‘The Zero Marginal Cost Society’ – a review

| November 26, 2014

Jeremy Rifkin has written a book discussing the trend in many fields toward zero or near-zero costs brought about by the so-called prosumer revolution, where consumers become producers as well. Ian McAuley says it is the book Karl Marx may have written today.

“Economies are never static. They continually evolve and occasionally metamorphose into entirely new forms”.

This reminder comes from Jeremy Rifkin in the conclusion of his latest book The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism, (Palgrave Macmillan 2014).

Rifkin is no card-carrying revolutionary – in fact for the last 20 years has been a senior lecturer in the Wharton School of Business Executive Education. But his latest book can most easily be described as the work Karl Marx may have written had he been doing so in 2014.

Das Kapital was published in 1867, as the Second Industrial Revolution was unleashing its full energies. Labour was plentiful and cheap, machines and the energy to drive them were expensive, and the returns (the ‘surplus value’) accrued to those who owned these scarce and expensive physical assets. The worker was an adjunct to the machine.

We now live in a world unrecognizable to any economist of Marx’s time. The price of physical equipment has tumbled and the ‘capital’ that counts is increasingly in the form of the human capital of people’s skills. And, as Rifkin points out, advances in communication and computing have seen falling costs of production and distribution – including, for many products, zero marginal cost. (Think of an MP3 sound recording, or a university course delivered as a MOOC.)

We see the disruptive effects of these technologies – in distribution, wholesaling and retailing, in publishing, and more generally in the entire workforce, as occupations once thought secure are giving way to new technologies. Rifkin suggests as an example that the task of real time language translation (one we normally associate with the exercise of not just algorithms and memory but also of human judgment) will soon give way to machines – the ‘Babel Fish’ of Douglas Adams’s science fiction.

He goes further, however, to envisage an economy where energy is produced at zero marginal cost. To a generation brought up with ideas of energy scarcity, rising prices, and awareness of external costs, the idea sounds absurd. But in our reaction to that scarcity we have developed solar, wind, geothermal and other sources, which do indeed have zero marginal cost, and even the fixed cost of these technologies is obeying a form of Moore’s Law.

The household, once the unit of consumption, also becomes a producer – the ‘prosumer’ to use Rifkin’s neologism.  (Forgive his assault on language: he teaches in a business school.) As battery technologies develop, more households will be cut off from the grid, delivering enough excess kWh to keep their electric cars fully charged. And of course the 3D printer will become the next unit of household production.

He charts a whole new set of economic arrangements, which in a process of evolution (rather than Marx’s revolution), will see the end of capitalism as we know it. In a world of zero marginal cost, and where production merges with consumption, the economic model has to change. Production in a collaborative commons will increasingly come to dominate our economy: think of unrequited production such as Wikipedia or open source software as precursors.

Big energy companies will undoubtedly lose their power, flagship beer brands will give way to microbreweries, cooperative-based banking may make a strong comeback. We are already seeing something of a return to the pre-capitalist economy of craftsmen who had their own small businesses. (In Germany they have coexisted with big business throughout the industrial revolutions.)

In my judgement, however, Rifkin overgeneralises his arguments. The foreseeable future will still see industries with big financial barriers to entry. Airlines and car manufacturing will remain the domain of big enterprises and the 3D printed car has some way to go from proof of concept: Toyota and Volkswagen look reasonably safe for now.

But his job is to spot trends and to get us thinking. His work helps explain the rearguard action of the coal industry in resisting the inevitable switch to renewables. Their concern is not just about competition (the industry is already very competitive). Rather, they see the threat of a completely different way we relate to energy – one which may see the whole concept of an ‘energy industry’ become meaningless. His work establishes the case for a national broadband network – the infrastructure of the ‘Internet of Things’ – and not just a stripped-down version to deliver movies and computer games. And it exposes the increasing irrelevance of some of our institutions, with bodies representing the interests of ‘employers’ and others representing those of ‘workers’ – a set of institutional arrangements more relevant to Marx’s time than to ours.

His book is available online at zero marginal cost, but we’re some way from his vision of zero price – Amazon still has fixed costs.