Jeremy Rifkin on the Internet of Things and the Next Industrial Revolution

Photo: CeBIT

In 1973, the American sociologist Daniel Bell, in his book, The Coming of the Post Industrial Society [pdf], predicted that advanced societies would change from being based on manufacturing of goods to ones in which knowledge workers would occupy a central position.

This did happen, but because of the meteoric rise of information technology, the development of the Internet, and the widespread adoption of cellphones, the change has been far beyond expectations. These technologies are changing not only society, but the economic models on which society is based.

Jeremy Rifkin, noted economic and social theorist and himself the author of 20 books, remembers Bell's book very well: "Think about what has changed, it is amazing," Rifkin, told Spectrum from his hotel in Berlin during a visit to Germany in March. 

Rifkin was in Germany to meet with politicians, government ministers, and industrialists. He delivered the keynote address on 26 March at the Berlin Energy Transition Dialogue 2015, which was attended by officials from 61 nations. He stressed that Germany has the opportunity to make the transition to a “Third Industrial Revolution” (the title of his 2011 book) by embracing a combination of green energy and the Internet of Things. Earlier that month, Rifkin proposed a Sino-German initiative for a Digital Eurasia Silk Road—an Internet of Things that would cover the entire Eurasia landmass, in a keynote delivered at the Sino-German CeBit Conference, in Hannover.

Over the last few years Rifkin has been traveling the world, advocating his ideas about a society based on an optimized use of resources, information, energy transport, and logistics, orchestrated by an all-encompassing communication system, the Internet of Things. It is also the subject of his latest book, The Zero Marginal Cost Society and The Third Industrial Revolution.

Spectrum: We are all familiar with the Second Industrial Revolution, the use of steam power, later internal combustion engines, the beginnings of long-distance communication with the telegraph and telephone, cheap travel, etc. What is different today? We have more sophisticated technology, but don't we basically operate the same way?

Rifkin: That “general purpose” technology took us through the 20th century, and I really believe that it peaked in July 2008 when crude oil hit US $147 a barrel and purchasing power shut down all over the world. I think that was not just the beginning of the Great Recession, but the beginning of the long sunset of the Second Industrial Revolution. I think it is a 30 to 40 year sunset.

Spectrum: So the Third Industrial Revolution would be a consequence of the cost of energy?

Rifkin: From a thermodynamic point of view, we are continuously borrowing low entropy inputs from the planet—that can be a rare earth, a metallic ore, or a fossil fueland at every step of conversion across the value chain we are embedding energy from the planet into a product or service, but we are losing energy in this conversion at every step.

We started the Second Industrial Revolution in 1905 with about 3 percent aggregate efficiency. Aggregate efficiency is the ratio of the potential to do useful work. This means that 97 percent of every conversion experienced during the value chain—‚from marshalling resources, shipping them, storing them, producing them, distributing them, recycling them—in every step 3 percent got into the product and service, and 97 percent was lost. By the 1980s we got up to about 13 percent energy efficiency in the United States, and Japan got up to 22 percent. Nothing has moved since then, so you see how the economists keep wondering why productivity has stalled for 25 years, even with all the innovation. The reason it stalled is that our aggregate efficiency maxed out on the Second Industrial Revolution's platform of centralized telecommunications, fossil fuel and nuclear power, and internal combustion transport, and logistics on road and rail.

So what is happening now is that we are stalled. As long as we are on a Second Industrial Revolution general purpose technology platform, it doesn't make any difference who you are. I advise the Chinese leadership and the European Union, and it doesn't make any difference what country you are in. There is not a single country that can move forward because over the last fifty years we have optimized that engineering platform.

Spectrum: So this general purpose platform is now obsolete?

Rifkin: What we are beginning to see are the outlines of a Third Industrial Revolution, a new convergence between communication, energy, and transportation logistics. The communications internet is morphing and converging with an incipient renewable energy internet and a fledgling automated, GPS-guided, and soon driverless transportation internet to create the three internets in one seamless kernel which is atop a platform called the Internet of Things.

Spectrum: How, in practice, would the integration of these three internets into one kernel happen?

Rifkin: By the digitalization of communication, energy, and transport you can manage power and move economic activity across every value chain and create your aggregate energy efficiency. The bottom line is that we are embedding sensors in every device, in factories, retail stores, warehouses, distribution centers, smart roads, smart homes, smart vehicles. You can then monitor every device, and importantly, send that data back to the three operating components of the Internet of Things. By 2030 it’s going to be ubiquitous—100 trillion sensorswe don’t really know. This will allow us to bypass all the inefficiencies of traditional vertically integrated organizations of the First and Second Industrial Revolutions and engage directly at near zero marginal cost with an Internet of Things. Our studies showed that if we could move to an Internet of Things platform, we could move our aggregate energy efficiency from 13 percent upwards to 40 percent over the next 25 years.

Spectrum: So how would the Internet of Things increase the aggreate energy efficiency?

Rifkin: The key here is the platform, it takes us to the optimum capitalist market. In classical economic theory we always say the optimum capitalist market is when you sell at marginal cost. So we're always looking for new technologies that increase our efficiencies and productivities, so that we can reduce our marginal cost. The irony of this engineering revolution is that it takes the connectivity across the system, taking our marginal costs to near zero, and in the capitalist market if you plug and play into the platform, the technology is going to be so extreme in its productivity that it can take the aggregate energy efficiencies up and the marginal costs down to near zero. This will free up some goods and services from the capitalist market and make them shareable in the new sharing economy on the collaborative commons.

Spectrum: Can you give us an example?

Rifkin: We've already seen the potential of this platform because of the communication internet, which is now 25 years old. We have seen the aggregate energy efficiencies dramatically increase and the marginal costs move to near zero. We have 3 billion consumers, internet users, who now are actually prosumers. They are still selling and buying and they are still owners and workers, but they are prosumers because every one of them at one time or another has produced and shared something in the virtual world with others at near zero marginal cost, sharing videos, e-books, open source, no copyright, bypassing television, magazines and newspapers. We have seen how the digitalization of communication has so increased the aggregate efficiency and productivity and reduced the marginal cost that we have seen whole industries disrupted: the music industry, television, newspapers, magazines, university education.

But for the other industries there is a firewall, actually. The zero marginal cost would not cross the firewall between the virtual and the physical world. This firewall is breached with the Internet of Things because when you connect the communication internet with a digitalized renewable energy internet and a digitalized automated transport internet, this means that we can now begin to increase the productivity and reduce the marginal costs of renewable energy to near zero, and also that of shared mobility on GPS-guided road and rail systems.

Spectrum: The publishing industry has drastically changed with the communication internet. Do you expect that the power generation industry will undergo similar changes?

Rifkin: They will be disrupted by a technology revolution that is laterally scalable, and can democratize the product, in this case, energy. We are seeing this in Germany. Germany is at around 27 percent solar and wind energy right now, and they will be at about 35 percent by 2020. What is interesting, from an engineering point of view, is that fixed costs have been decreasing on an exponential curve. Solar cost around $76 Kilowatt hour in 1978, it is 36 cents today, heading towards zero. Wind and the other green energies will follow.

What happened in Germany is that millions of people created electricity cooperatives; consumers, farmers, SMEs, all of them got low-interest loans from banks. The government did not finance any of these installation technologies, they only subsidized the feed in tariffs. So the vast majority of the renewable energy is produced by millions of small players. The big four power companies in Germany produce less than 7 percent of the power of the Third Industrial Revolution, and they will be out of the game.

But they won't be out of the business. What we said to them was, you have to change your business model. About five years ago, the German power company EON asked me to debate their chairman Johannes Teyssen in a three-hour debate. I introduced this new business model, and at that point he didn't buy it. Three months ago he made the transition. We are now selling long-term power contracts in America for solar and wind for 4 cents per kilowatt hour, and they're not buying gas or coal, and they already see the long-tem contracts on the exponential curve of plummeting prices.

This is also happening in Europe. The power companies are not going to get out of the Second Industrial Revolution tomorrow, but there will be a 30-year transition. Those exponential curves are going to get to you quicker than you think. I suspect that much of the human race will be producing electricity locally within 25 years from now. The power companies will have to set up partnerships with energy suppliers, and manage their data and value chains. They will have to erect, manage and serve the energy internet the way Facebook, Twitter and thousands of companies set up the communications commons for the production and sharing of virtual goods at low marginal costs. Then you will make money, we said to them, by selling as little electricity as you can.

Spectrum: A 30-year transition, why that long while prices of solar and wind are going down so fast?

Rifkin: Germany did well to put in feed in-tariffs to get the economy to scale at early adoptions, and we got a lot of people now generating renewable energy. They did not do well with storage. The storage is there, you just have to scale it up. We have fuel cells, we have batteries, flywheels, capacitors, pumping up water into reservoirs, but they did not scale them with the appropriate incentives.

In Germany, one Sunday last May when 75 percent of the energy coming through the power grid was solar and wind, we had negative prices all day. [The power plant pays the grid operator to accept power, so that it is not forced to shut down the power plant.] You have to put in storage in order to manage peak and base loads, else you get wild fluctuations in your price, and a potential disruption of the system.

A big problem now is that there is so much solar and wind already that the power companies cannot finance back-up coal fired plants, which you keep off grid unless you need them for a peak load. You don't need them that often because there is so much solar and wind, and it takes much more time to amortize them.

Spectrum: In Germany you advocated a digital Eurasia Silk Road, an Internet of Things implemented on the largest land mass on Earth. Why?

Rifkin: This is where we really are going to move. We are going to see much more of a collaboration between China and Germany. A lot of Chinese engineers have very close relationships with German engineers. They are trained in Germany and there is a lot of respect between them. I think you are going to see more of a collaboration between these two powerful economies. To have an Internet of Things platform all across Eurasia, one land mass from Shanghai to the Irish Sea will take fifty years. Such a long-term collaboration could take us out of a geopolitical frame of reference, which is not good for the world, to a collaborative biosphere frame of reference where everyone has to collaborate and share. The Silk Road will require an actual sharing of the infrastructure. That could change a lot of how we organize life on the planet. It is a very long-term approach, but it is interesting to at least envision it.

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