I have read Jeremy Rifkin's book The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism, which has a strong connection to open organization principles, particularly community building. Rifkin also writes about the future of green energy generation and energy use in logistics. This is the first of three articles in this series. In this article I'll talk about collaborative commons. In the next, I'll talk about its impact on energy production and supply. In the last article, I will look at other economic systems like logistics.
Rifkin believes that the capitalist economy is slowly passing, and the collaborative commons is increasing in importance in the global economy resulting in a part capitalist market and part collaborative commons (like Open Organization Communities). Within these collaborative commons are "social impact-focused organizations" that Laura Hilliger and Heather Leson wrote about in their articles on these organizations. Rifkin thinks these commons are finding synergies where they can add value to one another, while benefiting themselves. At other times, they are deeply adversarial, each attempting to absorb or replace the other.
Rifkin feels that the organizational top-down, centralized capitalist system for the day-to-day commercial, social, and political life of society, that has lasted over more than ten generations, has peaked and begun its slow decline. Capitalist systems will remain part of the social order for at least the next half century, but the collaborative commons will ascend and play a major role by 2050 around most of the globe.
A changing supply environment
Competition will improve productivity, drive down prices and costs to the point where there are "near zero" marginal costs. The cost of actually producing each additional unit after initial fixed costs (purchasing equipment, technology and all start-up expenses) brings the cost to near zero. This causes the production, and making of the product to be nearly free. I have always called "marginal costs" a variable cost. I looked both up, and they are very similar, but the calculation is only slightly different. The impact is the same.
In products that achieve near zero marginal costs, profits (the lifeblood of capitalism) will dry up. That is, if you consider profits as the only motivating factor to supply the product. In a market-exchange economy, profits are made through the gap between cost (variable and fixed) and selling price. Without that gap, there is no financial market. Industries like publishing, communications, camera film, entertainment have seen that gap disappear.
In these industries that have very little gap between costs and selling price, the collaborative network (commons, community, association, or cooperative) comes to life. They serve their community for other reasons than just making a profit (offering value, solving local problems). There is never 100% of one and 0% of the other, but these collaborative networks have a higher share of society giving over receiving and profiting. I think this is the same with Laura Hilliger's and Heather Leson's social impact-focused organizations that I mentioned above.
Zero marginal cost is impacting many for-profit industries, particularly renewable energy, information gathering and computing power, 3D printing, manufacturing, online higher education, and money transfers. They are becoming "prosumers", producing, consuming, and sharing the rest.
Product by product, industry by industry, service by service, while up-front costs (fixed, initial costs, and investment) are still high, they are coming down so much that individuals, creative commons, communities, and cooperatives can invest, not just large corporations or governments.
From this point on, marginal cost reduction is entering into physical goods and services, not just the information economy. There will be more give away items that will draw people to other items that can be purchased as well.
As society moves closer to a near zero marginal cost society, capitalism will be less dominant than today. Rifkin says we will move to a society of abundance over scarcity, a society where most things can be freely shared without concern for getting a return on investment for supplying the goods.
Changing economic paradigm
The assumptions regarding the best way to supply goods and services has to change if the marginal cost goes down to near zero. That demand is still there, but the cost of supplying it is near zero and the supply far exceeds the quantity needed or demanded. The mindset should not be on profiting (marketing benefit) for the supply of the item, but more on just the joy of providing it (social benefit). This is aligned with the social impact-focused organizations that Laura Hilliger and Heather Leson wrote about.
The capitalist model is under siege on two fronts:
Interdisciplinary scholarship: like ecological science, chemistry, biology, engineering, architecture, urban planning, and information technology are all adding new concerns to business models, because many are external to the basic equipment and labor cost model. Other environmental factors are coming into play.
New information technology platforms: are weakening centralized control of major heavy industries. The coming together of the communication internet with the fledgling energy (producing, sharing, consuming) internet and the logistics (moving, storing, sharing) internet in a seamless 21st century intelligent infrastructure (IoT) is giving rise to a new industrial revolution. An economy based on scarcity is slowly giving way to an economy of abundance.
According to Rifkin, the IoT will connect everything with everyone in an integrated global network. People, machines, natural resources, production lines, logistics networks, consumption habits, recycling flows, and waste analysis will all be linked by sensors, cameras, monitors, robots, and software with advanced analytics to make determinations. This will make many items to go down to near zero marginal costs. Researchers are looking at this now, like the Internet of Things European Research Cluster. Their "Discover" journal series is committed to providing a streamlined submission process, rapid review and publication, and a high level of author service at every stage. It is an open access, community-focussed journal, publishing research from across all fields relevant to the IoT. It provides cutting-edge and state-of-art research findings to researchers, academicians, students, and engineers. Europe is also studying this as well.
Smart cities are those that build structural health sensors, as well as noise pollution sensors, parking space availability sensors, and sensors in garbage cans to optimize waste collection. There will be sensors in vehicles to gather useful information to reduce travel risks and insurance rates. Sensors in forests will determine the chance of fire. There will be sensors in farm soil, on animals to determine migration trails, in rivers to determine quality of water, sensors on produce to track whereabouts and sniff spoilage, sensors in humans to monitor bodily functions (heart rate, body temperature, skin coloration), and security systems to reduce crime. Many companies are developing these systems, like General Electric's "Industrial Internet", Cisco's "Internet of Everything", IBM's "Smart Planet" and Siemens' "Sustainable Cities".
All these companies are connecting neighborhoods, cities, regions, and continents in what is called "a global neural network" designed to be open to all, distributed, and collaborative allowing anyone, anywhere to tap into Big Data.
Rifkin writes that these systems will marshal resources, production systems, distribution systems, and recycling of waste. Without communication, economic activities cannot be managed. Without energy, information can't be generated and transportation can't be powered. Without logistics, economic activity can't be moved across a supply chain.
The commons existed before capitalist markets or representative government. The contemporary commons are where billions of people engage in the deeply social aspects of life, like charities, religious bodies, arts and cultural groups, educational foundations (schools), amateur sports clubs, producers and consumer cooperatives, credit unions, health-care organizations (hospitals), crowdfunding communities, advocacy groups, and condominium associations.
Notice these are all community based, and have many open organization community principles. In all these organizations, all members are partly owners, managers, workers, and customers (users). There are no salvos between them and their goals are more aligned. The needs of the users must be the strongest of all as that is the greatest community purpose.
Up until now, social commons have been considered the third sector, behind markets and governments. But as time goes on, Rifkin thinks it may grow in importance, as required capital investments will come down to a level that local communities can handle.
While capitalist markets are based mainly on self-interest and driven by material gains, the social commons are motivated by collaborative interests and driven by a deep desire to connect with others and share (open-source, innovation, transparency, and community).
Rifkin writes that the IoT is the technical match for the emergence of the collaborative commons, as it is configured to be distributed, peer-to-peer in nature in order to facilitate collaboration, universal access and sharing, inclusion, and the search for synergies. It is moving from sales markets to social networks, from things owned to things utilized, from individual interests to collaborative interests, and from dreams of going from rags to riches to dreams of a sustainable quality life for all.
GDP and social value measurements
All the value of sharing in communities will impact the GDP, as their value is not economically measured. Therefore, new measurements are required to include educational growth, healthcare, infant mortality, life expectancy, environmental stewardship, human rights, democratic participation, volunteerism, leisure time, poverty, and equitable distribution of wealth.
New kind of incentives
Rifkin thinks that the democratization of innovation and creativity on the emerging collaborative commons is spawning a new kind of incentive, based less on the expectation of financial reward and more on the desire to advance the social well-being of humanity. The collaborative effort will result in expanded human participation and creativity across society and flatten the way we organize institutions (like social impact-focused organizations).
Energy and social impact-focused organizations
I'll talk more about this in the second part of this series, but top-down command and control of fossil fuels are only found in certain places and require centralized management to move them and are very capital intensive. Distributed energies are now leading to local empowerment through the development of collaborative commons. These laterally scaled communities will start to break up vertically integrated companies and monopolies.
These distributed renewable energies have to be organized collaboratively and shared peer-to-peer across communities and regions to create sufficient lateral economies of scale to bring their marginal cost to zero for everyone in society.
The beginning of capitalism, central, top-down control, and massive investments
Whether a society is communist, socialist or capitalist, in the past in order for industrial revolutions to advance economic development, massive investment was required on a centralized, vertical top-down structure.
According to Rifkin, in the next industrial revolution that is starting, those massive costs start coming down so local cooperatives can invest, manage, and control their economic development. Initial investments can be financed by hundreds of millions of individual peer-to-peer networks which will be doable for everyone. But it must be for goods that have marginal (variable) costs of generating, storing, sharing communications and energy at nearly zero. They are smart public infrastructures. These infrastructures will be laterally integrated networks on the collaborative commons, rather than vertically integrated businesses in the capitalist market. They will be social enterprises (open organizations) connected to the IoT. They will utilize an open, distributed, and collaborative architect to create peer-to-peer lateral economies of scale that eliminate virtually all the remaining middlemen. It will be the start of the production and distribution of very close to free goods.
There is a changing supply environment and the world will have to adjust to it. In one area, organizational models will have to change. Furthermore, new ways of thinking and incentivizing have to be developed. In the next part of this series, I'll take a look at energy, education, and other expenses in more detail regarding near zero marginal cost and the communities they develop. Much of our current energy and other costs are moving in that direction.