The Zero Marginal Cost Society, The Sharing Economy, And The Revival Of The Earth

by Jeremy RIFKIN,
Economist and President of the Foundation of the Economic Trends

The Threat

Gross Domestic Product, indeed, the entire global economy, is slowing, productivity has been waning in every region of the world for over 50 years and unemployment remains stubbornly high in every country, especially among those entering the workforce. Many of our economists are now projecting twenty more years of declining productivity and slower growth. At the same time, economic inequality between the rich and the poor is at the highest point in human history.

At the end of this era, the combined wealth of the 62 wealthiest human beings in the world now equals the total accumulated wealth of one-half the human population living on this planet.

This dire economic reality is now compounded by the rapid acceleration of climate change brought on by the increasing emissions of industry-induced global warming gases. Climate change changes the water cycles of the Earth – and ours is a watery planet. Our ecosystems have developed over millions of years based on the water cycles that traverse the planet. The problem lies in the fact that for every 1 degree Celsius that the temperature rises here on Earth, the atmosphere is actually absorbing 7 percent more precipitation causing a radical change in the way water is distributed, with more intense precipitation but a reduction in duration and frequency. The consequences are more violent water events all over the world, more violent winter snows, more violent spring flooding, more violent summer droughts and wildfires, more Category 3, 4 and 5 hurricanes.

In the scientific community there have been a number of sobering publications recently, projecting that in the next six or seven decades we are going to see storms unprecedented in human history, destruction of our infrastructure on a never-before-seen scale, coastal cities submerged.


A New Economic Paradigm

Now, a new economic paradigm is emerging that is going to dramatically change the way we organize economic life on the planet. The digital economy will revolutionize every commercial sector, disrupt the workings of virtually every industry, bring with it unprecedented new economic opportunities, put millions of people back to work, democratize economic life and create a more sustainable low-carbon society to mitigate climate change.

To grasp the enormity of the economic change that is taking place, we need to understand the technological forces that have given rise to new economic systems throughout history. Every great economic paradigm requires three elements, each of which interacts with the other to enable the system to operate as a whole: new communication technologies to more efficiently manage economic activity; new sources of energy to more efficiently power economic activity; and new modes of transportation to more efficiently move economic activity.

In the 19th century, steam-powered printing and the telegraph, abundant coal and locomotives on national rail systems gave rise to the First Industrial Revolution. In the 20th century, centralized electricity, the telephone, radio and television, cheap oil and internal combustion vehicles on national road systems converged to create an infrastructure for the Second Industrial Revolution.


Enter The Third Industrial Revolution

Today, we are laying the groundwork for the Third Industrial Revolution. The digitalized communication Internet is converging with a digitalized, renewable “Energy Internet” and a digitalized, automated “Transportation and Logistics Internet” to create a super “Internet of Things” infrastructure. In the Internet of Things era, sensors will be embedded into every device and appliance, allowing them to communicate with each other and Internet users, providing up-to-the- moment data on the managing, powering and moving of economic activity.

By 2030, these sensors will connect the human and natural environment in a global distributed intelligent network, effectively acting as a global brain.

For the first time in history, the entire human race can collaborate directly with one another, democratizing economic life.

The digitalization of communication, energy and transportation also raises risks and challenges, not the least of which are guaranteeing network neutrality, preventing the creation of new corporate monopolies, protecting personal privacy, ensuring data security and thwarting cybercrime and cyber terrorism.


The Sharing Economy

In this expanded digital economy, private enterprises connected to the Internet of Things can use Big Data and analytics to develop algorithms that speed efficiency, increase productivity and dramatically lower the marginal cost of producing and distributing goods and services, making European businesses more competitive in an emerging post-carbon global marketplace.

The marginal cost of some goods and services will even approach zero, allowing millions of pro-sellers — those who are not just sellers and buyers and owners and workers — connected to the Internet of Things to produce and exchange goods and services with one another for nearly free in the growing Sharing Economy.

Already, a digital generation is producing and sharing music, videos, news blogs, social media, free e-books, massive open online college courses and other virtual goods at near zero marginal cost.

The near zero marginal cost phenomenon brought the music industry to its knees, shook the television industry, forced newspapers and magazines out of business and crippled the book publishing market.

While many traditional industries suffered, the zero marginal cost phenomenon also gave rise to a spate of new entrepreneurial enterprises including Google, Facebook, Twitter, YouTube and thousands of other Internet companies, which reaped profits by creating new applications and establishing the networks that allow the Sharing Economy to flourish.

The evolving Internet of Things will allow conventional businesses enterprises, as well as millions of pro-sellers, to make and distribute their own renewable energy, use driverless electric and fuel-cell vehicles in automated car- sharing services and manufacture products and other goods at very low marginal cost in the market exchange economy, or at near zero marginal cost in the Sharing Economy, just as they now do with information goods.

In Germany, for example, three percent of electricity is now solar and wind, with zero marginal cost. And it is set to go up to 35 percent in five years, and to 45 percent by 2040. Fixed costs are plummeting, and solar and wind are on an exponential curve, just like computers.

Does that mean that’s the end of the power companies? No. It simply means they have to change their model. In Germany, farmers, consumers, neighbourhoods have gone to the bank, and they have all created electricity cooperatives, effectively producing their own energy. Poorer power companies are producing less than seven percent of the country’s energy, and they are unable to scale laterally, only vertically. In just ten years, they have suffered the same fate the newspaper industry, book publishing television and the music industry — getting caught by low marginal costs, heading toward zero.

They are also moving on this revolution in China. The Chairman of the State Grid Corporation of China, the biggest electricity grid in the world, announced an $82 billion dollar four-year commitment to digitalize the electricity grid of China starting this year, so millions of people in China can produce their own solar and wind energy.

The pressing question is, how we can we in the rest of the world begin to explore a new approaches like this? The answer essentially requires us to move from geopolitics to biosphere consciousness in one generation. If we stay in the second industrial revolution, we are lost. The model of the Third Industrial Revolution is the only way we know to effectively address climate change, and now the mission is even greater. A transformation to the Internet of things can begin here and now. We must invest in where the productivity is going, and then partner with others in the financial community and government to ensure that we systematically lay out this infrastructure to ensure a sustainable future for all.