One of today’s most influential technology commentators and social theorists, Jeremy Rifkin thinks that the next Industrial Revolution will be driven by the Internet of Things and the emergence of the ‘collaborative commons’.
We’ve become so used to thinking that the purpose of being in the business of manufacturing is to make money that it’s often difficult to see what else it could be about. But according to the man who advises both the German and Chinese governments on economic policy, the entrenched notion of capitalism being at the heart of today’s industrial society is being challenged.Today, the maturing digital technologies that are responsible for giving us ever-cheaper access to a whole host of virtual commodities are threatening the way in which companies the world over make money. There’s a new revolution in the air.
“I’ll tell you what got me specifically thinking about this,” says Jeremy Rifkin, principal architect of the European Union’s Third Industrial Revolution economic development plan, and whose new book deals specifically with how a trio of social phenomena – the Internet of Things, the collaborative commons and the zero marginal cost society – is set to change the world. But before he does, he needs to put the latest crystalisation of his theories into context by taking me back to 1995, when he wrote a book called ‘The End of Work’ in which he posited a sea-change in the way we go about things “which would eliminate the kind of work that we underwent during the first and second industrial revolutions”.
Rifkin explains how in this book he examined the way in which manufacturing in the 1950s and 1960s came to be dominated by cybernetics, automation theory and numerical control technologies. “What we had was the idea of displacement technology that was going to completely disrupt everything. And it did. Numerical control had the effect of displacing blue collar workers en masse.”
Rifkin says we didn’t pay too much attention to that, “although there was some cause for a global debate. US president Lyndon B Johnson set up a commission to examine the effect that these technologies would have. But then came the war in Vietnam and so a lot of people ignored it. But in 1995 I wrote a controversial book that said we were about to see traditional factory work over the next three of four decades replaced by new robotic automation technologies. I also said that with advanced artificial intelligence we would enter a knowledge sector where we would eliminate even the need for white-collar workers”.
At the time, The Economist published a cover story challenging Rifkin’s prediction. The publication revisited the story in 2011, when it concluded the man who would go on to write the ‘Third Industrial Revolution’ was, if anything, a little conservative in the way he saw the future.
Today, his train of thought has led him to the idea that if society could move to “near zero marginal cost” in producing and sharing commodities such as music on the Internet, then this might have an effect on other industries. “I did a poll each year,” where the initial reaction was that sharing intellectual capital at a fraction of previous market costs was “probably unique to the music industry. But, as the technology began to reach broader sectors, responses started to change significantly. This was when CEOs also realised that they might be able to find value in this new economic opportunity.”
Rifkin was starting to see what he calls “the bare outline of a new economic system of collaborative commons”, a phenomenon he claims to be “probably the first genuinely new economic system to emerge since capitalism in the 19th Century. Which is a big deal. It’s too early to see which way this will go. But what we know is that it is transforming the way we do business and the way we work”.
The trigger for the change is our approach to the zero marginal cost phenomenon. “As every engineer knows, marginal cost is the cost involved in producing additional units of goods or services once your fixed costs have been absorbed.” But, warns Rifkin, before we get too carried away with the implications for companies in the digital sphere, we need to be aware of a paradox deeply embedded in the heart of capitalism. “Even Karl Marx didn’t see it. To his credit, he understood technology displacement, but he didn’t see that what makes capitalism work is what makes it fail.”
The paradox is all about technology. In a capitalist market, sellers are on a permanent hunt to engage new technologies that will increase productivity, which will in turn reduce marginal cost. What this means is, as Rifkin puts it, “that they can put out their products, beat competitors, win over market share and bring better profits back to their investors”.
In classical and neo-classical economic theory, commentators recognise that the most efficient price to sell at is marginal cost. “But no-one imagined that we could have a technology revolution so extreme in its productivity that we could reduce those marginal costs to near zero and in doing so make things virtually free. And that is the paradox of capitalism: once things become free, it’s then impossible to recoup investment and pay dividends to the investors. Bang, bang. The end of capitalism.”
According to Rifkin, the whole point of the capitalist market is to reduce marginal cost to create the most efficient society, where there is maximum output with the minimum input of labour, energy, time and capital. “Ask any engineer what efficiency is and they will tell you it is the ratio of input to output; how can you minimise your labour, energy, time and capital costs while raising your productivity? This is the engineer’s dream. But the shareholder’s dream is to reduce marginal cost so that you can have cheaper product with enough volume in a vertically integrated economy, where the volume in itself can make up for the cheaper prices, which allows you to still bring in profit.”
The problem with the system is that the closer your marginal costs get to zero, the closer you get to the system breaking down due to decreased levels of money in circulation. Knowing this, says Rifkin, it follows that what we need to know next is what the replacement paradigm will be. “My book says that we already know what that replacement will be: the collaborative commons. The ultimate triumph of capitalism is the zero marginal cost society. Yet the triumph marks the beginning of a very long exit. Capitalism won’t disappear, and it will still be here in mid-century. But it won’t dominate.”
The rise and rise of the commons
Rifkin says that we have seen the emerging collaborative commons phenomenon “wreak havoc across the information services industries over the past 15 years. Young people have been sharing music for a while, now. But then the zero marginal cost effect started to enter the publishing industries, where hundreds of millions of people transformed themselves from consumers to prosumers. They began to put out their own news blogs and other information at zero marginal cost, sharing it with each other for free. Then we saw free e-books”.
Rifkin describes how traditional audio entertainment industries quickly fell into decline, newspapers started to go out of business, magazines folded and the book publishing industry found itself in disarray. “Forty per cent of all humans are on the Internet, and at any given point somebody is producing their own video for YouTube, or their own contribution to Wikipedia or their own music sharing – and they put it out there free for everyone else.”
At this point Rifkin pauses to reflect on the idea, raised by commentators such as Chris Anderson of Wired, that somehow “this is fine, because capitalism loves a new opportunity”. The more information we put out for free – ‘freemiums’ – the more consumers can exploit the capitalist market by grabbing hold of the “long tail”, where there is the opportunity to entice consumers to adopt premium products, to make their purchases from more selective customised goods and services. This is the logical evolution of the classic model where musicians give away music, so that we come to love them enough to go to concerts, where we will spend more money on a souvenir t-shirt than we ever would on their songs.
Likewise, resources such as daily broadsheet newspapers will allow you, say, ten free stories online per month, in order to entice you to move up to the paid-for premium subscription. “Sure this happens,” says Rifkin. “But it’s almost naïve. This is because when you have more information being generated almost for free – at near-zero marginal cost – the attention span of the consumer is reduced. This was never going to allow capitalism to flourish. What I’m saying is the market will shrivel. I know that because of this,” he says, holding up his book ‘The Zero Marginal Cost Society’. “So much of this is out there already.”
The Internet of Things
Rifkin says that this is only the start of a story that is going to get “very interesting for engineers”. He explains how economists thought that despite IT technologies giving the opportunity for sharing video, text and audio, the phenomenon would not be able to breach the virtual-world firewall and penetrate into the physical world.
He says that economists could not see that we were moving from “atoms to bits. That should have been the first paragraph of my book, but I wanted some history first”. Then came the 180-degree turn: “In the next quarter of a century we are going to move from bits to atoms, where we will see goods and services in the physical world for nearly free. The agent of change is the Internet of Things. This is where the engineering really kicks in. What’s happening is that the Internet is expanding to an Internet of Things, a super Internet.”
This isn’t rocket science, says Rifkin. “If you look at every economic paradigm in history, all the way back to the hydraulic civilisations and even before, at every turn you’ll see three technologies combine to produce a new reference point. Every economic paradigm has a form of communication, a form of power and energy, and a form of mobility and transport. If you look at the first engineering in Mesopotamia, the form of communication was the horse, where riding was developed to manage complex agricultural systems and urban life. The flow of power came from the management of highly engineered canal systems and the energy was the storage of grain.
“If you move to the 19th Century, the three components that created the Industrial Revolution were steam-power printing that allowed us to produce masses of information at a lower transaction cost, the telegraph and the railroads to communicate, and coal-powered engines to supply energy to factories and the locomotive for logistics and mobility. This combination allowed us to expand our commercial reach at scale from local to international markets. Sure, the Roman Empire had a road network, but with train traffic you could start to move commodities really quickly.” It’s a long story to how we got to where we are today, says Rifkin, before telling me that these are only snapshots of a few introductory chapters, where what follows will take in the notions of vertically integrated organisations offering economies of scale and reduced marginal cost.
A global digital brain
For the next hour Rifkin extemporises on nothing less than the industrial history of the 20th Century. The reason he is telling me this, he says, is to explain how we got to “the point where the Internet is metamorphosing into an Internet of Things”. Where we are at the moment, says Rifkin, is the point where the “information Internet” is beginning to merge with a fledgling “energy Internet” and a “really, really nascent transport Internet, to create a Super Internet of Things”.
The Internet of Things is a global digital brain, where billions of sensors are being sent out into every aspect of our increasingly connected lives and resource flows. “Distribution points have sensors monitoring traffic in and out of warehouses. Smart roads monitor how traffic is moving. Sensors on factory floor production lines are monitoring what’s going on moment to moment. We have sensors in retail that can tell us who’s picking up what product and who’s putting it back on the shelf. We have sensors on the electricity grid. We have sensors connecting the entire economic value chain.”
According to IBM, by 2020 there will be 50 billion sensors returning data to the Internet of Things. According to a prognostication by Fairchild, there will be 100 trillion by 2030. “Now we’ve got to look at this. I recently did a lecture at the Royal Society of the Arts, and when you mention figures like this people are both thrilled and frightened to death.
“On the one hand, we are connecting the human race and the entire environment over one intelligent distributed neural network. Now that’s the exciting part. But then they start to get scared and wonder what these 100 trillion sensors will do to privacy and data security. Will Big Brother be spying on us? Will cyber-terrorism be trying to knock us down? What will happen to our inherent human freedoms? When I drive to the coast for the weekend, I don’t want everyone to know where I am.”