Thoughts on economics and liberty

Jeremy Rifkin’s model of the future: very sensible, but at times divorced from economic thinking

I chanced upon Jeremy Rifikin's work a few weeks ago. I've been meaning to learn more. Rifkin has a degree in economics from the Wharton School of the University of Pennsylvania but otherwise is more of a techno-economist.

I heard his talk below and extracted key sections from the transcript. Not bad at all. He gets most of it right. I agree that energy costs will drop dramatically in the coming years. Both because green energy will become cheap (as he points out in the case of solar) and because fusion energy would be mastered in the next 10 years or so. 

I totally disagree that capitalism is coming to an end or will be “replaced”. So long as there is scarcity (and that will be permanent) there is no end to human needs and so there is value in things. We will always need the system of natural liberty to incentivise good human action.

I've not read him much but I sense he has Keynesian proclivities, as he cites Larry Summers positively. Also, he has grossly misunderstood the "climate change" issue and has bought into bad science. [ADDENDUM: I've chanced upon his website which talks about the "fall of capitalism" – and that's sheer nonsense.]

Overall, much of value in what he has to say, but his thoughts can't be used to advise on the incentive design for a free society. Do listen to him. But be cautious!

JEREMY RIFKIN: We're just beginning to glimpse the bare outlines of a new economic system entering onto the world stage.  This new economic system is the collaborative commons. And what's triggering this shift to a new economic paradigm, a collaborative commons economic system, is something called zero marginal cost. 

The first inkling of this paradox, of course, was Napster, back in 1999. All of a sudden, millions of young people that apparently had nothing else to do after school but figure out new software in order to share music and bypass providing royalties to the music industry. Then this zero marginal cost phenomena went on to invade the entire information goods industry. Millions of consumers became prosumers. And they began producing their own information goods– videos on YouTube, news blogs, e-books, and decimated the newspaper and magazine publishing industry. Newspapers went out of business. Magazines went out of business. And I'm in book publishing. I can tell you that free e-books have decimated the book publishing industry. For a long time, industry watchers said, well, this is fine. We understand that more and more people are becoming prosumers. And they're producing and sharing their own audio, their own videos, their own text, their news blogs. They're working together and sharing information on Wikipedia. We understand that. 

Economists, however, have thought there's a firewall here. Even though more and more information goods are heading toward near zero marginal cost in virtual worlds that they will not cross the firewall into the physical world of brick and mortar goods and services. 

No longer. 

What's happening now is that the communication internet is now expanding to an internet of things, a physical internet. 

ENERGY INTERNET

In Europe, an emerging energy internet we're laying across Europe, and a nascent automated logistics and transport internet. The internet of things is an expansive internet that allows us to go from the world of bits to the world of atoms. 

A recent forecast study a few months ago says that by 2030, we will have 100 trillion sensors connecting everything with everyone in one global neural network. 

Let's take energy. We now have millions and millions of players, urban dwellers, small businesses, large companies who are producing their own solar and wind green electricity on site in Europe. And that's at near zero marginal cost right now. The technology for harvesting solar and wind is still a little pricey, but the price is on an evolutionary curve, just like computer chips. We never expected in 1960 that computer chips would be on an exponential curve. The pricing technology– a solar watt cost $60 to produce a solar watt in 1970. It's $0.66 today, and it's going down. We're in a 20-year exponential curve for solar and wind technologies. So we're going to see the price of these technologies be as cheap as the price that we now have for cellphones, mobile, et cetera in 20 years. 

We're now at 25% green electricity in Germany in seven years. We're heading to 35% green electricity in four more years. And you know who's producing it all? We have a million buildings that have been converted to micro power plants. And millions of small players have joined together in cooperatives– small and medium-sized businesses, homeowners. They're generating the new electricity. What about the big, huge, global electricity companies out of Germany, EnBW, E.ON? They're gone in less than seven years. 

Remember what happened to the recording industry, what happened to newspapers, what happened to magazines and publishing? This is happening to the huge global power companies in Germany. 

Let's talk about the solar panel or the wind turbine or the geothermal heat pump. You have to pay the fixed cost of the harvesting technology. It probably is going to take you somewhere between three and nine years to pay back on the solar panels. But the moment that channel's up, you keep it clean, the sun is free. Coal is not free.Natural gas, shale gas, uranium? None of that's free. But the sun is free. You just capture it. The wind is free. You capture it. The geothermal heat's free. You capture it. So in that sense, it's near zero. But you're only advantaged if you're in an energy internet that's part of an internet of things. Because you may have a lull one day where the sun isn't shining, and you haven't stored that green electricity. Or maybe the wind's blowing at night, but you need electricity during the day. So we have to create an energy internet that crosses continents. And that way, let's say in Eastern Europe, where it's night time, they have a lot of wind? The surplus goes up on the energy internet to the places which are still daytime. Or if you have a lot of sun somewhere in Europe, in Western Europe, during the day, you put the surplus up on the net and that energy, and then it would take it to another part of Europe. So these energies are intermittent. And they change in different times of day in different parts of a continent. To the extent that we have an energy internet, we can share our surpluses when other has lulls. And we can– if we store it correctly, hydrogen and other storage technologies– we can deal with peak loads, base loads across continents. That's we're attempting to do in Germany and in Europe right now. And I was just in China. That was a big surprise to me with China, because I didn't think they were going to be players. "The Third Industrial Revolution," my former book, was published there two years ago. And the new premiere read it in English, and instructed the government to now move on a distributed energy internet and to move toward an internet of things. I was there in September with the leadership. 10 weeks later– 10 weeks later– after my meetings with government leadership, the Chinese government announced an $80 billion four-year commitment to move the distributed energy internet across China so everyone could produce their own energy. By contrast, the US is going to try to raise $3.5 billion over 20 years for a centralized smart grid.

DISTRIBUTED PRODUCTION

Then let's take 3D printed products. If you were a 3D printer, whether you're in Senegal or Berlin, you go up on the internet. You download your software. It's all free. Most of this software is free, open source. You can get local feed stock at near zero marginal cost. Then they're powering their 3D printing factory with green energy from their energy internet that's generated at near zero marginal cost. Then they're marketing their products on global websites like Etsy with very little advertising cost. You just pay a short fee, low marginal cost. 

LOGISTICS INTERNET

And then we're just beginning to put in the logistics internet. You'll be able to power your vehicle to send your 3D printed product to market with your own green electricity from the energy internet, nearly free marginal cost. And the electric vehicles in a few years from now will be printed out. The first printed vehicle now exists Canada, the Urbee. You've probably seen it. It runs on solar. It's pretty impressive. And then you'll have GPS guidance. And thanks to Google, we will have driverless vehicles that can move across the system at will near zero marginal cost. This is a revolution. 

AUDIENCE: What about the logistics? Can you explain that? 

JEREMY RIFKIN: That's the newest one, that's the newest one. It's brand new, last 24 months. The logistics is the most inefficient part of the value chain. That's why it's costly. You have freight across the country. When you see a truck, sometimes it's only 20%, 30% full. Or it's dead and heading back with no cargo. It's not systematized. It's not efficient. What we're looking at now is a transport and logistics automated internet. 

And this would allow you to have everything modularized so that you can move shipments to any distribution center you want. For example, there are 5,000 warehouse is in the US. So what? If you're a big company, vertically integrated, you own maybe 20 of them. So you have to send your stuff way out of the way, hold it there, and then take it to the destination. But what if all 5,000 warehouses, privately-owned, came together in a cooperative? So when they had space, it would be open to anybody. You follow me? Then with 5,000 distribution centers, you could move to whichever one you wanted, and save a huge amount of your transport time moving it through the system with GPS guidance. 

But you'd have to have all the containers modularized. Everything would have to be on the same standards, so you can move the package across that internet like you move all the packages across the communication internet. 

And then if you can move to driverless vehicles and drones, that's going to reduce your labor costs substantially. So you'll get toward zero, but it'll still be marginal cost, but fairly low compared to the cost we have now.

THE ROLE OF NOT-PROFITS IN THE NEW ECONOMY

If millions, then hundreds of millions of people can begin to produce, consume, or share their own information goods, energy, and a lot of their manufactured goods at near zero marginal cost, making them nearly free and beyond the exchange model of the capitalist market, what kind of new economic system do we have to envision? 

Economists will usually say there's only two ways to organize the economy– either the government or private enterprise, or some combination of both. Economists ignore a third institution, which is responsible in our daily lives for a whole range of goods and services you and I rely on. And it's not market, and it's not government. It's the social commons. Part of it's the formalized not-for-profit sector. But it's the social commons from cooperatives to credit unions. And a huge part of the human race is engaged in activities in the social commons. And with cooperatives, you share. 

This expansive of internet of things allows millions of consumers to be prosumers and join with small and medium-sized enterprises and connect directly, eliminate all the middle men of vertically-integrated global companies. It's the middle men in vertically-integrated global corporations, the Fortune 1,000, that mark up their transaction costs along the value chain in order to have the margins. If you eliminate the middle man with laterally-scaled networks, you eliminate all of those margins. And you can directly engage each other. But it creates a new system. 

The recording industry was not able to stop file sharing of music. The newspaper and magazine industry and book publishing, very powerful industries, they were not able to stop lateral economies of scale. So I think the capitalist market's going to be a very powerful player here, but probably a niche player in a more dominant collaborative commons. And it will be an aggregator of networks– the Googles, the Facebooks, the Twitters. There'll be a lot of this aggregating of networks to provide the technological base for the internet of things expansion, because that's sophisticated software and hardware. That's where you find the edge in order to have the capitalist market work together with a collaborative commons. 

Nowhere will the impact of near zero marginal cost have a bigger reach then in labor employment. We have workerless factories right now. We have virtual retailing right now. We have eliminated massive amounts of blue collar, white collar, and service workers, and we're just beginning to shift into an analytical world that's basically supervised with advanced analytics an robotics and AI. We're now eliminating knowledge workers. We don't need all the accountants, the attorneys, the radiologists. We can do it with the software. So the question then becomes, in a world where we're heading towards zero marginal cost labor, what do people do throughout life, if they're no longer needed in the marketplace? 

Between 2000 and 2010, the social commons grew by 42% in revenue. The GDP grew by 16% in revenue. Did you catch that? It's already happening. And in the last 15 years, employment in the social commons kept going up, up, up. Employment in the marketplace kept going down, down, down. And during the Great Recession, employment in the social commons went up. Employment in the marketplace went down. 

The big issue in San Francisco this week? Airbnb. And Airbnb's success is near zero marginal cost. They have the web up. That doesn't cost them anything after they put it up. And how much does it cost somewhere who owns an apartment or a home? They've already covered their fixed cost. They're paying their mortgage. The marginal cost in renting out the room is near zero. How do the hotel chains compete with that? They have to put together a physical room. That costs money. But so we have car sharing and bike sharing. And now we're sharing apartments and homes and clothes and tools and toys. So we have a generation that's beginning to believe it's not about ownership. It's access. 

And if more people share what they have, less has to be produced. It does have a negative impact on GDP. But it has a positive impact on quality of life, and that's the way to measure a good economy. 

Things like CouchSurfing and Airbnb are just the beginning of this shift. 

Sanjeev Sabhlok

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One thought on “Jeremy Rifkin’s model of the future: very sensible, but at times divorced from economic thinking
  1. john hall

    Back in the 1980’s,you couldn’t pick up a newspaper or magazine without reading about Rifkin attacking Biotechnology.He filed a ton of lawsuits against it.His main complaint was that scientists
    were rushing to use this technology without a full scale evaluation of it’s safety and impact on society and the environment.he raised concerns and issues and warned of unforeseen consequences.But now,with his Third Industrial Revolution,Rifkin’s doing the exact opposite.He’s
    getting people all excited and anxious to make the switch to renewable energy.The problem is Rifkin’s not raising concerns and issues with renewable energy like he did with Biotechnology.He’s not questioning the cost,safety and reliability of hydrogen and battery storage and the toxic chemicals that are used in the manufacturing of solar panels.Not to mention the impact solar panels and wind generators will have on society and the environment
    (Speaking of China,Rifkin neglected to mention how China is disposing of one toxic chemical
    silicon tetrachoride,used to make solar panels,by dumping it next to a school playground.)

     

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