Lecture 2

Zero Marginal Cost Society. Chapter 1: The Great Paradigm Shift from Market
Capitalism to the Collaborative Commons. Rifkin (2014).

The eclipse of capitalism

It is clear that capitalism has had its peak and is now declining. By 2050 CC will be the dominant
economic paradigm. Interestingly, it is capitalism itself and the inherent contradiction that lies within
that undermines the system. Capitalism wants every aspect of life to be in the marketplace. Supply
and demand balance each other in the self-regulating marketplace. Neoclassical economic refined
Say’s Law to “new technologies increase productivity, allowing the seller to produce more goods at
cheaper costs per unit. The increased supply of cheap foods then creates its own demand and, in the
process, forces competitors to invent their own technologies to increase productivity in order to sell
their goods even more cheaply and win back or draw in new customers. This can continue forever,
when no monopoly will occur. If this scenario continues into extremes we will come to a point where
each additional unit will approach “near zero” marginal cost. Not taking fixed costs into account, this
creates for nearly free products, resulting in the loss of capitalism. This is already happening in for
instance publishing, communications, and entertainment industries. Growing to industries like
renewable energy (prosumers), 3d printing, and online education (MOOCs). Free products are
nowadays already used mainly as a marketing device.

In mature industries with a monopoly or oligopoly, there is an interest in blocking economic progress
in order to protect the value of the capital already invested in outmoded technology. However, this
prevents capital investments in new opportunities, which leads to an enduring stall of the economy.

Other views. Keynes (1930) technological unemployment: unemployment due to our discovery of
means of economizing the use of labor outrunning the pace at which we can find new uses for labor.
Positive note, because allows for devotion to non-economic activities.

Summer and DeLong (2001) on the information economy: “if information goods are to be distributed
at their marginal costs – zero – they cannot be created and produced by firms that use revenues
obtained from sales to cover their (fixed) costs. If these goods are to be created and sold, firms must
be able to sell at a profit. They were against subsidies, because this will destroy the entrepreneurial
energy of the market. Thus, to protect innovation, they (reluctantly) suggest to favor short-term
natural monopolies. The competitive paradigm cannot be fully appropriate, but the right replacement
paradigm is not there yet.

Changing the economic paradigm

Once a paradigm is accepted it is difficult to question its central assumptions. The unquestioning
acceptance, and refusal to envision alternative explanations, leads to a festering of inconsistencies
that pile up until a tipping point is reached and the existing paradigm is replaced. Capitalism is attacked
in two ways: 1) increasing interdisciplinary add a layer to economics. Economic activity is conditioned
by the laws of thermodynamics: the amount of energy in the universe remains the same; no energy is
lost, but dispersed energy (e.g. burned coals) is no longer useable. 2) the IoT is giving rise to a Third
Industrial Revolution.
The Internet of Things (IoT)

IoT is starting to be applied across all industries and will connect every thing with everyone in an
integrated global network. All will be linked through software and sensor to the IoT platform,
continually feeding Big Data to every node in real time.

What makes IoT a disruptive technology in the way we organize economic life is that it helps humanity
reintegrate itself into the choreography of the biosphere, dramatically increasing productivity, but
without compromising the ecological relationships that govern the planet. Using less resources and in
a circular economy, and the transition to renewable energies are defining features of the emerging
economic paradigm.

The network is designed to be open, distributed, and collaborative, allowing anyone/anywhere

/anytime the opportunity to access it and use Big Data to create new applications for managing their
daily lives at near zero marginal cost.

Every infrastructure system requires: a communication medium, an energy source, and a form of
mobility. IoT is made up of a Communication Internet, an Energy Internet, and a Logistics Internet that
work together in a single operator system, finding ways to increase thermodynamic efficiencies and
productivity. This also requires rethinking of business practices (traditional silos).

The rise of the collaborative commons

The Commons is the oldest form of institutionalized, self-managed activity in the world. The
contemporary commons is where people engage in the social aspects of life, including organizations
like charities, sports clubs, healthcare organizations, religious bodies etc. The commons are self-
managing economic enterprises, where production and consumption are primarily for use rather than
exchange. Early archetypes of today's circular economy. Today, we use the terms civil society and
nonprofit sector interchangeably. A new generation prefers the use of social Commons.

Currently the social Commons is growing faster than the market economy in many countries. The
social Commons allows a society to cohere as a cultural identity: create purpose and identity. This
social capital is required to create trust in market and government, yet we call the social Commons
‘the third sector’, as if it were less important than markets and governments.

It is now more relevant than ever because we are erecting a high-tech global technology platform (IoT)
that facilitates collaboration and synergies; the ideal framework for advancing the social economy.
They share principles like, lateral peer production, universal access, and inclusion.

“The IoT enables people to engage in peer-to-peer social networks and concreate the many new
economic opportunities and practices that constitute life on the emerging Collaborative Commons
(CC)”. The platform turns everyone into a prosumer and every activity into a collaboration. Both
capitalism and socialism will make way for CC. The new generation identify themselves as ‘social
entrepreneurs’, in line with the distributed (versus the centralized market and government) and
interconnected nature of IoT. A transformation taking place is the economic shift from exchange value
to sharable value. An underlying factor of the declining growth rate of GDP might be the transition to
‘zero’ marginal costs. Also, often access if preferred over ownership. Moreover, automation, robots,
and AI replace workers, resulting in reduced purchasing power and shrinking growth of GDP. How
economic performance is evaluated should be reconsidered (like quality of life). A counterargument
from capitalists is, is that if everything is nearly free there are no incentives to innovate. However,
millions of prosumers are freely collaborating on CC: the democratization of innovation and creativity.
This is based more on a desire to advance humanity, rather than financial incentives/rewards.
It is still assumed by most people that CC will not threaten the overarching assumptions upon which
market capitalism are based, but it will absorbed into a more humane and efficient capitalist market.

The emergence of IoT allows social enterprises on the CC to break the monopoly hold of giant,
vertically integrated companies (principles dated from 1st and 2nd industrial revolution, because high
investments were then required). IoT relies on renewable energy, which can be found everywhere to
some extent. However, these renewable energies have to be organized collaboratively and shared
across communities and region to create sufficient lateral economies of scale to bring the marginal
cost to zero for everyone in society.

Paradigms shifts are disruptive and painful: they bring into question the operating assumptions that
underlie the existing economic and social models as well as the belief system that accompanies them
and the worldview that legitimizes them.

Blockchain Revolution. How the technology behind bitcoin is changing money,

business and the world. Chapter 1: The Trust Protocol. Tapscott & Tapscott (2016)

Already in 1981 it was tried to solve the Internet’s problems of privacy, security, and inclusion with
cryptography. However, there were always leaks because third parties were involved. In 2008 a new
protocol for a peer-to-peer electronic cash system using cryptocurrency (digital currency) called
bitcoin was introduced. Cryptocurrency differs from flat currency, because they are not created or
controlled by countries. This protocol established a set of rules-in the form of distributed
computations-that ensured the integrity of the data exchanged among these billions of devices
without going through a trusted third party. This has never happened before, transactions directly
between two or more parties, authenticated by mass collaboration and powered by collective self-
interests, rather than by large corporations motivated by profit. We’re calling it the Trust Protocol.