The Third Industrial Revolution and a Zero Marginal Cost Society (Jeremy Rifkin) | DLD16

before my official time starts I have a request put down all the cell phones put them away we're going to have a more intimate conversation just put them away and all the cameras you have to go in the back all the photographers in the back nice let me start on a somber note I hope it will end up being a liberating reflection but you will judge GDP is slowing all over the world the reason productivity has been declining for twenty years all over the world the result unemployment's high really high among the long young millennial digital generation our economists say we need to look forward to 20 years of slow growth that's the future and here we are after two industrial revolutions in the nineteenth twentieth century and here's the sad reality the 80 richest individuals in the world today we could put them in this little area their combined wealth now equals the accumulated wealth of one half the human population of this planet three and a half billion people there's something so dysfunctional about the way we're organizing our economic life and now this economic crisis is compounded by an environmental crisis two centuries – industrial revolutions we exclude massive amounts of co2 and methane and nitrous oxide into the atmosphere of this little planet and the long and short of it is we are now in real time climate change and what's terrifying is the water cycles of the earth are shifting and this is the watery planet they're on an exponential curve and the result is we're now in the sixth extinction wave in the history of this earth there have been five others before this way before we were here our scientists tell us that in this century we could lose half the species of life on Earth I don't know if we can make it as a species we are asleep as my wife says we're going to really asleep we've got about five more decades to turn this around totally so what do we do we need a new economic vision for the world and it better be compelling we need a game game plan for that vision and it better be deliverable and it's got to move as fast in the developing countries as the industrial nations we're going to have to address our relationship to this earth in less than four decades so we need to step back for a moment and ask how do the great economic revolutions in history occurred we know how they occur we're going to get a road map here as to the new journey we have to take there have been at least seven major economic paradigm shifts in history and from an anthropological point of view they're very interesting they share a common denominator and that is at a moment of time three defining technologies emerge and converge to create what we call in engineering a general-purpose technology platform and infrastructure that fundamentally changes the way we manage power and move economic activity across the value chains what are those three technologies now wants you to think digital first new communication technologies to more efficiently manage the economic activity number two new sources of energy to more efficiently power the economic activity number three new modes of transportation logistics to more efficiently move the economic activity when communication technologies converge with new energy and new sources of transportation it changes the way we manage power and move economic life simple from an anthropological perspective not in a single economic textbook two examples first and second industrial revolutions 19th 20th century the Brits led us in the first Industrial Revolution with steam-powered printing big leap forward in communication then they laid out a telegraph system in the second half of that century those communication technologies converge with a new energy source cheap coal and the British hire Internet then the Brits came up with an invention to harvest it call the steam engine then they put the steam engine on Rails locomotives national rail systems urban life the rest is history second Industrial Revolution the United States to some extent Germany but you missed out on the energy part you didn't have the oil you had the coal centralised communication and especially the telephone think the OTT you think the Internet's a big deal telephone was a big deal later radio and television and those communication technologies converged in the u.s.

With cheap Texas oil powered by a German invention is the internal combustion engine and then Henry Ford put us all on the road that second Industrial Revolution took the entire world through the 20th century it peaked July 2008 if you remember that month Brent crude oil hit a record of a hundred and forty-seven dollars on world markets and the entire economy shut down in July 2008 that was the economic earthquake the collapse of the financial markets 60 days later was the aftershock you couldn't keep the fictional economy moving when the real economy shut down and the reason it shuts down is everything depends on fossil fuels fertilizers pesticides construction materials pharmaceutical products synthetic fiber power transport heat lights all made out of fossil fuels are moved by it so when oil goes over 90 a barrel all the other prices go up at 120 a barrel purchasing power slows at 140 it shuts down and so we're in now a sunset for this second Industrial Revolution centralized telecommunication fossil fuel nuclear energy and internal combustion transport after the shutdown oil went down 250 barrel because there was no economic activity and then as soon as we started growing again all went up to 115 a barrel purchasing power shut down again now oils gone down to 30 a barrel because they're all fighting among themselves the oil producers are fighting the shale producers are fighting the tar sand producers to wipe each other out how does a civilization live on an engine regime so undependable so dysfunctional its gyrating wildly in its last decades let me share an anecdote when Chancellor Merkel became Chancellor of Germany she asked me to come to Berlin in the first couple of weeks of her government to help her address the question how do we grow the German economy on her watch and create jobs the first question I asked the Chancellor when I got to Berlin Madame Chancellor how do you grow the German economy of the European economy or the global economy when your businesses are plugging into a Second Industrial Revolution platform centralized telecommunication fossil fuel nuclear power internal combustion road rail water and air transport and that platform matured his productivity in 1990 and it hasn't moved since then so I'm talking about productivity what is productivity well we usually think you know more output per input and we think it depends on more capital for better machines and better workers that's only about 14% of productivity much of the rest of the 86 percent of productivity is something in recall and economics aggregate efficiency the ratio of potential work to the actual useful work you get out of a conversion and this falls along the lines of the laws of thermodynamics let me give you an example you studied biology if a lion captures an antelope and devours it only about 10 to 20 percent of the total energy in that antelope gets into the lion the rest is lost in the conversion that's its aggregate efficiency what does this have to do with my conversation with the Chancellor the Second Industrial Revolution in the United States began in 1903 at 3% aggregate efficiency meaning in every conversion across every value chain extracting storing producing consuming about 97% lost and energy is everything from the rare earths and your granules and your phones to the metallic ores to the fossil fuels by 1990 the United States got up to about 13% of aggregate efficiency nothing's changed that was our ceiling Germany got to 18.5% aggregate efficiency nothing's changed a pan got to almost 20 so you can have market reforms labor reforms fiscal reforms new kinds of incentives for entrepreneurs but as long as you are operating on that platform even with all your killer technologies in this room you can't get above the ceiling of 20% aggregate efficiency which is much a productivity that's what's missing from the story here we think we just have to create a million Steve Jobs in the end the job will be done on so on that day I outlined with a chance of a third Industrial Revolution a new convergence of communication energy and transport to manage power move economic activity in Germany at the end of the day the Chancellor said to me privately mr.

Rifkin we will have this third Industrial Revolution for Germany let's report back later in what's happened in the last 10 years Germany is leading the way here now with China where we're working as well the communication internet which is now matured Thanks to everyone in this room it's been 25 years since the world wide web came online it's now converging with a digitalized renewable energy internet and a digitalized automated GPS and soon driverless road rail water and air Internet to create three Internet's in one a super internet communication energy and transport manage power and move economic activity across the value chains these three Internet's ride on top of a platform called the Internet of Things so we're applying sensors in every device so they can talk with each other talk with us and send big data but where are they sending it to this is what was lost even by GE and Siemens and IBM and Cisco where are we sending it to we send it to communication energy and transport so that we learn how to better manage power and move economic activity across the value chains so we have sensors in the factories the agricultural fields smart home smart vehicles warehouses and by 2030 ubiquitous interconnectivity we're creating an external global brain that can flow data on everything going on both in the economic system and the ecosystem to everyone at all times this is an external global brain on the upside exciting we now have the interconnectivity moving and this is the digital revolution this is the third Industrial Revolution it started with digitalization on robotics on the factory floor and computers now it's maturing over the next 50 years with the Internet of Things there is no fourth Industrial Revolution I know some of you are going to Davos there is no such thing it may be a marketing tool but it is not unless we move to quantum we're in a digital revolution so what this allows us to do is the whole human race can go up on this Internet of Things platform with cheap mobile technology and have a transparent picture of the economic data going around the world that evens the playing field that means we can begin to democratize economic life and all of us can engage each other directly no more middlemen no more vertically integrated organizations separating us that's what's going on with digital technology now as exciting it as it is we can start to connect the human race to think as one extended human family immediately the chill effect everybody interconnected what about network neutrality how do we ensure that governments don't purloined this Internet of Things or big corporations for political or commercial gain of course if you enclose it you can't get the productivity out of it how do we ensure data security and when everyone's interconnected how do we ensure privacy how do we thought cybercrime and cyber terrorism how do we ensure resiliency in the system because it could break down at any moment and then we're all in trouble this is the darknet and what I want to say is we're going to have to spend as much time and money on the dark side is on the bright vision in front of us or we won't get there in time and I believe the political struggle of the next three generations some of the young people will be here for three more generations it's going to be around how we address these very heady issues but let's assume this afternoon we can address the dark side here's what this Internet of Things platform allows us anybody can go up there small business a large company a non-profit and you can get take your data that's flowing through the value chain and separate it from all the other big data that's noise then here's what you can do take your big data on your value chain where you're extracting and moving and storing and producing and consuming recycling and then use your analytics to mine your big data on your value change it's all free network neutral then with those analytics you can create your own algorithms your own apps to dramatically increase your aggregate efficiency at every step of conversion on your value chain with your analytics your algorithms and apps 24/7 that dramatically increases your productivity dramatically reduces your ecological footprint because you're getting more out of less of the earth less waste and it reduces your marginal cost fixed cost after that the marginal cost are what it cost after your fixed costs are paid now what's happening as we move to this Internet of Things platform marginal costs are going down and you're going to have a streamlined global market economy automating very low marginal cost some of the marginal costs are going to zero and that's giving birth to the sharing economy zero marginal cost that's the title of the book what is this sharing economy it's a very strange I never thought capitalism would give birth especially in its mature state capitalism is given birth to a child it's called a sharing economy and this little baby's flourishing alongside its capitalist parent and of course like any parent-child relationship the parent especially an older parent has to figure out how to nurture this child give it an identity let it have a presence in the world but you know parents also try to absorb their children into their identity as well it's a normal thing they want to be a reflection sometimes of them the child sometimes wants to be absorbed give me my startup company then one of the big guys will buy it in the market but sometimes the child wants to create its own presence its own frame of reference so what we're seeing now this sharing economy as young as it is it's the first new economic system to enter onto the world stage since capitalism and socialism in the 19th century it's a remarkable we're already in a hybrid economic system here in this room you are engaged part of the day in the capitalist market producing and selling goods and services for a profit and a marginal part of the day you are sharing virtual goods all over the place beyond the market and near zero marginal costs they're free and abundant by 2050 capitalism will be here but it will flourish to the extent it can find a relationship with this child the sharing economy is going to be grown-up it will not be the exclusive arbiter of economic life it's going to share the stage with it's grown-up child capitalism the sharing economy we've already seen the zero marginal cost phenomena devastate whole industry since Napster it's been 16 years since Napster look what's happened we have three billion people on the internet soon everybody I'm working with the leadership of China the vice premier two years ago said to me Jeremy guess what we've got a $25 smartphone with more computing power than sent your boys to the moon everyone's going to be connected everyone is going to be connected to this so we have three billion people now who are prosumers they are still sellers their buyers their owners their workers they're prosumers they are producing their own music the fixed cost of digital technology to produce music is studio quality and it's going to be almost free in a few years is so cheap the marginal cost of sharing that music with one person or a billion people is near zero young people are producing and sharing their own YouTube videos open-source zero-cost and they are sharing with each other at zero marginal costs they're producing and sharing their own news blogs the social media they're contributing to Wikipedia they're constructing the knowledge of the world and six million kids are on massive open online college courses getting college credits it's free whole industries have been devastated in 15 years the music industry and shrunk television has declined newspapers and magazines have gone out of business book publishing my new book came out on the Pirate Bay's before we could publish and they ranked it before Amazon could rank it you can't defeat it unless you outlaw the technologies and that's not going to happen but whole new businesses emerged here they are in the room some of them profits some of them non profit and you are creating the apps the connectivities and the platforms now some of that you create revenue that goes back to capitalist markets but then you are creating platforms so money other goods and services are free and beyond capitalist markets right well we all thought there'd be a firewall here and that the zero marginal cost phenomena might affect the communication internet but it would not move over the firewall to the brick and mortar Adams world this is what I'm saying the Internet of Things platform on top of which communication energy and transport we've broken the firewall we now have millions of people in the last few years producing their own renewable energy and that energy is near zero marginal cost after you pay your fixed cost we have millions of people who are now beginning to share cars and car sharing services and it's soon going to be moving toward driverless transport at very low cost let's come back to Germany what's happened in the ten years since the Chancellor and I have that conversation we're now at 32% of the electricity in Germany is solar and wind we're heading to 50 percent within the next few years it's going to be a hundred percent solar and wind geothermal it's all going to be renewable by 2040 the fixed cost of the harvesting technologies for solar and wind they've been on an exponential curve for 20 years just like the computer chip now I'm the oldest person here when I was a little kid in the 1940s and 50s computers cost millions of dollars in IBM thought we'd only need seven of them for the whole world too expensive no one anticipated that Intel chip in Moore's law double the capacity half the cost every two years $25 smartphone today here's what's not people aren't realizing we've been on the same exponential curve for solar and wind in 20 years a solar watt little watt cost $78 to generate one watt in 1978 it's 60 cents today it's 38 cents and 18 months from now and there are power companies in my global group who are quietly buying long-term solar and wind contracts for electricity at four cents a kilowatt hour for the next 20 years we see the curves it is actually over for fossil fuel and nuclear but they're going to continue to hang in there because they have stranded assets and that's the next big crisis after the housing crisis all the stranded assets in these industries fossil fuels and all the loans outstanding so who's producing all this new electricity it's all about digitalization because you have to create the energy internet to begin to manage the electricity there are four major power companies in Germany EMB w RW e Eon vattenfall we thought they were invincible ten years ago giant vertically integrated global companies and what has happened to them in 10 years is what happened to the music industry and newspapers and magazines and book publishing and television apparently in Germany you're very good at organizing millions of people have come together and created electricity cooperatives all over Germany Denmark's doing it too and you all got low interest loans from the banks because they knew you'd pay back by the premium energy you're sending to the grid you're producing all the electricity for Germany the big four power companies are producing less than seven percent of the solar and wind electricity this is power to the people I mean is figuratively and literally power to the people think of the ramifications energy is about the power of a civilization it's being distributed now it's being produced by all of us you see the implications from the communication internet to the energy internet and guess what the marginal cost of this energy once you pay the fixed cost it's near zero the Sun isn't sending us a bill the wind has an invoice the geothermal heats not sending a bill now you have the wholesale prices have gone down retail prices are slightly up because you have to pay more on your bill to get us over the hump but you're heading there does this mean the end of the power companies know they have to change your business model or they will be out so about five or six years ago I had a debate with schedule Aeon asked if I would debate mr.

Tyson their chairman they picked a neutral country the Netherlands I laid out a new business model I said everyone in the world is going to be producing their own green electricity in every little village in 25 years from now we're very very cheap digital technology and harvesting technology we're even placing solar now in paint and glass it's going to be on wall facades so our electricity cooperative on the world will aggregate it and sell it back to the energy internet and you the power company you're going to have to connect up with IT consumer electronics and other types and telecom and you're going to have to manage erect and manage the energy internet and the way you're going to make money is by selling less and less and less electricity you're not leaving the Second Industrial Revolution tomorrow you're going to be centralized energy for a while but in the new model it's counterintuitive you'll make money by less electricity you will set up partnerships the power company with thousands of enterprises you will help them manage their data flow you will help them with their analytics and their algorithms and apps so they can dramatically increase their aggregate efficiencies every step of conversion on their energy flows and guess what they'll do the clients will share back their productivity gains in terms of performance contracts many companies in my group are already doing performance contracting in other areas more money so less electricity a more sustainable world and it's the bottom line and if you don't do it there's plenty of startup companies and all sorts of companies and electronics IT transport logistics everyone would like to do it it's not just the EU in China this was a complete surprise to me when President Xi and Premier Li came into office Premier Li put out his official biography I'd never met him he said he read the third Industrial Revolution book and he instructed the central government of China to move on the narrative that I'm outlining to you today to show you how fast China moves after my first formal visit I've been working with the leadership now for a few years eleven weeks later the chairman of the state grid for electricity announced an 82 billion dollar four-year commitment to digitalize the electricity grid in China now so millions of Chinese people could produce their own solar and wind and send it back to the grid now watch Germany watch China the coming together of the communication internet with the energy internet all digitalized makes room for the digitalized automated GPS and driverless transport internet the car was the centerpiece of the Second Industrial Revolution sell cars grow the economy that's the global phenomenon but the problem is all the Millennials in this room you've thrown us a curve you don't want to own the cars you want access to mobility and networks you're no longer interested in ownership and cars and markets I wrote a book the age of access back in 2000 I said I thought you would do it thank God you did it otherwise that would look pretty foolish you did it but it's thrown a curve into the system for every car shared fifteen cars are being eliminated from production so you go up on the communication internet with your moulton your smartphone and immediately connects you to GPS transport internet a vehicle is located within 90 seconds of you and you pay by paypal why would you want to ever own a car again Larry burns a former executive vice president of General Motors did a study and he found that in Ann Arbor Michigan is the former executive VP at GM we can eliminate 80% of vehicles right now with car sharing we have a billion vehicles in the world choking us in traffic they're the number three cause of climate change number one is buildings but we're turning them all into micro power plants number two which no one wants to talk about including Al Gore the number two cause of climate change is beef production beef consumption animal husband obe uh D wants to talk about it we can't talk about changing our diet and we'd rather see extinction then we have some real problems number three is transport I suspect the beginning with the Millennials and then your children two grandchildren increasingly you're going to use you're going to buy less cars you're going to be an automated networks and those vehicles you have are going to be electric they're going to be fuel cell they're going to be operated by near zero marginal cost renewable energy already in Germany they're going to be 3d printed with composite materials they're going to be driverless and China just introduced the first driverless air drone in Las Vegas this week Auto Road rail water air driverless zero marginal cost later this is a revolution is that mean the end of the transport industry no if they change the business model they have to be both in the second and the third Industrial Revolution simultaneously for 30 years in the new model the old model they'll still sell vehicles in the new model they team up with other industries IT consumer electronics logistics and they help erect and manage the automated GPS road rail water and air networks and partner with all the startups that are now beginning to create the apps and the connections and the platforms and if they don't you'll do it for them anyway they need you more than you need them they have to come and get together with where you're heading here because this room began this process with the communication internet now you've got to take the technology to energy transport logistics and then put it on top of the internet-of-things platform and make all the connections the coming together the communication energy and transport internet on top of the Internet of Things platform takes us into a new era what does this mean for us there's been a lot of discussion here about Europe this afternoon about a year and a half ago Prime Minister Renzi took over the rotating presidency of the EU he asked me to join him in Venice to issue a declaration for a new journey of Europe called digital Europe I joined him but I pointed out digital Europe is not just free Wi-Fi and broadband Universal broadband excuse me it is actually this whole system this platform this infrastructure then I wrote a memorandum which you should have on your chairs do you have this memorandum it was not put out we have a long 30 page memorandum that should be put out I wrote a memorandum to mr.

Juncker outlining this narrative for digital Europe he got back to me and said this is where we want to go I've been working with the leadership in Brussels just came from there and here's what we're looking at laying out this communication energy and transport digitalized super internet across the EU and its partnership regions in the next 30 years on top of an Internet of Things platform so we can create an integrated single market high-tech all digital so that anyone that plugs into that system whether you're a prophet a non-profit or a government you can increase your aggregate efficiencies and productivity with analytics reduce your marginal cost and your ecological footprint and actually become a sustainable economy its digitalization that lowers the marginal cost and the footprint this is a much bigger venue than just coming up with some killer product lines so you can be another steve job you have to find a way to collaborate and create the system the infrastructure the platform and the EU is joined China China calls their plan Digital Plus we've been working in both Beijing and Brussels and now we're talking about a joint belt one belt one road from Shanghai to Rotterdam so that over 50 years we can begin to leave and live in peace and share a common platform and engage with each other as humane human family last few minutes I think this is a very difficult challenge I'm not a technological optimist I think there are many roadblocks in the way that would tell me we'll never get there in time to address climate change and reveal this planet on the other hand what's plan B stay in the Second Industrial Revolution that's collapsed so we have to believe we can do it but it requires not just technology it requires a change in consciousness technology just enables and what I've noticed it makes me guardedly hopeful but not more than that is the change three areas I've seen change the difference in how the generations perceive freedom perceived power and perceive community my generation we all believe that freedom is the ability to be autonomous to be independent self-sufficient not beholden on others an island to ourselves so we define freedom as exclusivity if I'm on my own I'm free nobody tells me what to do but for a younger millennial generation growing up on the internet for you if freedom is the ability to flourish you define being able to flourish by the relationships you create the networks you have access to freedom is inclusivity autonomy is death correct death and we have a different idea of power my generation sees power as a pyramid it's always top-down the one to the many the 1% the 99% that's the way society is organized not always your generation is beginning to ask the question about institutional power is the government is the business is the school system is their behavior centralized patriarchal top-down and proprietary or is their behavior distributed open transparent collaborative and laterally scale for you lateral power the ability of networks to share your talent for the good of the network so that your own social capital is improved that's lateral power that's not vertical power that's a revolution finally I'm just beginning a sense and you judge your the Millennials in here a change in a notion of community I grew up in a post Westphalian geopolitical world every individual is a sovereign agent and we compete with every other individual in the marketplace in a scarce economy of resources to see who can possess the it's a zero-sum game but we have a younger generation now growing up and they're skyping in global classrooms and they're all on Facebook and an extended fictional family across the globe and gossiping on Twitter and sharing everything from music now to energy and they're beginning to see themselves as part of the biosphere the indivisible community of the planet that little twenty kilometers from the stratosphere to the oceans where life exists with the chemistry of the earth we have high school kids now coming home in the developing world too but many in the industrial world are saying why why is dad used so much water while a Shea's we're wasting the water why is the television on no one's watching it why do we have two cars we can car share and here's the one I like where'd the hamburger come from on the plate got kids rebelling at dinner they're asking did it come from a rain forest did they have to destroy the trees for three inches of soil to get that little burger and when the trees are destroyed what happened to the rare species that live in that tree can it be extinct and if there's no trees to absorb co2 to graze my cow then co2 emissions go up and some farmer can't feed her kids because she's got floods and droughts the kids are learning ecological footprint they're learning that everything they do intimately connects and affects the well-being of every other species every being the planet itself that is a sea change in consciousness that did not exist before this generation this is a biosphere consciousness not a geopolitical frame it changes history so here's what I would say I really believe this is a tough challenge we've got the people in the room that can help make this happen but what needs to happen is we have to move from our myopic position of looking at individual product lines and we have to then think about how we can use our talents to help integrate the entire infrastructure of this revolution and bring industries together it's going to require a huge workforce to lay down the infrastructure it's going to require industries to work across the lines and the talent in this room can create the apps the connections the analytics the algorithms that can help put this system together over 30 or 40 years if we don't we'll end up with all these little myopic siloed little pilot projects and a lot of fun little technologies that don't get us into creating a new economic paradigm for civilization so my hope is over the next two generations you and your children dedicated this task can move this paradigm quickly I hope you do and you're going to send me a little card up there and let me know how this turned out but if you don't future generations may not be able to enjoy this planet our fellow creatures might not have their moment to flourish and what we know is life is pretty precious we're sending out radio waves no one's responding to us in the universe this may be a very very special experiment our obligation replenish the earth take this digital revolution and make sure that allows us to come together as a living family an evolutionary family so that we can help each other flourish on this little planet thank you

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