of producing and sharing a wide range of products and services to near zero, just like they now do with information goods.
The plummeting of marginal costs is spawning a hybrid economy―part capitalist market and part Collaborative Commons―with far reaching implications for society, according to Rifkin. Hundreds of millions of people are already transferring parts of their economic lives to the global Collaborative Commons. Prosumers are plugging into the fledgling IoT and making and sharing their own information, entertainment, green energy, and 3D-printed products at near zero marginal cost. They are also sharing cars, homes, clothes and other items via social media sites, rentals, redistribution clubs, and cooperatives at low or near zero marginal cost. Students are enrolling in free massive open online courses (MOOCs) that operate at near zero marginal cost. Social entrepreneurs are even bypassing the banking establishment and using crowdfunding to finance startup businesses as well as creating alternative currencies in the fledgling sharing economy. In this new world, social capital is as important as financial capital, access trumps ownership, sustainability supersedes consumerism, cooperation ousts competition, and "exchange value" in the capitalist marketplace is increasingly replaced by "sharable value" on the Collaborative Commons.
Rifkin concludes that capitalism will remain with us, albeit in an increasingly streamlined role, primarily as an aggregator of network services and solutions, allowing it to flourish as a powerful niche player in the coming era. We are, however, says Rifkin, entering a world beyond markets where we are learning how to live together in an increasingly interdependent global Collaborative Commons.
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The Zero Marginal Cost Society is a worthwhile read about the distributed collaborative economy that we have partially been moving towards during the second age of the internet revolution. There are some incredibly important ideas to take away from the book like the way manufacturing can change with 3-D printing, how asset utilization will improve with things like airBnB and how education will be socialized with things like MOOC. The lessons from the book in certain categories I think are excellent and deep but the book is also too sensationalized with misconceptions on the cost on engineering and misapplied economic ideas. To try to take the book at face value would be a mistake in my opinion. The book would have been a lot more powerful had it been more self reflective about the need for grandiose language.
The book is split into 5 sections. In the first section the author gives his views on capitalism in history and argues that it is not the natural state but rather an evolved state that came about due to the end of serfdom and the division of labor that came from specialization. As society moved from subsistence scarcity to tradeable abundance we lost the community and common ownership and moved to the guilded age with water and wind power. As the railroad and energy revolution came about from coal and oil we developed a logistical network to communicate and coordinate better and allow for greater tradeability that entrenched the capitalist spirit which was required for the capital expenditure needed for the architecture of logistics and communication. There is a nostalgia of the values of the community when no one owned anything, though I am quite sure if you were to ask a Russian serf if they preferred having the land belonging to him or him belonging to the land, he would prefer the former. This economic history of the world is interesting but far from decisive and is filled with implied values masked as substantive fact.
The author then goes into some economic ideas and the declining marginal cost of manufacturing. The author starts out by discussing that economics textbooks argue that in perfect competition (not the real world) the price of a good is equal to its marginal cost. Therefore as marginal costs come down due to 3D printing, Moore's law of PV cells (made up by the author and not an empirical fact) the cost of manufacturing and energy will go to 0 and will end the capitalist paradigm we are so used to. The author has misconceptions about solar panel cost deflation, solar wafers do not have a marginal cost of 0 and solar efficiency is stuck in the mid teens at the best of times with the incremental efficiency gains declining in time- these are fundamental engineering problems. I do hope that solar and wind costs decline to make them the source of our energy but the sound bites used by the author are self serving not even handed. The author discusses 3-D printings ability to change the nature of manufacturing (true) but then hyperbolizes the method into ideas like 3-D printing 3 - D printers and heralding the ago of abundance. Examples used highlight the flaws in the reasoning by talking about how tissue can be printed (in infancy stage but true) but fails to remind the reader that its not the printing that's necessarily expensive its the medium, having the right cellular material to use the printer to align is not marginal cost 0... Things like this can add up to frustrating reading at times. The author also discusses MOOCs and how they are leveling the educational playing field and are already gaining students in every country around the world. The author discusses automation as something that economists ignore as an ingredient to rising unemployment (incorrect, this is something that people have focused on for centuries) and I would like to highlight that Japan, which has the highest density of robots in its manufacturing process and is home to the best robotics company globally has extremely low unemployment. The author then focuses on the way to build out the infrastructure required to sustain a smart society. The questions about whether the natural monopoly of telecom and smart electricity should be handled by the private sector or government are discussed.
The author then moves back to some fundamental ethics and discusses the supposed fallacy of the tragedy of the commons. Game theory is a subject of the 20th century that has evolved to deal with trying to solve coordination problems in which people acting in their own self interest end up with outcomes that are worse for themselves and society which goes against the grain of the logic embedded in wealth of nations. One of the first examples focused on besides the famous prisoners dilemma is the tragedy of the commons in which when given communal rights people will overuse the communal space for self interested reasons making the situation worse for everyone. The author discusses how this is wrong using a response by an academic lawyer called the comedy of the commons in which the outcomes assumed in the game theoretic example are wrong empirically. This section is interesting but off mark in its criticism. The tragedy of the commons is rightfully focused on as an example of how institutional arrangement can create suboptimal outcomes - it is not about the nature of man. People who assume all commons will end up like the tragedy of commons are massively over reaching. Families can enjoy gardens together but the entire population of a country might over run it. The argument that the author makes in this section is about the collaborative nature of man and how the problems of overfishing are things that can be self regulated by caring communities. Hmm, maybe in groups of 100, not in groups of 10,000. The nature of association of a community is what determines the applicapility of the game theory constructs, they serve as frameworks of analysis only and the author treating them as belief systems of the nature of man can only be directed towards individuals, not the field of study.
The second to last section is among the most important and discusses the rise of the collaborative economy. The world is going towards one in which assets can be better utilized. From a data analysis perspective this is already happening, UPS monitors its trucks and improves routes to maximize asset utilization. From a community perspective people are better able to subscribe to services that allow them to use a pool of assets that they only need sporadically to improve general asset utilization. Air bnb being an example. The over production of underutilized assets is one that a coordinated logistics network will help us to minimize and is a societal waste. This as an arena is something to watch very carefully as it will put many entrenched businesses in awkward businesses. The author also discusses getting funding from the internet through crowdsourcing.
The authors last section is the conclusion and a look at things like climate change and the sustainable environment and the things that can derail his vision. There is an incredibly important idea embedded in this book that is the nature of the economy is changing and aspects of it are getting decentralized like powering your house educating yourself and consumer to consumer sharing. There is much of the book which seems visionary but is in fact disingenuous. The marginal cost of solar panels isn't 0, the marginal cost of printing things is not 0 (though it will improve forms of manufacturing substantially). There are many times in which the author makes an argument which then conflicts with another observation. He discusses how you can print a car and how its marginal cost will go to 0 but then notes much later that auto companies with incredibly well machined manufacturing techniques already produce with extremely low margins. The author argues that we are close to abundance, I wish for that day but the directions the author is highlighting don't bring us there as the engineering costs of constructing and the depreciation of the capital stock (solar panels don't have infinite life) will ensure the cost of manufacturing is non-zero. There are important lessons in this book though they are surrounded by hyperbole and at times highly selective information that could be categorized as misinformation.
This is a book I would recommend to most people as interesting, well written, and informative.
Rifkin tries to give us an expansive, big-picture view of some of fundamental changes we are experiencing. Driven by information technology, we are seeing a host of second order changes with real consequences. In short, the internet of things is tied to the collaborative commons, and possibly bringing about the end of capitalism. That is the big story: the END of CAPITALISM. Can it be true?
He starts with a historical view to point out that capitalism did not always exist. Roman and middle age societies worked on principles that were very distinct from capitalism. In a feudalistic society, the idea of ownership was very different from what we have today. People worked (but not very hard) and produce was distributed (but not very fairly) and people got by. It was the emergence of enlightenment ideas, and the subsequent industrial revolution, that brought about (1) the concrete ideas of ownership and (2) capitalism that you invest in and benefit from owning means of production. America is a country where the ideas of capitalism are so well integrated into the culture that it is hard to separate them, and hard to imagine a world that is different.
Many information technologies are disrupting: specifically (1) sustainable power generation (e.g. solar), (2) 3d printing replacing manufacturing, (3) MOOCs and essentially free education, (4) ubiquitous communications infrastructure. There is no doubt in my mind that these are causing dramatic transformation. Look at music recording industry, how movies are changing, how much of the entertainment is direct person to person sharing on Facebook, Twitter or Pintrest. Like web 2.0 , he talks about people evolving from one-direction consumers, to bi-directional prosumers. In these kinds of things, it is certainly true that we are evolving into a collaborative commons because the marginal costs are driving to zero.
One of his key points is that capitalism only works when there is scarcity. If the marginal cost goes to zero, then things become both free and plentiful. The idea of investing and controlling makes no sense if everyone can have as much as they want. He spends a lot of time talking about the collaborative commons, and how the tragedy of the commons is easily avoided by social norms which are enforced in places where a real commons exists. Don't worry, there are ways for collaborative commons to work -- and his points are credible.
However, there is more to the economy that this. He does not talk at all about production of food: wheat, corn, hogs, cattle, chickens, fruit, vegetables, etc. Automation does bring down the cost of these, but certainly NOT to zero. Who will produce my wine for $0? We all have to eat, and we need clothes, and a warm place to sleep. These are not going to zero cost, and so there is no reason to believe that capitalism will disappear entirely. Sure, the Internet of Things (IoT) will dramatically effect entertainment, learning, and maybe even dramatically improve patient-led medical research. But IoT will not feed and cloth us.
The second half of the book is a wealth of information about the ways that these transformations are going on around us. Cars are being replaced by car sharing programs. ThredUP allows parents to effectively share children's clothes. SharedEarth allows landowners find people who want to garden. Craig's List is decimating classified ads. AirBNB and Couch surfing is transforming overnights. Crowdfunding like KickStarter is reforming how you invest and how you get loans.
What makes us happy? We used to believe that owning things would make us happy, but there is plenty of evidence that is not so. This is the great thing about collaborative commons: we might be happier with fewer things, but still having access to more than we need. The sharing economy is very promising indeed, and Rifkin covers it well.
Yet, overall, I feel a little let down. The IoT will have a dramatic effect on our lives, but only on PART of our lives. Our social lives are likely to be radically changed. Anything to do with communications and interaction might be morphed beyond recognition. Cooperation will be transformative. Reading this part is a wild and entertaining ride.
BUT ... certain physical requirements exist. 3D printing might get powerful enough to print entire automobiles, but the metal (and plastic) is still not free. The IoT will not allow us to raise cattle in our apartments, or mine for ore in our backyards. Capitalism has nothing to worry about. The entire society will not be zero marginal cost. Only parts of it. I do wish Rifken had covered the COMPLETE economy, and not just the amazing parts which are being transformed. To really understand the future, we need to consider the entire picture.
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