Everybody’s looking at Germany. Jeremy Rifkin

“We are glimpsing at the outlines of a new economic system”

Economist and bestselling author Jeremy Rifkin argues that our grandchildren will pity our working conditions and that a bright future is not a utopian dream but an achievable goal.

The European: Mr. Rifkin, the visions you formulate in your recent book “The Zero Marginal Cost Society” – a third industrial revolution and the end of capitalism as we know it – sound very utopian and far-fetched. Are you more interested in what happens the day after tomorrow rather than tomorrow?
Rifkin: I am not. The “Communications Internet” is already a reality and the “Energy Internet” will be so in a few years time. Then we will have a new technology platform that connects everybody and everything. These things are not far-fetched, they are already happening. Of course it will take another twenty years until that platform has reached a mature level but bear in mind that the first and second industrial revolution also took time. And to come back to your point: I am not a utopianist!

The European: You are not?
Rifkin: I hate utopia.

The European: Why?
Rifkin: The concept is based on the idea of a perfect world but there is no such thing. We are social creatures and our basic drive is empathetic distress. It is built into our neural circuitry. We are not meant to be predatory, utilitarian or pleasure seeking monsters like the early British and American enlightenment thought. We are empathetic but empathy is the opposite of utopia. When people ask “Gee, you want an empathetic society, isn’t that utopian?”, they don’t understand that there is no empathy in utopia. There is no empathy in heaven either. There is no mortality, no suffering, no pain, so how could there be empathy? When I empathize with another human being, I can smell life and death and that makes me conscious of the fact that we are all here, trying to flourish against the inevitable. That has nothing to do with utopia. It’s simply human nature.

The European: Nearly twenty years ago, you predicted the “End of Work” in your book with the same name. Last year, we invited Nobel laureate Robert Solow to comment on the fear of automation taking away our jobs and he equated it with the fear of comets striking earth. Both things are very unlikely.
Rifkin: He doesn’t know what he is talking about. Back in the 1930s, Lord Keynes wrote a letter to his grandchildren in which he told them about “technology displacement”. This was during the depression and Keynes witnessed how more and more workers were thrown onto the unemployment lines because machines were replacing them. Keynes wrote, that everybody was afraid of this because it was all of a sudden easier to develop and introduce new technologies than finding ways for people to be employed. This goes against classical and neo-classical economic theory that postulates that new technologies increase productivity by disrupting old patterns of work, thereby creating new opportunities and new types of jobs. We are witnessing something else.

The European: Namely?
Rifkin: What Keynes described in the 1930s is a different trend. We see that productivity started to replace employment faster than we could find new employment opportunities. Norbert Wiener, the father of cybernetics, also observed this and in the 1960s when more and more workers became unemployed and they either found no jobs or just dead-end jobs. The 1990s saw yet another wave of increased automation and that was the context for my book “The End of Work”. What I predict in the book is what became reality later on: we are moving closer and closer to completely automating factory production. Today there is almost no mass-labor left. But it doesn’t stop there.

The European: Other realms are incrementally being automated.
Rifkin: White-collar service industries are currently witnessing a huge increase in automation. Artificial intelligence, analytics and voice-recognition technologies are taking over more and more tasks employees used to do. Retailing is another example: we’re moving from physical to virtual retailing. Even lawyers, accountants or radiologists are afraid of the prospect of losing their job to a machine or algorithm. So my answer to Mr. Solow is simple: It is not unlikely; it is happening!

The European: What makes you so sure?
Rifkin: Statistics show that we had a huge leap in productivity output but less manual power to achieve it. More output with fewer workers – that’s how factories operate nowadays. That is incontrovertible; it is no longer a debate. Mr. Solow is simply not up to speed on what’s going on.

The European: Does this hold true for every region in the world? China still has factory floors with thousands of workers.
Rifkin: Not for long! The iPhone manufacturer Foxconn is currently preparing to switch to full automation. The company’s chairman equated workers to animals and said that he doesn’t want to deal with animals – imagine that!

The European: Last year, “Time Magazine” ran a title that “Made in the USA” is making a comeback. Will it be a comeback enabled through automation or working hands?
Rifkin: That’s not just an American phenomenon. It’s happening in Europe as well. Automation is the key to such a comeback because it makes production so fast, so cheap and therefore so cost-effective. The really important question is: What happens when we automate whole industries as we move into this new dual economy that is part capitalist market, part collaborative commons?

“Capitalism will not vanish”

The European: The collaborative commons are one of the main pillars of this new economy that you describe in your book. What makes you think that these commons don’t fall prey to the selfish human behavior that has caused the “tragedy of the commons” – the depletion of common property by free riders?
Rifkin: Garrett Hardin who focused on the phenomenon that selfish individuals behave contrary to the whole group’s long-term best interests by depleting some common resource, got it completely wrong. He forgot or ignored the fact that throughout history, there have been sanctions for the violation of commons. Free riders will be expelled. Have you ever spent time in the Alps?

The European: Yes
Rifkin: Beautiful landscapes! Two thirds of the businesses there have been in commons agreements for over a thousand years and they are still viable. Some of it is private property but these businesses share the forests, the rivers, the resources and there are no free riders because everybody knows everybody and violations would lead to immediate expulsion. They would lose their entire being as part of this community and therefore restrain from acting selfishly. A commons only works if it’s self-policing. And it’s always been like that and will remain so.

The European: How will self-policing work in the new economy you are describing?
Rifkin: It already is! It’s called reputation sites. If you share your car over the Internet or put your services at someone’s disposal but they are not satisfactory, you will get a bad review and that’s it – you’re out. The people who set up these sharing-sites like Uber or Airbnb didn’t even have to study the commons, they just independently figured out how to create the same set of principles that people came up thousands of years ago.

The European: It is nevertheless hard to imagine us moving from the capitalist and lavish society we live in to one that embraces the commons and self-restraint.
Rifkin: We are glimpsing at the outlines of a new economic system based on sharing and the collaborative commons. It is the first new paradigm-shifting system since the introduction of Capitalism and Communism. Granted, it is still muddy and hazy but it is already flourishing alongside the exchange economy of the capitalist market. The dividing lines are not always clear because capitalist companies like Google or Facebook are actually creating commons. They make money out of it but these commons are then used by the people to drive out other companies or industries. And for every Google there is a Wikipedia, which is a non-profit commons. These two systems are still largely intertwined. But by mid-century, the new system will be the predominant one.

The European: So we will not just witness “The End of Work” but also “The End of Capitalism”?
Rifkin: Not yet. Capitalism will not vanish. It will continue to flourish but only by moving to a new model and into certain niches. It will however no longer be the predominant system of economic life. The transforming agent underlying this shift is the push towards zero marginal costs – the costs of producing additional units after you have paid your fixed costs. This shift presents us with a puzzling paradox.

The European: How so?
Rifkin: It is deeply embedded in the capitalist logic but no one saw it coming. Now it’s apparent: That paradox has lead to the success of the invisible hand of the market and is now leading to the final triumph of capitalism and that triumph is again leading to the birth of a new economic system.

The European: Capitalism checkmates itself.
Rifkin: Exactly, capitalism is triumphing because it is quickly moving to the optimal stage in economic theory where you sell at marginal cost. But we never anticipated technology to reduce marginal costs close to zero. Former Secretary of the Treasury, Larry Summers stated in 2001 that the Internet could be as revolutionary for the business world as electrification. He told government officials and business people: “Look, we are going to have a problem here. Soon we will be able to produce at nearly zero marginal cost and that will make it virtually impossible to generate profits.” So what did he propose? He proposed monopolies – imagine that! That was, in his opinion, the only way to stay afloat the zero marginal cost limit. Then he even admitted that we will see a replacement paradigm for capitalism – the US Secretary of the Treasury saying that, unbelievable.

The European: Do you think that the paradigm he was referring to is the one you describe in your book?
Rifkin: I do. Back then, it was just Napster and a few other sites but now we are beginning to see the full extent of it. Let’s just put this into historical context. There haven’t been too many paradigm shifts in economic systems: Hunter-gatherer, early agricultural societies, hydraulic civilizations with canal navigations, predatory empires, feudal societies, late medieval market economies and finally industrial capitalism. When you look at all these paradigm shifts, you can see a common denominator: the arrival of new technologies, be it communications or transportation, that make economic production more effective. This changes temporal-spatial relationships because it allows us to expand the territory in which we engage economically and allows us to differentiate labor skills. Our current system is completely dependent on cheap oil and this Achilles’ heel will bring it down to its knees.

“Austerity is not an option that should be on the table”

The European: Could the system not simply adjust to new, less oil-dependent technologies?
Rifkin: The Second Industrial Revolution is on life-support. In July 2008, oil set a record high 147 dollars a barrel. That was the earthquake. The financial crisis that followed was merely the aftershock. It’s not just the technologies that are dependent on oil: fertilizers, pesticides, construction materials, plastic – virtually everything our economy makes money of. We are now sunsetting those energies, they are getting more expensive and the technologies that are based on cheap oil have no S-curve left. This is what started my conversation with your chancellor.

The European: What did she want from you?
Rifkin: She asked me to come here during the first few weeks of her government to help her address the question of how to grow the German economy. The question is: how do you guarantee German growth in the last stages of a great energy era?

The European: What was your advice?
Rifkin: I told her that austerity is not an option that should be on the table. The problem is that simple fiscal measures won’t help if we still rely on outdated technologies from the previous century. But what we are now seeing in Germany and also in Denmark and China is that the Communications Internet is morphing into a super Internet of Things that is coming together with an Internet of Renewable Energy and optimized transportation.

The European: The Third Industrial Revolution that you are referring to.
Rifkin: Yes, there are sensors everywhere: in agricultural fields, in factories, on roads, in cars, in distribution centers and so on. These sensors are interconnected and thereby connect everybody with everything. These sensors are the central nervous system of a new economic order. It’s an external prosthesis that allows us to think and act together.

The European: Surely that system has weak spots as well. The more technology, the more complex and susceptible to potential dangers a system becomes.
Rifkin: Privacy and cyber-security are clearly a problem and so is the power of energy suppliers and companies like Google. What do we do if they monopolize the whole thing? These things are real dangers but let’s just for a second imagine that net neutrality is not destroyed and that data security is dealt with. There will be 100 trillion sensors out there by 2030. In ten years, nearly every person on the surface of the earth will be online. This will allow us to mine the same huge amounts of data that companies like Google are currently using to their benefit. That data should be open and transparent and everybody will know what is going on across the whole economic value chain at any given moment. Everybody –from small businesses to individuals – will have their own apps to mine this data and make sense of it, to produce our own goods and services and offer them at near zero marginal cost to others in a new sharing economy.

The European: Again, this sounds a bit utopian or far-fetched.
Rifkin: It’s not! We’ve already seen this. The Communications Internet is a reality and an army of young and zealous entrepreneurs is putting new software on the market by the hour. File sharing marked the beginning of this new development. Back then, it was considered stealing, now we call it sharing. We are witnessing the shift from consumers to prosumers. Everybody can be an entrepreneur nowadays and replace old business models.

The European: Could you give a concrete example?
Rifkin: Take blogs: Millions of people have set up blogs where they provide certain information or news, thereby driving the traditional media out of business. You just need a blog and social media and that’s your newspaper and distribution. Wikipedia did the same thing to traditional encyclopedias – at zero marginal cost. MOOCs (Massive Open Online Courses) are doing the same thing to traditional universities. As a result, whole industries we deemed invincible are crumbling.

The European: Are there industries that can withstand this trend?
Rifkin: There are industries that believe that there is a firewall between the virtual and the real world and that those trends will not affect their daily business, but they are dead wrong. That firewall has been breached with the advent of the Energy Internet and the Transportation Internet. Just look at Germany and you can see it at work. It’s chancellor Merkel’s understanding of a modern economy.

The European: How did she react when you pitched your ideas to her?
Rifkin: I told her about the Third Industrial Revolution and the chances it offers. We were having a glass of red wine and she told me: “I like this for Germany”. She doesn’t say what she likes unless she is ready to make a commitment.

The European: What was your first thought upon hearing this?
Rifkin:I thought: “She is a physicist so she’s going to give me a lot of thermodynamic reasons for why this is a good thing”. But when I asked her what she likes about it, she replied: “Jeremy, you need a lesson about German history. We are a federation of regions. This collaborative platform of new technologies is a perfect fit for this country.” I am also good friends with Sigmar Gabriel, Frank-Walter Steinmeier and many people from the Green Party and they all share the same belief. All three parties believe that this is the right path for Germany. Last May, there was one day where 75% of German energy was solar and wind – at near zero marginal cost. It blew the system; you had negative prices all day long.

“Everybody’s looking at Germany”

The European: But the energy sector is still industry driven.
Rifkin: Those companies will crumble, they already are. Millions of Germans have created micro-commons for electricity. They got low interest rates from the banks and started investing in energy-generating technologies. The big four power companies are merely producing 7% of the new power, going less and less. They are based on vertically-integrated business models and therefore won’t stand a chance in a business world that is no longer vertically but horizontally integrated.

The European: Aren’t the relatively high fixed costs a barrier to entry for many people?
Rifkin: You are right, they are high, but what people need to understand is that the marginal costs of renewable energies are near zero. The sun doesn’t send a bill and neither does the wind. But there is one more thing: Storage. Without proper storage, too much potential energy is wasted. The good news is: Sigmar Gabriel knows this and better storage is part of the planned energy transition. Apart from the storage issue, Germany is an absolute role model. I give it a B minus which is not optimal but still way better than all the others.

The European: But it took a catastrophe in Japan to push us towards this transition.
Rifkin: I won’t go into the details but there were plans for this long before Fukushima happened. After the event, they made the move and now everybody’s looking at Germany to see if they can pull this off.

The European: In the book you also write that new technologies like 3D printing will allow us to produce more while working less. Won’t that put further pressure on workers around the globe?
Rifkin: It requires us to rethink the nature of the work that we do. There will be less work in the automated economy. There is one last surge of work: in the next 35 years we will have to put the infrastructure of the automated economy in place – robots are not going to do that.

The European: The last surge of work is paving the way for the end of work – quite ironic.
Rifkin: It is. In Germany the entire energy grid will have to be transformed; every building has to be retrofit to accomodate new technologies. These are huge opportunities for construction companies and the semi-skilled or skilled labor force. Then we have to transform the entire German electricity grid to a digitalized Energy Internet, which is an enormous opportunity for IT and Electronics. Next is transport, turning conventional roads into smart roads. In every country, this transformation will keep two more generations busy but the downside is of course that the smarter technology gets, the less workers it needs to run properly.

The European: Are all these workers doomed or is there a way to cushion the effects of automation?
Rifkin: There is and we are beginning to see that a mass surge of employment is migrating out of the market and into the social economy, the not-for-profit economy, where human social capital counts more than economic capital. Machines are subsidiary in this sector because they can’t care for children or the elderly for example. Culture and Sports are other examples of employment islands sheltered from the storm. The social economy is the fastest growing employment sector in the world right now.

The European: Is it because the sector is so attractive or because people are afraid to loose their jobs?
Rifkin: It’s not just fear of unemployment that pushes people into this sector. A lot of young people choose the non-profit market over the traditional market and become social entrepreneurs. You might think that that is an oxymoron but these kids have never read Adam Smith and were socialized in a different way. We have to prepare the younger generations for a world of employment in which social skills count more than work skills per se.

The European: Is that a positive thing?
Rifkin: In the letter I referred to previously, Keynes wrote to his grandchildren that automation scares a lot of people but that it might liberate the human race, so there is certainly some good to it.

The European: He also wrote about a “leisure problem” replacing the “economic problem” because people might have too much spare time.
Rifkin: I don’t think there is a “leisure problem”, that’s where I disagree with him. Moving to an economy in which human capital is the main concern allows for much more engagement. We only use a tiny portion of our human mind and work like this will enable us to create our humanity and to grasp our journey on this planet. This engagement that I call “deep play” is more challenging and exhilarating than mindless work in a cubicle or in a factory. Your grandchildren will look back at this time and think: “Gee, my poor grandparents. Under what horrible conditions they had to work!”- just like we look back at slavery or serfdom.

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