There’s more than a fleeting echo, in the cadences of the opening paragraph of Jeremy Rifkin’s new book, “The Zero Marginal Cost Society”, of Marx and Engels’s “Communist Manifesto”. But in this case the spectre haunting not just Europe but the whole of the developed world isn’t communism, it’s a “new economic paradigm” that Rifkin calls the “Collaborative Commons”. The cynosure of this new paradigm won’t be the exchange of private property in markets; it will be the “access of services in the Collaborative Commons.” Rifkin writes: “The capitalist era is passing… not quickly, but inevitably. A new economic paradigm… is rising in its wake that will transform our way of life.”
Like Erik Brynjolfsson and Andrew McAfee, authors of another of this year’s most talked-about works of non-fiction, “The Second Machine Age”, Rifkin believes that the technological transformations of the digital age will be as far-reaching as those of the first and second Industrial Revolutions. And like Marx, Rifkin thinks that capitalism will undermine itself. Not because it produces its own “gravediggers” in the form of a mobilised industrial proletariat, but because its “operating logic… succeeds beyond anyone’s wildest expectations.” The argument runs something like this: increasingly intelligent machines will generate products at nearly zero marginal cost—in other words, the cost of producing each additional unit falls to essentially nothing. And when that happens, everything becomes free, profits disappear and… capitalism eats itself.
We’re clearly living through a period of dramatic technological change, but not everyone draws the conclusions Rifkin does, or is quite as optimistic about the future as he is. Take the former US Treasury Secretary Larry Summers, who thinks we’re in the midst not of a transition from one economic paradigm to another, but rather of the long-term, “secular” stagnation of the developed capitalist economies. When I met Rifkin in London earlier this month, I began by asking him what grounds he had for his long-run optimism.
JR: It’s interesting that you mention Larry Summers. I think the difference [between us] is that Larry glimpsed the problem, but was not able, given who he is and what his background is, to say where it might lead. I think the Collaborative Commons is the first new economic system to appear on the world stage since the 19th century—since capitalism and socialism. So I think it’s a remarkable historical event. We’re very early on [in the process]. What’s interesting about it is the trigger. Summers got the trigger, but he could not bend his mind around the alternative.
JD: The trigger being?
Zero marginal cost. What’s interesting about Larry Summers is that after the dot come bust of 2001, the Federal Reserve of Kansas City, which is a big part of the Federal Reserve System in the US, held a small meeting of top people to analyse the implications of the boom in information technologies. Summers and Brad DeLong co-wrote the opening paper. They said, “Look, we have an opportunity and a problem here. This new information technology revolution on the internet is going to be as sweeping in its consequences as electrification. The problem is that we’ve always believed, in the economics profession, that the most efficient economic situation is to sell at marginal cost.” In other words, the whole point of the capitalist market is that you get your marginal costs down. Summers said: “The problem here is that the marginal costs head to near zero. In which case there are no margins, no profit, everything’s free, abundant and priceless.” Summers said that when we get to near zero marginal cost, the competitive system is no longer operational—meaning capitalist markets. So he said: “We’re going to have to favour temporary monopolies to keep the margins above their zero marginal costs.” Then he said: “We don’t know what the replacement paradigm to the capitalist market will be.” He said that. This is the president of Harvard and former US Secretary of the Treasury. Summers and DeLong couldn’t possibly imagine what the alternative might be, because they’re steeped in the idea that the capitalist market is the sine qua non of how you engage economic life.
The zero marginal costs phenomenon is the trigger and it takes us to a really deep paradox. There is a paradox deeply embedded in the heart of capitalism, which up to now has not been disclosed. Marx missed it. He was a brilliant analyst and sociologist. But he was so obsessed with the means of production and the question of surplus value, how much of the worker’s contribution went to profits, that he didn’t look beyond it. Here’s the paradox: in a capitalist market, sellers are always trying to find new technologies to increase their productivity and reduce their marginal costs—the cost of each additional unit. If they can reduce the marginal cost, they can put out a cheaper product and then, with vertical integration, they can make it on volume, beat out their competitors, get market share and then bring some nice profits back to their investors. It’s just that nobody—economists, businesspeople—ever anticipated in their wildest imaginings that there could be a technology revolution, a new general purpose technological platform for society, that could take their marginal costs to near zero and therefore end profits, creating nearly free goods that are abundant.
You quoted Summers and DeLong just now saying that the digital revolution is a technological transformation as consequential as electrification. You’ll be familiar with a counter-thesis—Robert Gordon’s—according to which the internet revolution does not presage a transformation on the same scale. What’s your response to that?
I totally disagree with it. I work with global companies who are laying down the new digital infrastructure. So I see what’s going on on the ground, rather than in the academic community. And what I can tell you is that there’s a huge amount of excitement about it. It is on the level of electrification. It’s a qualitative leap forward. What’s happening now is that the communication internet is morphing into a super “internet of things” [by which Rifkin means an integrated global network of people, machines, natural resources, production lines and logistics networks, JD]. The communication internet is converging with a fledgling energy internet and then a very nascent automated logistics and transport internet to create an “internet of things”.
But let’s back up a bit here. Every economic paradigm in history has required three elements, three technological elements that come together to create a platform: a form of communication; a form of energy and power; and a logistics platform. In the 19th century, in the first industrial revolution, the communication medium was steam-powered printing. Now we were able to produce massive volumes of print really cheaply. The power source was coal and steam, and the logistics platform was the railroads. When those came together, the first industrial revolution really took off and changed business models.
Interestingly, this is something that Thomas Piketty misses in his book, Capital in the 21st Century. He never asks what was the technology platform that actually led to the maldistribution of income and capital. He talks about the consequences but not about what precipitated them. That said, Piketty has done a laudable job in laying out what we all knew—but he got the data: the estate data, the tax data. It’s a relentless demonstration of something we all suspected—that trickle-down economics never happened. Certainly, all of us are better off at the end of the second Industrial Revolution than our great-great-grandparents were before the first Industrial Revolution. It’s also true that much of the revenue generated by the first and second industrial revolutions in the 19th and 20th centuries flowed to the top.
But, as I said, Piketty never asks what the conditions were that led to this happening. What we have to understand is that communication, energy, logistics and transport… those general-purpose technology platforms established the framework for how power, broadly, is exercised and how the fruits of that power are distributed. This isn’t deterministic. Some economic paradigms, by virtue of the technology platforms on which they’re built, create concentration of power at the top.
With the second industrial revolution in the 20th century, we had centralised electricity and the telephone—later radio and television. The power source was oil and the logisitics and mobility platform was provided by the internal combustion engine and the road system. That system is now on life-support. We are now on the cusp of the third Industrial Revolution. What’s interesting about this is that when the communications platform, the internet, comes together with an energy internet and the logistics internet to create this super “internet of things”, it’s the beginning of a nervous system, an intelligence, a brain, if you will. Right now we have about 14 billion sensors connecting resource flows, factory floors, warehouses, distribution centres, freight traffic all the way to retail stores where sensors pick up what’s being bought and not. We have sensors connecting the electricity grid. We have sensors connecting vehicles. We’ll have about 50 billion sensors by 2020. And the latest forecast predicts 100 billion sensors by 2030.
I was very struck, unsettled in fact, by what you say in the book about the way this new “internet of things” will destroy privacy as we know it. You seem relatively relaxed about that prospect. But do you understand why some of us might see the hyper-connected future you describe as dystopian?
I’m not relaxed about it. But I do think that the notion of privacy is not a basic or inherent human right. In other periods of history, there wasn’t a sense of privacy. It’s unique to the modern age, when we privatised and enclosed social life. In every other period in human history, people lived their lives publicly, for good or bad—we’re social creatures.
So you think that values related to privacy, like autonomy or liberty, are also artefacts of the era of possessive individualism?
Take Adam Smith’s dictum that each individual is born with an inherent desire to become an autonomous agent and pursue their self-interest—it’s historically anomalous. But human beings have empathic distress built into their circuitry. We are totally social beings. So this idea that each person is born to be an autonomous agent is a real anomaly. But it went hand in hand with the great enclosures of the social commons and led to what I would call a more private life. Today, maybe privacy is less of a concern for the younger generation who live their lives publicly, socially.
Do you not worry about the psychic and other costs of that?
Kids being bullied up there on the web? Absolutely. We’ve got to deal with this. What I’m saying is that maybe there’ll be a different approach to the privacy versus transparency question in the years ahead.
So the transformation you think we’re living through, and the culmination of which you’re anticipating in this book, is not just technological, therefore? There’s a cultural component to it. You write that you look forward to human beings “let[ting] go of ownership”…
Young people today—the “Millennials”, not the “Xers”—don’t think about ownership so much as access. They want bike-sharing, they want a smart car when they want it. It’s not a moral position—it’s just the way they operate in a networked world. They’re not only sharing their cars (for every car shared, 15 cars are taken off the roads, and remember that the automobile is the centrepiece of the second Industrial Revolution); they’re sharing their apartment, couch-surfing. And they’re doing toys, tools and clothes, too. Families are sharing clothes. This means we’re producing less and sharing more, and it has huge implications for the resources of this planet, carbon emissions etc. So we’re seeing a significant shift to the collaborative commons.
I want to end by asking you about the future of work. You return towards the end of the book to Keynes’s 1930 essay “Economic Possibilities for our Grandchildren”. Keynes made all sorts of predictions there about increasing leisure and the decline of work that have turned out to not to be correct. Why is it going to be different this time?
I wrote a book called The End of Work in 1995, in which I said that we are eliminating salaried wage labour with the new technologies. It was quite controversial at the time. The Economist did a cover story on the book saying, “Well, we’ll see.” To their credit, in 2011 they came back with another cover story saying, roughly, “Rifkin got it right.” If you look at The Second Machine Age, Brynjolfsson and McAfee have just updated my stats. If anything, I was too conservative. We now have workerless factories all over the world—“lights-out” factories they’re called. We have virtual retailing with very low labour costs. We’re eliminating knowledge workers in a big way because of analytics and algorithms. The question is: if we’re seeing marginal labour costs falling to near zero, what does this mean? How do we rethink what a human being does on earth? It’s hard not to conclude that the kinds of traditional employment that were available in the first and second Industrial Revolutions just won’t be there.
Jeremy Rifkin’s “The Zero Marginal Cost Society: The Internet of Things, The Collaborative Commons, and the Eclipse of Capitalism” is published by Palgrave Macmillan (£16.99)
Read Jeremy Rifkin on intelligent technology and the future of human labour here.