Economics

Is capitalism driving itself out of business?

April 23, 2014: 5:00 AM ET

In his latest book, Jeremy Rifkin argues that the private market's drive for productivity has brought us closer to a world in which the marginal cost to produce just about everything will inch closer and closer to zero.

Jeremy Rifkin

Jeremy Rifkin

FORTUNE -- Capitalism seems to be getting it from all sides these days.

French economist Thomas Piketty made the rounds in New York and Washington, D.C. last week to promote his new, widely praised tome, Capital in the Twenty‑First Century, an exhaustive analysis that argues that inequality and the concentration of wealth among the few are the norm, rather than the exception, within capitalist societies.

In a less sobering -- at times, overoptimistic -- side of a similar coin, political consultant and social theorist Jeremy Rifkin's recently published The Zero Marginal Cost Society highlights a capitalism that seems to be running itself out of business.

Rifkin argues that the private market's drive for efficiency and productivity has brought us ever closer to a world in which the marginal cost to produce just about everything will inch closer and closer to zero.

Picture factories run entirely by robots, powered by renewable energy sources like wind and the sun, creating products delivered by driverless vehicles, also run on renewable energy. Maybe these products won't even need to make any kind of journey at all. Perhaps they can simply be produced at your home or a few blocks away with the help of a 3-D printer.

Speaking of your home, in Rifkin's new world, your next one may very well be built by locally generated, 3-D-printed materials, in record time, removing the considerable expense of transporting construction goods. Rifkin cites an MIT lab that is working to develop a house frame in a single day "with virtually no human labor." An equivalent frame, Rifkin says, "would take an entire construction crew a month to put up."

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That home will be powered by -- you guessed it -- increasingly cheap renewable energy, and it will be stocked with more sensors than you can imagine, all feeding data into a smart grid, so your house knows how much energy you need and when, and what needs to be repaired.

This is a technological utopia brought to you by the convergence of what Rifkin calls the Communications Internet (how information is shared), the Energy Internet (how energy needs are shared and energy itself is distributed), and the Logistics Internet (how products are built and delivered), all equaling the so-called Internet of Things.

Granted, the initial cost of building such a system will be substantial. But once it's up and running, Rifkin argues, the benefits will fundamentally reshape our economic order. "The Internet of Things is already boosting productivity to the point where the marginal cost of producing many goods and services is nearly zero, making them practically free," Rifkin writes. "The result is corporate profits are beginning to dry up, property rights are weakening, and an economy based on scarcity is slowly giving way to an economy of abundance."

Actually, corporate profits in the U.S. are increasing, both in absolute terms and as a portion of national income. Sure, some industries are struggling against the waves of technological disruption (e.g. almost the entire media sector). And then there are energy giants like Exxon and Chevron, which are facing daunting, expensive headwinds in the search for and cultivation of additional sources of fossil fuel. But businesses overall are making money, and quite a bit of it.

Where does capitalism fit into Rifkin's world? "In the coming era," he says, "both capitalism and socialism will lose their once-dominant hold over society, as a new generation increasingly identifies with Collaboratism."

To explain how we reached this novel economic moment, The Zero Marginal Cost Society takes readers on a grand historical tour, from feudal Europe, to Adam Smith and Karl Marx, to the rise of steam, steel, and railroads, and the oil age. Rifkin argues that creating the industrial order of the past few centuries was so expensive that it required massive, publicly held companies like General Electric, Ford, and AT&T. Electrifying society, connecting them by phone and rail, and putting the masses behind the wheel of a car were wildly ambitious projects. Centralized corporations were up to this task. Today, Rifkin argues, those companies are becoming less relevant.

To Rifkin, we are entering the age of the social commons, where ownership of goods is less essential to consumers than merely having access to them, pointing to car sharing services like Zipcar, apartment sharing sites like Airbnb and Courchsurfing.com, and children's toy exchanges like Baby Plays and Spark Box Toys as pioneers. Expand this kind of behavior to other parts of the economy -- peer-to-peer renewable energy sharing and crowdfunded personal and business loans, for example -- and all sorts of companies may soon end up selling far fewer goods and services to even fewer people. You would need to put aside measurements like GDP and profits to gauge the success of such an economy.

There are, of course, hitches to this master plan. Rifkin himself admits several of them. To start, how can you deliver all the wonders of an "Internet of Things society" when, for example, a little less than 30% of the U.S. population has a fixed broadband Internet subscription? Rifkin praises incipient efforts to build a nationwide, free Wi-Fi network in the U.S., but such proposals are in their infancy and will likely face opposition from broadband behemoths like Time Warner Cable and Comcast, two companies that will gain even more control of the market if their proposed merger goes forward.

And even if you somehow build a powerful, expansive Internet that can bring a nation's energy and economic infrastructure into a new, nearly costless era, you will need to protect it from all kinds of harm. To his credit, Rifkin devotes significant attention to the potential consequences of cyberterrorism, especially if the U.S. continues to develop a centralized energy grid (the kind that could be taken out by a massive cyberattack) rather than building several individual microgrids, which is what the European Union plans to do.

Then there's the granddaddy of all threats to just about any future economic arrangement: the untold effects and consequences of climate change. Unpredictable weather and limited food supplies, clean water, and raw materials all pose major complications, whether or not you take advantage of technology that can reduce the cost of production.

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Rifkin, who initially made his name as an environmental activist in the 1970s and '80s, is all too aware of these potential setbacks, and argues that the kind of collaborative, sharing economy he sees developing could be just what we need at this point, pointing to the power of cooperative and nonprofit organizational models as a way forward. "We will need to leave behind the parochialisms of the past and begin to think and act as a single extended family living in a common biosphere," he writes.

The Zero Marginal Cost Society is admirable in its scope. Rifkin offers a wide-ranging overview of the kind of tech advances that will redefine how many people live in the coming decades (the wildest of all: 3-D bioprinters that can produce human tissue and perhaps one day generate entire human organs). While his techno-utopian vision may seem unrealistic at times, Rifkin makes sure to ground much of his predictions in data, documented scientific advances, and a fair amount of caveats.

Much of what Rifkin writes about has been covered by the business and tech press in recent years. But what makes The Zero Marginal Cost Society worth reading is its audacity, its willingness to weave a vast string of developments into a heartening narrative of what our economic future may hold for the generations to come. You can call it naive, but it's much more than that. It's hopeful. And, perhaps in a moment of hope-induced blindness, Rifkin fails to mention the ultimate cost for us mortals, the one that really isn't going anywhere anytime soon: time.

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