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Moving to Zero

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How much of human productive activity can be moved to "near zero marginal cost"? Jeremy Rifkin's provocative new book poses the question to our future. The case for "near zero marginal cost" in the digital world is pretty clear, as Rifkin so ably explains. Think of a piece of software (from Microsoft Office to a Beyonce track). Once produced (which could have enormous cost), production and distribution of additional copies over the Internet is virtually free. Any additional "cost" is amortized cost of building, maintaining and operating the transmission infrastructure (which can also be huge), not the product itself. Thus, the marginal cost of the product is almost zero. We are thus in an age of data abundance, virtually unlimited by physical reality. Put differently, there is no scarcity to drive up the price. You and I can both have copies of the same digital data or MOOC course without additional cost or competition for a scarce product as an unlimited number of copies can be made without using up physical resources. The marginal cost of Rifkin's "Communications Internet" is thus near zero -- after accounting for the costly infrastructure and its operation and maintenance.
This model does not apply to the physical world, however. The cost of an additional BMW X-5 or an iPhone 5s is not zero. Each additional car or smartphone must be produced, consuming raw materials and energy. Mass production may reduce marginal costs, but that is only monetary cost, which is definitely not reduced to zero. Each additional BMW or iPhone consumes the same amount of raw material and energy. To achieve the sustainable, "collaborative commons" world that Rifkin so eloquently describes and advocates, we have to move the marginal cost of energy and material goods closer to zero. These are two different problems.

We can see our way to near zero marginal cost for energy by relying on renewables, especially solar and wind power. Fossil fuel energy production may currently rely on cheaper power plants than solar and wind, but the fuel must be produced, refined and transported to the point of consumption -- and continually paid for -- as long as the power plant continues produces energy. The infrastructure for renewables currently may be more costly than that for fossil fuels (especially when "externalities" like carbon emissions are not factored in to operating costs), but the fuel is free forever, reducing the marginal cost of energy production to near zero while also pushing carbon emissions to zero. So, after accounting for investment in a costly energy infrastructure and its maintenance, we can see our way to eventual near-zero marginal cost of Rifkin's Energy Internet.

But what about production of material goods, from food and clothes to houses and cars? This nut will harder to crack -- that is, it will be harder to move to abundance of material goods and thus to near zero marginal cost. Here we find a second meaning of zero marginal cost. Besides the good being nearly "free" to the consumer, the goal is to produce abundance of goods for human consumption at no additional cost to the carrying capacity of the planet. This would mean producing abundance while also reducing the rate of consumption of natural resources to a level that is in effect living off nature's interest without depleting its capital.

Rifkin wants civilization to move toward both types of zero marginal cost to realize the "Logistical Internet." This will be the biggest but perhaps most essential challenge of the human future and for building a world around the "collaborative commons." Rifkin helps us see the outlines of that world, which in part depends on new technologies such as 3D printing which holds the promise of a huge reduction in the footprint of human consumption. 3D printing greatly reduces waste in the production process, often by as much as 90% or more in use of metals. By making goods on demand where they are consumed, the transportation footprint is greatly reduced along with the carbon footprint. Although raw materials will still have to be moved from where they are produced to where they are consumed, there also will be new potential for recycling materials for reuse in 3D printers. And 4D printing/programmable matter holds out even greater promise for the efficient use of resources with the ability of a given "product" to change form and function as well as to potentially disassemble itself for reuse.

3D/4D printing is just one of the technologies that can both greatly enhance "resource productivity" -- getting more product from a given amount of resource use -- and move from a centralized, capitalist dominated economy to more and more of the production of goods and services in the sharing economy of Rifkin's "collaborative commons" of the Internet of Things. Rifkin has an expansive IoT vision leading us to the transformed economy:

"The Internet of Things will connect everyone and everything in an integrated global network. People, machines, natural resources, production lines, logistics networks, consumption habits, recycling flows, and virtually every other aspect of economic and social life will be linked via sensors and software to the IoT platform, continually feeding Big Data to very node -- businesses, homes, vehicles -- moment to moment, in real time. Big Data, in turn, will be processed with advanced analytics, transformed into predictive algorithms, and programmed into automated systems to improve thermodynamic efficiencies, dramatically increase productivity, and reduce the marginal cost of producing and delivering a full range of goods and services to near zero across the entire economy."

Realization of Rifkin's world of the Third Industrial Revolution integrated around and through the IoT seems a long way off, but it also offers a vision that if even partly fulfilled will move human society toward a more sustainable, equitable and cooperative future -- a civilization in which near-zero marginal cost production offers a world of much greater abundance for many more people without compromising the future.


Banning Garrett is Strategic Foresight Senior Fellow for Innovation and Global Trends at the Atlantic Council and founding director of the Council's Strategic Foresight Initiative.