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What Happens To Capitalism When Everything Is Free?

Buy a solar panel and soon your energy will be free. One day a 3-D printer could do the same for manufacturing. In a new book, economist Jeremy Rivkin examines what happens when emerging efficiencies are pushed to their extremes.

What Happens To Capitalism When Everything Is Free?

Jeremy Rifkin doesn't do small books. His books have titles like The Third Industrial Revolution or The Hydrogen Economy. So it's no surprise to find that Rifkin's latest has a big theme and a big title: "The Zero Marginal Cost Society".

In his latest, Rifkin, an economist and social theorist and author of 20 books in total, turns to the sharing economy, collaboration, and the Internet of things. What he proposes is that the sharing economy is in the process of eclipsing capitalism, part of a trend towards products becoming essentially free. Rifkin says sharing is the logical outcome of companies pushing their costs to zero, and one of the ways capitalism is hollowing itself out from being too efficient.

Here is Rifkin himself:

While I suspect that capitalism will remain part of the social schema for at least the next half century or so, I doubt that it will be the dominant economic paradigm by the second half of the twenty-first century...The Collaborative Commons is ascendant and, by 2050, it will likely settle in as the primary arbiter of economic life in most of the world. An increasingly streamlined and savvy capitalism will continue to soldier on at the edges of the economy...

What evidence does Rifkin have for his case? Two main sorts: developments in industries like energy, and that economists have long forecast it.

Zero marginal cost (ZMC) is the product of perfect capitalism, and the downfall of it, Rifkin says. It occurs when companies progressively seek out greater efficiency and productivity until they have complete replicability—where the cost to produce each extra widget is zero. Or, it happens when consumers have the power to make their own products, becoming "prosumers." Or, when consumers can share products for free, as with house- and car-sharing sites.

Rifkin says the ZMC "revolution" started with Napster and the illegal sharing of the late-1990s, "which wreaked havoc on the publishing, communications, and entertainment industries." It's continued with the energy sector, where solar panels—which produce near-free power after installation costs—have the potential to knock out traditional utilities. In the future, 3-D printing may have the same impact on manufacturing by allowing people to make their own products. Or virtual technologies could make delivering higher education substantially cheaper, undermining today's college system.

Within in the next two or three decades, prosumers in vast continental and global networks will be producing and sharing green energy as well as physical goods and services, and learning in online virtual classrooms at near zero marginal cost, bringing the economy into an era of nearly free goods and services.

Rifkin says this shouldn't surprise us, because economists have long forecast the shift to ZMC. In the 1930s, John Maynard Keynes predicted "technological unemployment" (because of industry's ability to economize labor) and a point at which society would solve its "economic problem" by turning to "non-economic purposes." More recently, Larry Summers and Brad DeLong have worried about the effect of information technology in making informational goods free to distribute.

Rifkin isn't worried, though. He thinks the ZMC would empower individuals and get more "entrepreneurs and collaborators creating and sharing information, energy, and goods and services on the Commons."

Is this all convincing? Not entirely. While there's a lot of sense and logic to Rifkin's case, his insistence to universalize makes it hard to accept the full argument. There may be industries that go the way of ZMC, but others that don't. Rifkin mistakes the products of today—which are replaceable and fungible—for capitalism itself. It will do just fine, even if certain activities— even big ones—are done differently.

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