The Third Industrial Revolution: How Lateral Power Will Transform Society (Excerpt)

09/28/2011 09:14 am ET | Updated Nov 28, 2011
  • Jeremy Rifkin Author, 'The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism'

Energy regimes shape the nature of civilizations... how they are organized, how the fruits of commerce and trade are distributed, how political power is exercised, and how social relations are conducted. The locus of control over energy production and distribution is beginning to tilt from giant fossil fuel based centralized energy companies to millions of small producers, who are generating their own renewable energies in their dwellings and trading surpluses in info-energy commons.

Distributed Capitalism

The new era will bring with it a reorganization of power relationships across every level of society. While the fossil fuel-based First and Second Industrial Revolutions scaled vertically and favored centralized, top-down organizational structures operating in markets, the Third Industrial Revolution is organized nodally, scales laterally, and favors distributed and collaborative business practices that work most effectively in networks. The "democratization of energy" has profound implications for how we orchestrate the entirety of human life in the coming century. We are entering the era of "Distributed Capitalism."

The partial shift from markets to networks establishes a different business orientation. The adversarial relationship between sellers and buyers is replaced by a collaborative relationship between suppliers and users. Self-interest is subsumed by shared interest. Proprietary information is eclipsed by a new emphasis on openness and collective trust. The new focus on transparency over secrecy is based on the premise that adding value to the network doesn't depreciate ones own stock, but, rather, appreciates everyone's holdings as equal nodes in a common endeavor.

In industry after industry, cross-sector networks are competing with autonomous transaction-based business models, and peer-to-peer business practices conducted in commercial commons are challenging competitive business operations in siloed markets.

Distributed capitalism ushers in new business models, including 3D printing in the manufacturing of durable goods and performance contracting and shared savings ventures in the service and experiential sectors, which greatly reduces capital, energy and labor costs, and increases productivity. In the new lateral economy, the exchange of property in markets is increasingly subsumed by just-in-time access to goods and services in networks, purchased in the form of leases, rentals, timeshares, retainer agreements, and other kinds of time allotments.

When thousands of businesses -- large companies, SMES, and cooperatives -- connect with one another in vast networks, the distributed power often exceeds the power of standalone giant companies that characterized the First and Second Industrial Revolutions.

Beyond Right and Left

The emerging Third Industrial Revolution is not only changing the way we do business, but also the way we think about politics. The struggle between the older hierarchical power interests of the Second Industrial Revolution and the nascent lateral power interests of the Third Industrial Revolution is giving rise to a new political dichotomy, reflective of the competing forces vying for dominance in the commercial arena. A new political script is being written, recasting the very way people will view politics as we move deeper into the new era.

When was the last time you heard anyone under the age of twenty-five rant about his or her ideological beliefs? Something very strange is happening out there. Ideology is disappearing. Young people aren't much interested in debating the fine points of capitalist or socialist ideology or the nuances of geopolitical theory. Their political leanings are configured in an entirely different way.

Our global policy team began picking up on this phenomenon as we became more engaged in the political process in Europe, the United States and other countries. We have come to discover what we suspect is a new political mindset emerging among a younger generation of political leaders socialized on Internet communications. Their politics is less about right versus left and more about centralized and authoritarian versus distributed and collaborative. This makes sense.

The two generations whose sociability has been formed, in large part, by Internet communications, are far more likely to divide the world into people and institutions that use top-down, enclosed, and proprietary thinking, and those that use lateral, transparent, and open thinking. As they come of age, they are affecting a shift in political thinking--one that will fundamentally alter the political process in the twenty-first century.


While the First and Second Industrial Revolutions were accompanied by national economies and nation-state governance, The Third Industrial Revolution, because it is distributed and collaborative by nature, scales laterally along contiguous landmasses, and favors continental economies and continental governing unions. Continentalization is becoming the new path to globalization.

Sharing renewable energy laterally, in power, communications and transport networks that stretch across continents, like we now share information virtually in social networks across the internet, is going to radically transform the political world. The new energy relationships will require governing jurisdictions that are similarly lateral and networked and that encompass the outer limits of the TIR's geographical reach, which are the edges of continents. If not inevitable, it is at least highly likely that continental unions will become the new governing jurisdictions to regulate emerging continental markets around the world in the 21st Century.

The European Union is the first continental economy and political union to begin transitioning into a Third Industrial Revolution. Continental unions have recently been formed in Asia (The ASEAN Union), Africa (The African Union) and South America (The Union of South American Nations). In North America, the fledgling political associations forged between the northern states and Canadian provinces are a precursor to a potential continental union.

Although localities, regions, and national governments will not disappear in the coming century -- they will actually be strengthened -- continental unions provide an expansive political framework for overseeing integrated continental markets.

From Geopolitics to Biosphere Politics

The intercontinental era will slowly transform international relations from geopolitics to biosphere politics. A new approach to political life on the planet is just beginning to emerge, based on operating principles and assumptions that are more compatible with the dynamics of a Third Industrial Revolution economic model, and the ecological constraints imposed by the Earth's biosphere.

In the geopolitical world of the fossil fuel-based First and Second Industrial Revolutions, the Earth was conceived in a mechanical and utilitarian fashion. The planet was viewed as a container -- a storehouse -- full of useful resources ready to be appropriated for economic ends. Nation states were formed to compete with one another in the market and on the battlefield, to seize, secure, and control elite fossil fuel energies and rare earth resources.

The shift in energy regimes from elite fossil fuels to distributed renewable energies will redefine the very notion of international relations more along the lines of ecological thinking. If the earth functions more like a living organism made up of layer upon layer of interdependent ecological relationships, then our very survival depends on mutually safeguarding the well-being of the global ecosystems of which we are all a part. Because the renewable energies of the Third Industrial Revolution are ample, found everywhere, and easily shared, but require collective stewardship of the earth's ecosystems, there is less likelihood of hostility and war over access and a greater likelihood of global cooperation. In the new era, survival is less about competition than cooperation, and less about the search for autonomy than the quest for embeddedness.

The old geopolitics was accompanied by a scientific paradigm that viewed nature as objects; the new biosphere science, by contrast, views nature as relationships. The old science is characterized by detachment, expropriation, dissection, and reduction; the new science is characterized by engagement, replenishment, integration, and holism. The old science is committed to making nature productive; the new science is committed to making nature sustainable. The old science seeks power over nature; the new science seeks partnership with nature. The old science puts a premium on autonomy from nature; the new science, on re-participation with nature.

The new biosphere science takes us from a colonial vision of nature as an enemy to pillage and enslave, to a new vision of nature as a community to nurture. The right to exploit, harness, and own nature in the form of property is tempered by the obligation to steward nature and treat it with dignity and respect. The utility value of nature is slowly giving way to the intrinsic value of nature. This is the deep meaning of sustainable development, and the very essence of biosphere politics.

Biosphere politics facilitates a tectonic shift in the political landscape; we begin to enlarge our vision and think as global citizens in a shared biosphere. Global human rights networks, global health networks, global disaster relief networks, global germ plasm storage, global food banks, global information networks, global environmental networks, and global species protection networks, are a powerful sign of the historic shift from conventional geopolitics to fledgling biosphere politics.

Retiring Adam Smith

It's been nearly fifty years since I took my introductory class in classical economic theory at the Wharton School at the University of Pennsylvania. I have watched a transformation take place in the workings of the economy over the ensuing half century--most of which has never been integrated into the standard economics textbooks. The once-unquestioned value of unlimited economic growth has given way to the idea of sustainable economic development. The conventional, top-down, centralized approach to organizing economic activity that characterized the fossil fuel-based First and Second Industrial Revolutions, is being challenged by the new distributed and collaborative organizing models that go with a Third Industrial Revolution. The hallowed nature of property exchange in markets has been partially upended by shared access to commercial services in open-source social networks. National markets and nation-state governance, once the spatial milieu for all economic activity, are giving way to continental markets and continental governments. The result is that much of economics, as it is taught today, is increasingly irrelevant in explaining the past, understanding the present, and forecasting the future.

Although the term paradigm shift has been grossly overused in recent years, I think it's safe to say that when it comes to economic theory, the term is apt. Our children's understanding of economic theory and the governing assumptions of economic practice will be as radically different from ours as the market theorists' ideas are from the "just price" philosophy that governed late medieval commerce and trade.

Whether it's rethinking GDP and how to measure the economic well-being of society, revising our ideas about productivity, understanding the notion of debt and how best to balance our production and consumption budgets with nature's own, reexamining our notions about property relations, reevaluating the importance of finance capital versus social capital, reassessing the economic value of markets versus networks, or reconsidering how the Earth's biosphere functions, standard economic theory comes up woefully short.

On these and other accounts, the changes taking place in the way we understand human nature and the meaning of the human journey are so profoundly disruptive to the way we have thought over the past two hundred years that spawned the first two industrial revolutions, that it is likely that much of classical and neoclassical economic theory that accompanied and legitimized these two earlier industrial eras will not survive the newly emerging economic paradigm.

What is likely to happen is that the still-valuable insights and content of standard economic theory will be rethought and reworked within the context of the thermodynamic laws that govern the flow of energy and ecosystem dynamics. Using the laws of energy as a common language will allow economists to enter into a deep conversation with engineers, chemists, ecologists, biologists, architects, and urban planners, among others, whose disciplines are grounded in the laws of energy. Since these other fields are the ones that actually produce economic activity, a serious interdisciplinary discussion over time could potentially lead to a new synthesis between economic theory and commercial practice and the emergence of a new, explanatory economic model to accompany the Third Industrial Revolution paradigm.

A Classroom Makeover

Preparing the workforce and citizenry for the new society will require rethinking the traditional educational model, with its emphasis on rigid instruction, memorization of facts, reductionist thinking and autonomous learning.

In the new globally connected Third Industrial Revolution era, the primary mission of education is to prepare students to think and act as part of a shared biosphere.

In schools all over the world, teachers are instructing students, from the earliest ages, that they are an intimate part of the workings of the biosphere and that every activity they engage in --the food they eat, the clothes they wear, the car their family drives, the electricity they use -- leaves an ecological footprint that affects the well-being of other human beings and other creatures on earth.

A new generation of educators is beginning to deconstruct the classroom learning processes that accompanied the First and Second Industrial Revolutions and reconstitute the educational experience along lines designed to encourage an extended ecological self, imbued with biosphere consciousness. The dominant top-down approach to teaching, the aim of which is to create a competitive, autonomous being, is beginning to give away to a "distributed and collaborative" educational experience with an eye to instilling a sense of the shared nature of knowledge. Intelligence, in the new way of thinking, is not something one inherits or a resource one accumulates but, rather, a shared experience distributed among people.

New lateral learning environments, including virtual global classrooms and service learning in the community, break through the conventional classroom walls, making education a more expansive and inclusive experience. Peer-to-peer learning compliments the traditional, authoritarian model of teaching, by emphasizing students' responsibility to also learn from and teach each other in structured cohort groups.

Interdisciplinary learning, multicultural studies, empathic scientific experimentation, and a systems approach to integrating knowledge, are among the cutting-edge teaching practices that are forcing a fundamental change in the educational process and preparing students to live in a complex, multidimensional, global society.

The new distributed and collaborative approach to learning mirrors the way a younger generation learns and shares information, ideas, and experiences on the Internet in "open source" learning spaces and social media sites. Distributed and collaborative learning also prepares the workforce of the 21st Century for a Third Industrial Revolution economy that operates on the same set of principles.

The Dream of Quality of Life

The Third Industrial Revolution changes our sense of relationship to and responsibility for our fellow human beings. We come to see our common lot. Sharing the renewable energies of the earth in collaborative commons that span entire continents can't help but create a new sense of species identity. This dawning awareness of interconnectivity and biosphere embeddedness is already giving birth to a new dream of "quality of life," especially among the youth of the world.

The American dream, long held as the gold standard for aspiring people everywhere, is squarely in the Enlightenment tradition, with its emphasis on the pursuit of material self-interest, autonomy and independence. Quality of life, however, speaks to a new vision of the future -- one based on collaborative interest, connectivity and interdependence. We come to realize that true freedom is not found in being unbeholden to others and an island to oneself but, rather, in deep participation with others. If freedom is the optimization of one's life, it is measured in the richness and diversity of one's experiences and the strength of one's social bonds. A life less lived is an impoverished existence.

The dream of quality of life can only be experienced collectively. It is impossible to enjoy a quality of life in isolation by excluding others. Achieving a quality of life requires active participation by everyone in the life of the community and a deep sense of responsibility by every member to ensure that no one is left behind.

While Enlightenment economists were convinced that happiness and "the good life" was tautological with the accumulation of personal wealth, a younger generation, at the cusp of the Third Industrial Revolution, is just as likely to believe that, while economic comfort is essential, it is not sufficient to ensure a full life, and that one's happiness is equally proportional to the accumulation of social capital.

The change in thinking about the meaning of happiness is beginning to affect one of the key indices for measuring economic prosperity. The Gross Domestic product (GDP) was created in the 1930s to measure the value of the sum total of economic goods and services generated over a single year. The problem with the index is that it counts negative as well as positive economic activity. If a country invests large sums of money in armaments, builds prisons, expands police security and has to clean up polluted environments and the like, it's included in the GDP.

In recent years, economists have begun to create alternative indexes for measuring economic prosperity based on quality of life indicators, rather than mere gross economic output. These new indices measure the general improvement in the well-being of society and include such things as: infant mortality and longevity of life, the availability of health coverage, the level of educational attainment, average weekly earnings, the eradication of poverty and income equality, affordability of housing, the cleanliness of the environment, biodiversity, the decrease in crime, the amount of leisure time, etc. The governments of France, the UK, and the European Union, as well as the Organization for Economic Cooperation and Development (OECD) and the United Nations are each creating formal quality of life indexes with the expectation of relying increasingly on these new measurements to judge the overall performance of the economy.

If quality of life requires a shared notion of our collective responsibility for the larger community in which we dwell, the question becomes "Where does that community end?" In the new era, our spatial and temporal orientation gravitates beyond political boundaries to encompass the larger community we all inhabit -- the biosphere itself.