If you’re anything like me, you share a sense that we are approaching a crisis point for human civilisation and life as we know it.
Through human-induced climate change, we’re already seeing tipping points breaking, yet it feels all we can do is stare into the abyss.
At the same time, our capitalist system has made the rich richer and the poor poorer, whilst landfill sites overflow around the world. A recent report by Oxfam, found the wealth of the richest 26 people in the world to be equivalent to that of the bottom half of the population – that’s almost 4 billion people.
You feel like we’re reaching this crisis point, yet it’s too complex. A feeling of helplessness sinks in, what can I do? Is there any cause for hope left?
If you were to ask Rifkin, he’d say yes, and that we already have an answer to this crisis. Through his book “The Third Industrial Revolution”, Rifkin has assessed our current socio-environmental condition as well as its historical trends, and proposed a path forward.
For me, Rifkin was a revelation. For once, I’m starting to see a glimmer of light at the end of the tunnel.
I’m grateful for the opportunity to share his message with you, what will you make of it? In this article, I’ll be summarising his main narrative, key takeaways, and what this means for us.
How Revolutions Happen
I’m sure you’re aware of the scale and urgency of the environmental and existential issues we face today.
As Einstein once said: “No problem can be solved from the same level of consciousness that created it.”
So to address the scale of the challenges we face today, we have to do something radical. In essence, it requires a revolution.
Through a thorough assessment of our current condition, from climate change to inequality, what we need, Rifkin claims, is a new economic vision. One that must be deployed fast.
Drawing from history, Rifkin argues economic revolutions happen when three technologies emerge and converge to create a new infrastructure, fundamentally changing how we manage, power, and move economic life:
- New communication technologies to better manage our economic activity
- New sources of energy to better power our economic activity
- New mode of mobility (transportation and logistics) to more efficiently move the economic activity.
The First and Second Industrial Revolutions
Take the first industrial revolution in Britain.
It was propelled by a communications revolution. The invention of the steam-powered printing press, as well as the electrical telegraph, made mass communications far faster and cheaper than ever before, and instantaneous distance communication possible.
The invention of these communications technologies also coincided with the rise of a new source of energy in Britain – coal. This coal needed to be shipped around the country, which lead to the invention of steam engines, as well as steam trains.
These were among the key factors characterising the first industrial revolution and would have a profound impact on the fabric of economic life.
Now take the second industrial revolution in the US.
New communications technologies – telephones, then radio and TV, made quantum leaps in how humans could communicate. This coincided with the rise of cheap Texas oil – a highly centralised form of power generation – whilst Henry Ford started putting everyone on the road with cars, buses and trucks. Giant, vertically integrated organisations reigned.
Oil Addiction
The second industrial revolution had a profound effect on how we manage, power and move our economic activity. However, it’s an infrastructure built on one key bottleneck – fossil fuels.
Take the agriculture industry as an example. Fertilisers and pesticides come from fossil fuels, transporting the water takes fossil fuels, shipping requires fossil fuels, even the packaging comes from fossil fuels. Surprisingly, most of our pharmaceuticals and even cosmetics are derived from fossil fuels.
So the structure of our whole economic system is essentially built on top of mass digging up and burning of the dead plants and carcasses from another age. An odd way to go.
It’s this deep reliance on these fossil fuels, Rifkin argues, that manifested in the global financial crash of 2008. A few weeks prior, oil had hit an all-time high of over $140/ barrel. Rifkin argues this is what caused the economic shutdown. The financial crash was just an aftershock of this.
After searching for data to prove or disprove Rifkin’s point, I came across this piece of research which seems to shed light on his hypothesis.
Whilst costs for producers are highly correlated with oil prices, the consumer inflation side (CPI), is significantly less so. The justification being that much of the consumption in the US is of the services industry, which we’d expect to be less dependent on oil prices.
That said, there’s no denying that our current economic infrastructure is still heavily shaped by the second industrial revolution, and highly dependent on oil for its function.
Rifkin argues this leads to a highly volatile, continuing economic cycle of growth and shutdown which is highly dependant on oil prices, and therefore to a large extent, the supply decisions of the OPEC countries.
He proposes that oil prices went so low during 2015 (around $30 per barrel) because suppliers are now “fighting amongst themselves in the sunset”, working together to push down prices to eradicate the emerging alternative fossil fuel providers, namely Shale Gas and Tar Sands in Canada. If you’d agreed with his hypothesis, it would’ve seemed to be a big success, with mass bankruptcies in these alternative industries and now oil prices back on the rise.
Infrastructure and Productivity
This is one of Rifkin’s key points. However, I’ll keep it brief and simple.
Rifkin argues that though economists have been looking at productivity from the lens of effectiveness of people and machines, which has generally improved significantly, we’ve still seen productivity declining around the world. Why? Because, according to Rifkin, economists have been blind to what’s called aggregate efficiency.
Put simply, this is the relative energy you need to put into the value chain, in order to get the desired output. For example, a traditional light bulb requires much more energy just to get the same amount of light as an energy-saving one, since a lot of the energy is ‘lost’ via heat. This same idea can be applied from individual organisations, to entire supply chains.
Take this example of a circular economy below:
In each stage of the process – from extracting the raw materials, to manufacturing, consumption and maintenance, and recycling – energy is required to transform the raw material in some way, adding ‘value’ at each stage. The proportion of energy that collectively goes into the system at each stage providing the value to the consumer, versus the energy lost and waste generated in the process, is the system’s aggregate efficiency.
Currently, despite advancements in technology, aggregate efficiency even in the most developed economies have peaked at 20%. On average, this figure tends to be significantly lower. This means at best, only 20% of the energy we put in contributes to the resulting product or service, with 80% of the energy being ‘lost’. Rifkin argues that this visible aggregate efficiency ceiling across all nations is the byproduct of our flawed second industrial revolution infrastructure. Given this basis, which much of the developed world is built on, Rifkin argues that no amount of government spending, monetary incentives, market or labour reforms, can lead to significant economic improvements. The flawed nature of the infrastructure simply won’t allow for it.
Towards a Third Industrial Revolution
Following on from Rifkin’s analysis of the factors that lead to economic revolutions, Rifkin proposes that we need to move towards establishing the ‘smart’ infrastructure that will enable the third industrial revolution. A move that addresses the inequalities perpetuated from our current capitalist system, whilst moving us towards carbon neutrality and decelerating our destruction of the planet.
This coming Industrial Revolution is characterised by the emergence and convergence of three core technologies or internets:
1) Communications internet
2) Renewable energy internet
3) GPS, driverless transportation internet
The convergence of these internets and devices within the network, enabled by the emerging internet of things (IoT) infrastructure, along with the increasingly autonomous and connected nature of many of our devices, will lead to a fundamentally new economic paradigm. The emergence of a distributed nervous system, as the successor to the dominance of large, fragmented, vertically integrated organisations of the second industrial revolution.
Enabled by the platform that this new infrastructure provides, we will experience a society that is increasingly:
- Distributed
- Open access
- Laterally scaled
- Characterised by network effects
Networks and Data
With the rise of the IoT and proliferation of sensors on all of our devices, this enables a surge of data encompassing every area of our life.
At the same time, digital communications have allowed us to connect with each other, and create digital communities on a global scale. These forces create the emergence of a distributed ‘web’ of connections that are continuing to eliminate the middlemen that once acted as the intermediaries enabling these connections, or access to information.
By increasingly organising social and economic life in terms of these networks, and democratising its access (think Facebook, Airbnb, or the potential of blockchain technology), Rifkin says we can move away from a hierarchical world where access and ownership lies in the hands of a few – the 1% – and towards a more open and equal society for all.
However, this brings with it some key issues that are already coming to the forefront of public debate. Such as, how do ensure network neutrality? How do we ensure equal access to these networks? And how do we ensure organisations and institutions don’t use this data for manipulative purposes?
In this new paradigm, it doesn’t seem far-fetched to say that “access to opportunity” will become almost synonymous with “access to networks”. Just think of what opportunities access to the internet opens up for the first time user. In an instant, they transcended their geographic constraints, and instantly find themselves enmeshed into a global, distributed network.
Power to the People
In a network-neutral world, where the data flowing in from the IoT infrastructure is open and accessible to all, individuals will be empowered to shape their value chains. This is built on the premises that you will be able to track and differentiate your own value chain away from the others. For example, through blockchain and the IoT, we should be able to see with complete transparency where our food has come from and its relevant emissions.
Linking this back to the idea of aggregate efficiency, Rifkin says that by accessing this open data network spanning all economic activity, we will be able to optimise our own value chains at each stage of the cycle, collectively increasing aggregate efficiency, as well as each of our environmental impacts. The first step is gaining awareness, then control. Access to big data can be a great method of achieving this.
By doing this, we can reduce each of our marginal costs, and in some cases, Rifkin argues, it will go down to effectively zero. When this happens on a collective level, Rifkin says it takes us to an entirely new economic system.
Zero Marginal Cost and The Access Economy
With the proliferation of zero marginal cost exchange of value, this changes the very foundations on which our current economic system is based on, and goes a long way in explaining why many of our most profitable companies today are internet companies.
In economic terms, marginal cost is the additional total cost incurred when you sell an additional unit of your product or service. For example, if you’re selling toys, the marginal cost will include the materials, labour and other expenses associated with making one extra toy – therefore does not include expenses like rent or heating. Our current economic theory states that in an efficient market, all companies sell at their marginal cost. Consumers receive goods at close to cost price, businesses are making just enough to get by, everyone’s happy.
But what are the implications of this economic model if people are producing at close to, or at, zero marginal cost?
Let’s say you’ve just created a new app and price it at 99p on the app store. What is the marginal cost for you, if one additional person downloads it from the app store? Zero. You make a Youtube video. What’s the marginal cost of having an additional viewer, an additional million viewers? Zero.
So an efficient market, in this case, is one in which producers price at zero and supply an infinite amount? Now how can an economy still function with that at its premises?
The technology revolution’s effect on productivity has given rise to the access economy (aka. the sharing economy). In Rifkin’s words, the access economy is:
“the first new economic system to enter on to the world stage since Capitalism and Socialism in the 19th century.”
This ground-shift has lead to the crumbling of many traditional industries and seems to be a continuing trend.
The initial rise of Napster, Wikipedia and now Airbnb, Youtube, and car-sharing apps are pre-cursors to the direction we’re headed – where access to networks are valued over ownership. And with the rise of IoT, this trend is increasingly permeating from the digital world into the physical world.
Renewable Energy at Zero Marginal Cost
According to Rifkin, the age of fossil fuels are over. The data also backs this up. We are fast approaching a tipping point where renewable energy is consistently cheaper to produce than non-renewables.
The world’s largest renewable energy consortium comprising of 160 states, the IRENA, predicts this major milestone will be reached in 2020. And with solar and wind energy costs continuing to go down, we’re very much on track, and the trend set to continue.
For the solar and wind industry, however, given the supply varies greatly based on climate, energy storage is a key barrier. We are making some good progress on this front though, with Tesla constructing the world’s largest battery in Southern Australia in 2017 to protect the country from blackouts (it was very successful), and an ever-expanding global network of cars – each with their own batteries.
To put things into perspective, the energy capacity of Tesla’s “Megapack” in Southern Australia, is still equal to that of less than 2000 of Tesla’s cars. Given that in 2018 we had 5 million electric cars on the road, and that this number is rapidly rising, it gives us a sense of the collective storage capacity of the electric cars in our homes.
Especially given the seemingly exponential decrease in the cost of solar panels, as well as high-capacity battery storage technology, the future of energy seems to set on households and renewable energy cooperatives generating their own energy, storing during peak times, and selling off any additional excess into the smart grid. This is in stark contrast to the centralised energy production structures we have today, and promises a future distributed energy internet which is more resilient, less prone to blackouts, better for the environment, and cheaper for households.
The exciting part is that this is already happening – with Tesla leading the ‘charge’ in establishing renewable energy homes.
And the beauty of it all, is that once this infrastructure is set, renewable energy keeps producing energy at next to zero marginal cost. The sun will keep beaming down for billions of years to come, no digging, shipping or processing required.
Autonomous Transport at Zero Marginal Cost
Rifkin foresees the coming of the communications internet, along with the distributed renewable energy internet, leading to the rise of the GPS, driverless, logistics and transportation internet (road, rail, water and air).
This is already happening with the shift away from car ownership towards a preference for access to transportation and car-sharing networks. In contrast, the second industrial revolution was itself largely fuelled from our desire for owning cars.
Taking this idea further, Rifkin quotes a study by Larry Burns stating we can eliminate 80% of cars from the roads, whilst still enabling better mobility for consumers, cheaper. This is considering, as Rifkin claims, that for each car share, we are taking 15 cars off the road.
Don’t believe that we’ll make the transition to car sharing? This 3-min video which might convince you otherwise:
Assuming Burn’s study is right, this trend will see us having far fewer cars on the road, despite a growing population. It seems safe to assume that by this point a large share of the remaining cars will be powered entirely by renewable energy, and have full self-driving capability. Given that transport and shipping are one of the largest pollutants out there (homes being another, which we’ve already looked at), this is likely to be a very positive step towards enhabiting a more environmentally sustainable economy.
Making it Happen
So now you’ve gotten a taste of the grand vision. Question is, how are we going to get there?
As is the nature of any of the large-scale, complex issues we face, it can never be resolved by any one initiative or organisation in isolation. But instead, through the collaborative and joined-up effort of many parties.
On the enterprise side, with the help of Tesla, the automobile industry has been pushed to take significant strides in developing more effective electric vehicles. Demand is predicted to follow an exponential curve, whilst at the same time, renewable power stations are being installed all over the world.
Renewable energy is continuing to become more competitive against fossil fuels, with solar and wind predicted to become consistently cheaper than non-renewables by 2020. Depending on whether we can crack the energy storage problem, this leaves hope for a shift away from fossil fuels within the next few decades, perhaps even sooner.
Governments have also clocked on to this problem, with initiatives around the world committed to reaching carbon neutrality. In Germany, at good times, renewable energy can now often account for over 50% of overall energy production, and some smaller countries such as Iceland and Denmark have already gone fully renewable. China has also committed to an ambitious 5-year plan to transition towards the ‘Third Industrial Revolution’.
However, this can only come into fruition if we all play a part in making this a reality.
Living in the UK, I’ve recently switched my energy supplier to one that focuses solely on renewable energy* (*affiliate link) – achieving significant cost savings in the process. I’ve found this very encouraging, and it’s proved to me that from a consumer’s point of view, switching to renewables has become not only a smart ecological choice, but also a smart financial one. I’ve also begun cutting out all meat and fish from my diet, and have been surprised at how smoothly you can make the transition.
Light at the End of the Tunnel?
Will all this be enough to correct our course in time? Sadly, it’s impossible to say. Rifkin acknowledges this journey won’t be easy. However, he believes that with the right compass, and determination for change, we may well be able to carve a path towards a more sustainable and prosperous future.
In the middle of these chaotic, divided times, perhaps it’s precisely these tangible, yet undeniably optimistic narratives of the future, that we deeply need. Those that rather than pit us against each other, unite us towards a larger, common goal.
Thank you for sharing this part of the journey with me. If reading this sparked any thoughts, I’d love to hear them.
Also, if you’re interested in delving more into Rifkin’s ideas, he’s written numerous books, and done countless talks, including this one which inspired this post.