The Third Industrial Revolution

Jeremy Rifkin, American economic and social theorist, author of several books, business school professor, and policy adviser to world leaders and CEOs, wrote ‘The Third Industrial Revolution’ in 2011. The book, and a subsequent video lecture filmed by VICE media (and promoted by the P2P Foundation), tells the story of a world gone wrong, of the First (1800’s) and Second (1900’s) versions of ‘the Industrial Revolution’, and how we will never survive the Anthropocene era if we continue down those paths.

Rifkin notes that, like all revolutions, what started in Britain and spread worldwide, began with improved communications followed closely by advances in power (generation) and increasing mobility. The 1800’s had the printing press and the telegraph, mechanical looms, and the steam engine powered by coal. That era gave way to the ‘modern’ capitalistic world with the telephone, radio, and television powered by hydro and nuclear electricity while we moved around in automobiles and airplanes powered with fossil fuels.

The 19th century school of economics tried to emulate Newtonian laws of physics, says Rifkin, in order to become ‘more scientific’. While Isaac Newton stated, “for every action, there is an equal and opposite re-action”, Smith, and others, said, “free markets regulate themselves by means of competition” and “supply will equal demand”.

While Rifkin acknowledges the ignorance of the ‘thinkers’ of this time, he has outright contempt for those who followed, those who should have known that the world has limits, that the economy is dependent on the planet’s resources, not the other way around. Those in the 20th century ought to have paid more attention to the Laws of Thermodynamics. Energy is constant – neither created nor destroyed, merely transferred.

Entropy is the measure of energy that is still there but no longer available to do useful work. From this basic premise, Rifkin moves to his second theory, that this ‘unused energy’ has been the holy grail of industry for centuries. Smith promoted the ‘division of labour’ which increased productivity. However, as noted by Rifkin, in his allusion to entropy, efficiency can only go so far. In the same way that, in an internal combustion engine, energy embedded in gasoline is lost as heat as it is converted to power a vehicle.

Called ‘aggregated efficiency’ in economics only a percentage of the inherent energy gets transferred as a product goes through the process of extraction, production, display and delivery. It’s estimated that in 1905, the U.S. had about 3% aggregated efficiency losing a huge amount of energy getting items produced, to market and in the hands of consumers. Studies in several countries today limit this efficiency to, at best, 18%. Technology was to become the potential ‘saviour’ to increase efficiency, or so said the experts. They also said we would have too much leisure time with our four-day work weeks.

This leads to Rifkin’s ‘Third Industrial Revolution’. We now have the Internet (communications), renewable energy (power), and autonomous cars and trucks, and mass transit (transportation). There are sensors in agriculture to monitor soil and crops. Factories are flooded with data as are our homes. Vehicles, warehouses and ‘smart roads’ all help improve logistics. Open-sourced software allows us to communicate and share with others avoiding gatekeepers and middlemen. We are slowly moving towards a distributed economy rather than a centralized one. We have, and must according to Rifkin, become more collaborative and open and transparent rather than proprietary, full of patents and ‘intellectual property’.

“We need to ensure that everyone has equal access,” says Rifkin in reference to Net Neutrality. He also advocates us to avoid monopolies, monitor government restrictions, enforce privacy and data security, and deal with cybercrime.

Rifkin also points to a new economic theory – actually it’s an old economic theory with a new urgency. Marginal cost is the cost to produce one more individual unit. It is the limiting factor in the amount of production an organization undertakes. Traditionally, as the volume increases marginal cost decreases. But, there will always be a point where one more unit cuts into profit. If, however in the case of the Third Industrial Revolution, marginal cost gets cheaper because of technologies such as open-source software or 3D printing, then marginal cost approaches zero – with the added benefit of no waste.

Production in the sharing economy, states Rifkin, will reduce marginal cost. The Sharing Economy is the first system to enter economics since Capitalism and Socialism – and it works. In the Old Economy ‘property’ and ownership (as in cars) were the rule of the day. In the New Economy, car-sharing and transit eliminate the need (and cost) of ownership. “For every car sharing unit,” says Rifkin, “fifteen cars are avoided. Grandma and Grandpa might want two cars, that sit in a parking space 92% of the time, but Millennials don’t want to own cars. The system has to respond to that.”

Rifkin also has a plan to finance the transition. “How do we pay for new infrastructure that supports transit, car sharing, smart metering, etc.?,” he asks. “We already are,” he exclaims. “Our current system keeps legacy systems in place. This creates barriers to start-ups and new entrepreneurs, stalling the economy.” Rifkin notes that we are spending in the wrong places to keep the current system propped up. If we prioritize investments to encourage start-ups we shift the money to smart infrastructure and that will create employment, both skilled and unskilled workers.

We can transform the old system, as reasonably and smoothly as possible, with smart infrastructure and use the savings created in electricity generated by solar and wind, through a digital and distributed network. The shift, according to Rifkin, would be from ownership to access; from markets to networks; from consumerism to sustainability; from market capital to social capital. Rifkin closed his speech and book with what he called “guarded optimism” – because we may only have one or possibly two generations to make the transition to a Third Industrial Revolution.

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