Ushering In A Smart Green Digital Global Economy To Address Climate Change And Create A More Ecological And Humane Society
By Jeremy Rifkin
The global economy is slowing, productivity is waning in every region of the world, and unemployment remains stubbornly high in every country. At the same time, economic inequality between the rich and the poor is at the highest point in human history. In 2010 the combined wealth of the 388 richest people in the world equaled the combined wealth of the poorest half of the human race. By 2014 the wealth of the 80 richest individuals in the world equaled the combined wealth of the poorest half of the human race.
This dire economic reality is now compounded by the rapid acceleration of climate change brought on by the increasing emissions of industrial induced global warming gases. Climate scientists report that the global atmospheric concentration of carbon, which ranged from a 180 to 300 parts per million (ppm) for the past 650,000 years, has risen from 280 ppm just before the outset of the industrial era to 400 ppm in 2013. The atmospheric concentrations of methane and nitrous oxide, the other two powerful global warming gases, are showing similar steep trajectories.
At the Copenhagen global climate summit in December 2009, the European Union proposed that the nations of the world not exceed carbon dioxide emissions of 450 ppm by 2050, with the hope that if we were able to do so, we might limit the rise in Earth’s temperature to 3.5°F (2°C). Even a 3.5°F rise, however, would take us back to the temperature on Earth several million years ago, in the Pliocene epoch, with devastating consequences to ecosystems and human life.
The EU proposal went ignored. Now, six years later, the steep rise in the use of carbon-based fuels has pushed up the atmospheric levels of carbon dioxide (CO 2) far more quickly than earlier models had projected, making it likely that the temperature on Earth will rush past the 3.5° target and could top off at 8.1°F (4.5°C) or more by 2100—temperatures not seen on Earth for millions of years. (Remember, anatomically modern human beings—the youngest species—have only inhabited the planet for 175,000 years or so.)
What makes these dramatic spikes in the Earth’s temperature so terrifying is that the increase in heat radically shifts the planet’s hydrological cycle. We are a watery planet. The Earth’s diverse ecosystems have evolved over geological time in direct relationship to precipitation patterns. Each rise in temperature of 1°C results in a 7 percent increase in the moisture-holding capacity of the atmosphere. This causes a radical change in the way water is distributed, with more intense precipitation but a reduction in duration and frequency. The consequences are already being felt in eco-systems around the world. We are experiencing more bitter winter snows, more dramatic spring storms and floods, more prolonged summer droughts, more wildfires, more intense hurricanes (category 3, 4, and 5), a melting of the ice caps on the great mountain ranges, and a rise in sea levels.
The Earth’s ecosystems cannot readjust to a disruptive change in the planet’s water cycle in such a brief moment in time and are under increasing stress, with some on the verge of collapse. The destabilization of ecosystem dynamics around the world has now pushed the biosphere into the sixth extinction event of the past 450 million years of life on Earth. In each of the five previous extinctions, Earth’s climate reached a critical tipping point, throwing the ecosystems into a positive feedback loop, leading to a quick wipe-out of the planet’s biodiversity. On average, it took upward of 10 million years to recover the lost biodiversity. Biologists tell us that we could see the extinction of half the Earth’s species by the end of the current century, resulting in a barren new era that could last for millions of years. James Hansen, former head of the NASA Goddard Institute for Space Studies and the chief climatologist for the U.S. government, forecasts a 6°C rise in the Earth’s temperature between now and the turn of the century—and with it, the end of human civilization as we’ve come to know it. The only hope, according to Hansen, is to reduce the current concentration of carbon in the atmosphere from 385 ppm to 350 ppm or less—something no government is currently proposing.
Now, a new economic paradigm is emerging that is going to dramatically change the way we organize economic life on the planet. The European Union is embarking on a bold new course to create a high-tech 21st Century smart green digital economy, making Europe potentially the most productive commercial space in the world and the most ecologically sustainable society on Earth. The plan is called Digital Europe. The EU vision of a green digital economy is now being embraced by China and other developing nations around the world.
The digitalization of Europe involves much more than providing universal broadband, free Wi-Fi, and a flow of Big Data. The digital economy will revolutionize every commercial sector, disrupt the workings of virtually every industry, bring with it unprecedented new economic opportunities, put millions of people back to work, democratize economic life, and create a more sustainable low-carbon society to mitigate climate change. Equally important, the new economic narrative is being accompanied by a new biosphere consciousness, as the human race begins to perceive the Earth as its indivisible community. We are each beginning to take on our responsibilities as stewards of the planetary ecosystems which sustain all of life.
To grasp the enormity of the economic change taking place, we need to understand the technological forces that have given rise to new economic systems throughout history. Every great economic paradigm requires three elements, each of which interacts with the other to enable the system to operate as a whole: new communication technologies to more efficiently manage economic activity; new sources of energy to more efficiently power economic activity; and new modes of transportation to more efficiently move economic activity.
In the 19th century, steam-powered printing and the telegraph, abundant coal, and locomotives on national rail systems gave rise to the First Industrial Revolution. In the 20th Century, centralized electricity, the telephone, radio and television, cheap oil, and internal combustion vehicles on national road systems converged to create an infrastructure for the Second Industrial Revolution.
The Third Industrial Revolution
Today, Europe is laying the ground work for the Third Industrial Revolution. The digitalized communication Internet is converging with a digitalized renewable Energy Internet, and a digitalized automated Transportation and Logistics Internet, to create a super-Internet of Things (IoT) infrastructure. In the Internet of Things era, sensors will be embedded into every device and appliance, allowing them to communicate with each other and Internet users, providing up to the moment data on the managing, powering, and moving of economic activity in a smart Digital Europe. Currently, 14 billion sensors are attached to resource flows, warehouses, road systems, factory production lines, the electricity transmission grid, offices, homes, stores, and vehicles, continually monitoring their status and performance and feeding big data back to the Communication Internet, Energy Internet, and Transportation and Logistics Internet. By 2030, it is estimated there will be more than 100 trillion sensors connecting the human and natural environment in a global distributed intelligent network. For the first time in history, the entire human race can collaborate directly with one another, democratizing economic life.
The digitalization of communication, energy, and transportation also raises risks and challenges, not the least of which are guaranteeing network neutrality, preventing the creation of new corporate monopolies, protecting personal privacy, ensuring data security, and thwarting cyber-crime and cyber-terrorism. The European Commission has already begun to address these issues by establishing the broad principle that “privacy, data protection, and information security are complimentary requirements for Internet of Things services.”
In this expanded digital economy, private enterprises connected to the Internet of Things can use Big Data and analytics to develop algorithms that speed efficiency, increase productivity, and dramatically lower the marginal cost of producing and distributing goods and services, making European businesses more competitive in an emerging post-carbon global marketplace. (Marginal cost is the cost of producing an additional unit of a good or service, after fixed costs have been absorbed.)
The marginal cost of some goods and services in a digital Europe will even approach zero, allowing millions of prosumers connected to the Internet of Things to produce and exchange things with one another, for nearly free, in the growing Sharing Economy. Already, a digital generation is producing and sharing music, videos, news blogs, social media, free e-books, massive open online college courses, and other virtual goods at near zero marginal cost. The near zero marginal cost phenomenon brought the music industry to its knees, shook the television industry, forced newspapers and magazines out of business, and crippled the book publishing market.
While many traditional industries suffered, the zero marginal cost phenomenon also gave rise to a spate of new entrepreneurial enterprises including Google, Facebook, Twitter, and YouTube, and thousands of other Internet companies, who reaped profits by creating new applications and establishing the networks that allow the Sharing Economy to flourish.
Economists acknowledge the powerful impact the near zero marginal cost has had on the information goods industries but, until recently, have argued that the productivity advances of the digital economy would not pass across the firewall from the virtual world to the brick-and-mortar economy of energy, and physical goods and services. That firewall has now been breached. The evolving Internet of Things will allow conventional businesses enterprises, as well as millions of prosumers, to make and distribute their own renewable energy, use driverless electric and fuel cell vehicles in automated car sharing services, and manufacture an increasing array of 3D-printed physical products and other goods at very low marginal cost in the market exchange economy, or at near zero marginal cost in the Sharing Economy, just as they now do with information goods.
The Renewable Energy Internet
The bulk of the energy we use to heat our homes and run our appliances, power our businesses, drive our vehicles, and operate every part of the global economy will be generated at near zero marginal cost and be nearly free in the coming decades. That’s already the case for several million early adopters in the EU who have transformed their homes and businesses into micro-power plants to harvest renewable energy on-site. Currently, twenty-seven percent of the electricity powering Germany comes from solar and wind renewable energies. By 2020, thirty-five percent of the electricity powering Germany will be generated by solar and wind energies.
The quickening pace of renewable energy deployment is due, in large part, to the plunging cost of solar and wind energy harvesting technologies. The fixed costs of solar and wind harvesting technologies have been on exponential curves for more than 20 years, not unlike the exponential curve in computing. In 1977, the cost of generating a single watt of solar electricity was $76. By the last quarter of 2012, the cost of generating a watt had fallen to $0.50, and by 2017 the cost is projected to fall to $0.36 per watt. After the fixed costs for the installation of solar and wind are paid back—often as little as 2 to 8 years—the marginal cost of the harvested energy is nearly free. Unlike fossil fuels and uranium for nuclear power, in which the commodity itself always costs something, the sun collected on rooftops and the wind travelling up the side of buildings are free. In some regions of Europe and America, solar and wind energy is already as cheap, or cheaper, than fossil fuel or nuclear generated energy.
The impact on society of near zero marginal cost solar and wind energy is all the more pronounced when we consider the enormous potential of these energy sources. The sun beams 470 exajoules of energy to Earth every 88 minutes—equaling the amount of energy human beings use in a year. If we could grab hold of one-tenth of 1 percent of the sun’s energy that reaches Earth, it would give us six times the energy we now use across the global economy. Like solar radiation, wind is ubiquitous and blows everywhere in the world—although its strength and frequency varies. A Stanford University study on global wind capacity concluded that if 20 percent of the world’s available wind was harvested, it would generate seven times more electricity than we currently use to run the entire global economy. The Internet of Things will enable businesses and prosumers to monitor their electricity usage in their buildings, optimize their energy efficiency, and share surplus green electricity generated on-site with others across nations and continents.
The Energy Internet is comprised of five foundational pillars, all of which have to be phased-in simultaneously for the system to operate efficiently. First, buildings and other infrastructure will need to be refurbished and retrofitted to make them more energy efficient so that renewable energy technologies–solar, wind, etc.– can be installed to generate power for immediate use or for delivery back to the electricity grid for compensation. Second, ambitious targets must be set to replace fossil fuels and nuclear power with renewable energy sources. To achieve this goal, feed-in tariffs need to be introduced to encourage early adopters to transform buildings and property sites into micro-power generation facilities. The feed-in tariffs guarantee a premium price above market value for renewable energies generated locally and sent back to the electricity grid. Third, storage technologies including hydrogen fuel cells, batteries, water pumping, etc., will need to be embedded at local generation sites and across the electricity grid to manage both the flow of intermittent green electricity and the stabilization of peak and base loads. Fourth, advanced meters and other digital technology will need to be installed in every building to transform the electricity grid from servo mechanical to digital connectivity in order to manage multiple sources of energy flowing to the grid from local generators. The distributed smart electricity infrastructure will enable passive consumers of electricity to become active producers of their own green electricity, which they can then use off-grid to manage their facilitates or sell back to the Energy Internet. Fifth, every parking space will need to be equipped with a charging station to allow electric and fuel cell vehicles to secure power from the Energy Internet, as well as sell power back to the electricity grid. Millions of electric and fuel cell vehicles connected to the Energy Internet also provide a massive backup storage system that can send electricity to the grid during peak demand, when the price of electricity has spiked, allowing vehicle owners to be appropriately compensated for contributing their electricity to the network.
The phase-in and the integration of the above five pillars transforms the electricity grid from a centralized to a distributed electricity system, and from fossil fuel and nuclear generation to renewable energy. In the new system, every business, neighborhood, and homeowner becomes the producers of electricity, sharing their surplus with others on a smart Energy Internet that is beginning to stretch across national and continental land masses.
The democratization of energy is forcing electricity companies to rethink their business practices. A decade ago, four giant vertically integrated electricity generating companies—E.ON, RWE, EnBW, and Vattenfall—produced much of the electricity powering Germany. Today, these companies are no longer the exclusive arbiters of power generation. In recent years, farmers, urban dwellers, and small and medium sized enterprises (SME’s) established electricity cooperatives across Germany. Virtually all of the electricity cooperatives were successful in securing low interest loans from banks to install solar, wind, and other renewable energies on-site. The banks were more than happy to provide the loans, assured that the funds would be paid back by the premium price the cooperatives would receive—via feed-in-tariffs—from selling the new green electricity back to the grid. Today, the majority of the green electricity powering Germany is being generated by small players in electricity cooperatives. The big four electricity generating companies are producing less than 7 percent of the new green electricity that’s taking Germany into a Third Industrial Revolution.
While these traditional vertically integrated power companies proved quite successful in generating relatively cheap electricity from traditional fossil fuels and nuclear power, they have not been able to effectively compete with local electricity cooperatives whose laterally scaled operations are better adept at managing energy harnessed by thousands of small players in broad collaborative networks. Peter Terium, CEO of RWE, the German-based energy company, acknowledges the massive shift taking place in Germany from centralized to distributed power, and says that the bigger power and utility companies “have to adjust to the fact that, in the longer term, earning capacity in conventional electricity generation will be markedly below what we’ve seen in recent years.”
A growing number of electricity generating companies are coming to grips with the new reality of democratized energy and are changing their business model to accommodate the new Energy Internet. In the future, their income will increasingly rely on erecting and operating the Energy Internet and managing their customers’ energy use. The electricity companies will mine Big Data across each of their clients’ value chains and use analytics to create algorithms and applications to increase their aggregate energy efficiency and productivity, and reduce their marginal cost. Their clients, in turn, will share the efficiency and productivity gains back with the electricity companies in what are called “Performance Contracts.” In short, power companies will profit more from managing energy use more efficiently, and selling less rather than more electricity.
The Automated GPS-Guided Transportation and Logistics Internet
The meshing of the Communication Internet and the Energy Internet makes possible the build-out and scale-up of the automated Transportation and Logistics Internet. The convergence of these three Internets comprise the kernel of the Internet of Things platform for managing, powering, and transporting goods in a Third Industrial Revolution economy. The automated Transportation and Logistics Internet is made up of four foundational pillars, which, like the Energy Internet, have to be phased-in simultaneously for the system to operate efficiently. First, as mentioned previously, charging stations will need to be installed ubiquitously across land masses, allowing cars, buses, trucks, and trains to power up or send back electricity to the grid. Second, sensors need to be embedded in devices across logistics networks to allow factories, warehouses, wholesalers, retailers, and end users to have up-to-the-moment data on logistical flows that affect their value chain. Third, the storage and transit of all physical goods will need to be standardized so that they can be efficiently passed off to any node and sent along any passageway, operating across the logistics system in the same way that information flows effortlessly and efficiently across the World Wide Web. Fourth, all of the operators along the logistics corridors need to aggregate into collaborative networks to bring all of their assets into a shared logistical space to optimize the shipment of goods, taking advantage of lateral economies of scale. For example, thousands of warehouses and distribution centers might establish cooperatives to share unused spaces, allowing carriers to drop off and pick up shipments using the most efficient path on route to their destination.
The Internet of Things platform will provide real-time logistical data on pick-up and delivery schedules, weather conditions, traffic flows, and up-to-the-moment information on warehouse storage capacities on route. Automated dispatching will use Big Data and analytics to create algorithms and applications to ensure the optimization of aggregate efficiencies along the logistical routes and, by so doing, dramatically increase productivity while reducing the marginal cost of every shipment.
By 2025, at least some of the shipments on roads, railways, and water will likely be carried out by driverless electric and fuel cell transport, powered by near zero marginal cost renewable energies, and operated by increasingly sophisticated analytics and algorithms. Driverless transport will accelerate productivity and reduce the marginal labor cost of shipping goods toward near zero on a smart automated Transportation and Logistics Internet.
The erection of the automated Transportation and Logistics Internet also transforms the very way we view mobility. Today’s youth are using mobile communication technology and GPS guidance on an incipient automated Transportation and Logistics Internet to connect with willing drivers in car sharing services. Young people prefer “access to mobility” over ownership of vehicles. Future generations will likely never own vehicles again in a smart automated mobility era. For every vehicle shared, however, 15 vehicles are eliminated from production. Larry Burns, the former Executive Vice President of General Motors, and now a professor at the University of Michigan, did a study of mobility patterns in Ann Harbor, a mid-sized American city, and found that car sharing services can eliminate 80% of the vehicles currently on the road, and provide the same, or better, mobility at a lesser cost.
There are currently a billion cars, buses, and trucks crawling along in traffic in dense urban areas around the world. Gasoline-powered internal combustion vehicles were the centerpiece of the Second Industrial Revolution. The mass production of these vehicles devoured vast amounts of the Earth’s natural resources. Cars, buses, and trucks also burn massive amounts of oil and are the third major contributor to global warming gas emissions, after buildings and beef production and related agricultural production practices. Burns’ study suggest that 80% of the vehicles currently on the road are likely to be eliminated with widespread adoption of car sharing services over the course of the next generation. The remaining 200 million vehicles will be electric and fuel cell transport, powered by near zero marginal cost renewable energy. Those shared vehicles, in turn, will be driverless and running on automated smart road systems.
The long-term transition from ownership of vehicles to access to mobility in driverless vehicles on smart road systems will fundamentally alter the business model for the transportation industry. While the big auto manufacturers around the world will produce fewer vehicles over the course of the next 30 years, they will likely increasingly reposition themselves as aggregators of the global automated Transportation and Logistics Internet, managing mobility services and logistics.
The convergence of the Communication Internet, renewable Energy Internet, and automated Transportation and Logistics Internet in an operating kernel becomes the global brain for an Internet of Things cognitive infrastructure. This new digital platform fundamentally changes the way we manage, power, and move economic activity across the numerous value chains and networks that make up the global economy. The digitalized Internet of Things platform is the core of the Third Industrial Revolution.
Virtually every industry will be transformed by the Internet of Things platform and the ushering-in of a Third Industrial Revolution. For example, a new generation of micro manufacturers are beginning to plug in to the incipient IoT, and dramatically increasing their productivity while reducing their marginal costs, enabling them to outcompete the formerly invincible global manufacturing firms, organized around vertically integrated economies of scale. It’s called 3D printing and it is the manufacturing model that accompanies an IoT economy.
In 3D printing, software directs molten feedstock inside a printer to build up a physical product layer by layer, creating a fully formed object, even with movable parts, which then pops out of the printer. Like the replicator in the Star Trek television series, the printer can be programmed to produce an infinite variety of products. Printers are already producing products from jewelry and airplane parts to human prostheses, and even parts of cars and buildings. And cheap printers are being purchased by hobbyists interested in printing out their own parts and products. The consumer is beginning to give way to the prosumer as increasing numbers of people become both the producer and consumer of their own products.
Three-dimensional printing differs from conventional centralized manufacturing in several important ways. To begin with, there is little human involvement aside from creating the software. The software does all the work, which is why it’s more appropriate to think of the process as “info-facture” rather than “manufacture.”
The early practitioners of 3D printing have made strides to ensure that the software used to program and print physical products remains open source, allowing prosumers to share new ideas with one another in do-it-yourself (DIY) hobbyist networks. The open design concept conceives of the production of goods as a dynamic process in which thousands—even millions—of players learn from one another by making things together. The elimination of intellectual-property protection also significantly reduces the cost of printing products, giving the 3D printing enterprise an edge over traditional manufacturing enterprises, which must factor in the cost of myriad patents. The open-source production model has encouraged exponential growth.
The 3D printing production process is organized completely differently than the manufacturing process of the First and Second Industrial Revolutions. Traditional factory manufacturing is a subtractive process. Raw materials are cut down and winnowed and then assembled to manufacture the final product. In the process, a significant amount of the material is wasted and never finds its way into the end product. Three-dimensional printing, by contrast, is additive info-facturing. The software is directing the molten material to add layer upon layer, creating the product as a whole piece. Additive info-facturing uses one-tenth of the material of subtractive manufacturing, giving the 3D printer a dramatic leg up in efficiency and productivity. 3D printing is projected to grow at a blistering compound annual rate of 106% between 2012 and 2018.
3D printers can print their own spare parts without having to invest in expensive retooling and the time delays that go with it. With 3D printers, products can also be customized to create a single product or small batches designed to order, at minimum cost. Centralized factories, with their capital-intensive economies of scale and expensive fixed-production lines designed for mass production, lack the agility to compete with a 3D production process that can create a single customized product at virtually the same unit cost as producing 100,000 copies of the same item.
Making 3D printing a truly local, self-sufficient process requires that the feedstock used to create the filament is abundant and locally available. Staples—the office supply company—has introduced a 3D printer, manufactured by Mcor Technologies in its store in Almere, the Netherlands, that uses cheap paper as feedstock. The process, called selective deposition lamination (SDL), prints out hard 3D objects in full color with the consistency of wood. The 3D printers are used to info-facture craft products, architectural designs, and even surgical models for facial reconstruction. The paper feedstock costs a mere 5 percent of previous feedstocks. Other 3D printers are using recycled plastic, paper, and metal objects as feedstock at near zero marginal cost.
A local 3D printer can also power his or her fabrication lab with green electricity harvested from renewable energy onsite or generated by local producer cooperatives. Small- and medium-sized enterprises in Europe and elsewhere are already beginning to collaborate in regional green-electricity cooperatives to take advantage of lateral scaling. With the cost of centralized fossil fuels and nuclear power constantly increasing, the advantage skews to small- and medium-sized enterprises that can power their factories with renewable energies whose marginal cost is nearly free.
Marketing costs also plummet in an IoT economy. The high cost of centralized communications in both the First and Second Industrial Revolutions—in the form of magazines, newspapers, radio, and television—meant that only the bigger manufacturing firms with integrated national operations could afford advertising across national and global markets, greatly limiting the market reach of smaller manufacturing enterprises. In the Third Industrial Revolution, a small 3D printing operation anywhere in the world can advertise info-factured products on the growing number of global Internet marketing sites at nearly zero marginal cost.
Plugging into an IoT infrastructure at the local level gives the small info-facturers one final, critical advantage over the vertically integrated, centralized enterprises of the nineteenth and twentieth centuries: they can power their vehicles with renewable energy whose marginal cost is nearly free, significantly reducing their logistics costs along the supply chain and in the delivery of their finished products to users.
The new 3D printing revolution is an example of “extreme productivity.” The distributed nature of manufacturing means that anyone and eventually everyone can access the means of production, making the question of who should own and control the means of production increasingly irrelevant for a growing number of goods.
Many of Europe’s global manufacturing enterprises will continue to flourish, but will be fundamentally transformed by the democratization of manufacturing, which favors a high-tech renaissance for small and medium sized enterprises. Europe’s manufacturing giants will increasingly partner with a new generation of 3D-printing small and medium sized enterprises in collaborative networks. While much of the manufacturing will be done by SME’s that can take advantage of the increased efficiencies and productivity gains of lateral economies of scale, the giant enterprises will increasingly find value in aggregating, integrating, and managing the marketing and distributing of products.
The peer to peer nature of the Internet of Things platform allows millions of disparate players—small and medium sized businesses, social enterprises, and individuals—to come together and produce and exchange goods and services directly with one another, eliminating the remaining middle men that kept marginal costs high in the Second Industrial Revolution. This fundamental technological transformation in the way economic activity is organized and scaled portends a great shift in the flow of economic power from the few to the multitudes and the democratization of economic life.
It is important to emphasize that the transition from the Second to the Third Industrial Revolution will not occur overnight, but, rather, take place of over thirty to forty years. Many of today’s global corporations will successfully manage the transition by adopting the new distributed and collaborative business models of the Third Industrial Revolution while continuing their traditional Second Industrial Revolution business practices. In the coming years, capitalist enterprises will likely find more value in aggregating and managing laterally scaled networks than in selling discrete products and services in vertically integrated markets.
Developing Nations Leapfrogging into the Third Industrial Revolution
The distributed features of the new economic paradigm also enable the least developed regions—that were largely excluded from the First and Second Industrial Revolutions—to “leapfrog” into a Third Industrial Revolution. Currently, more than 20 percent of the human race is without electricity, and an additional 20 percent has only marginal and unreliable access to electricity. These are the very countries where population is rising the fastest.
The lack of infrastructure is both a liability, and a potential asset. It is often cheaper and quicker to erect virgin infrastructure than to reconfigure existing infrastructure. We are already witnessing a surge of activity in some of the poorer regions of the world with the introduction of solar, wind, geothermal, small-hydro, and biomass harvesting technologies and the installation of distributed renewable energy micro grids.
Electricity is now coming to remote areas in Africa, which never before had access to a centralized power grid. Not surprisingly, the introduction of cell phones has helped precipitate the development of a nascent Third Industrial Revolution infrastructure. Virtually overnight, millions of Africa’s rural households have scraped together enough money—from selling an animal or surplus crops—to purchase a cell phone. The phones are used as much for carrying on commercial activity as for personal communications. In rural areas, far removed from urban banking facilities, people are increasingly relying on cell phones to facilitate small money transfers. The problem is that without access to electricity, cell phone users often have to travel on foot to get to a town with electricity in order to recharge their phones. Now a single solar panel affixed on the tin roof of a rural hut provides enough electricity to not only charge the cell phone but also power four overhead electric lights.
Although the statistics are still spotty, it appears that families across Africa are installing solar panels and analysts predict a quick scale-up as millions of others follow suit into the Third Industrial Revolution. What’s going on in Africa heralds a historic transformation as households leapfrog from the pre-electricity era directly into the Third Industrial Revolution age.
Besides solar, other green micro-generation energy technologies are quickly coming online, including small biogas chambers that make electricity and fuel from cow manure, tiny power plants that make electricity from rice husks and small hydroelectric dams that generate power from local streams.
Lateral power is beginning to transform the developing world. This process represents the democratization of energy in the world’s poorest communities. The electrification process is likely to accelerate in the future, giving rise to exponential curves and a qualitative “leap” into the Third Industrial Revolution era in previously underdeveloped regions.
For example, the electrification of the developing world makes possible the powering of 3D printers and a proliferation of distributed manufacturing. In poor urban outskirts, isolated towns, and rural locales—where infrastructure is scant, access to capital spotty, at best, and technical expertise, tools, and machinery virtually nonexistent—3D printing provides a desperately needed opportunity for building a Third Industrial Revolution infrastructure. Today, the emerging IoT infrastructure provides the means to lift hundreds of millions of human beings out of abject poverty and into a sustainable quality of life.
Bringing universal electricity to developing countries also fosters greater communication and connectivity between rural and urban communities. That connectivity is spawning the proliferation of shared Commons among farmers and consumers. A younger generation of farmers is sharing harvests on an agricultural scale with urban consumers. Community Supported Agriculture (CSA) began inauspiciously in Europe and Japan in the 1960s and accelerated rapidly in the United States and other countries in the 1990s with the rise of the Internet. And now, as universal electricity and the Internet spread to developing nations, Community Supported Agriculture is beginning to transform the relationship between farmers and urban dwellers in these regions as well. Urban consumers pledge a fixed amount of money to local farmers in advance of the growing season to pay for the up-front cost of growing the crops. The consumers become, in effect, shareholders. In return, the consumers are provided with the bounty from the harvest delivered to their door or to nearby distribution centers throughout the growing season. If the farmers’ crops are plentiful, the shareholders are awarded with the additional yield. Likewise, if yields are down because of adverse weather or other conditions, the shareholders share in the losses with the delivery of less produce.
The sharing of risk between consumers and farmers creates a bond of mutual trust and fosters social capital. Moreover, eliminating all the middlemen in the conventional, vertically integrated agribusiness operations dramatically reduces the costs of the produce for the end user.
Many CSA operations use ecological agricultural practices and organic farming techniques, eliminating the high costs and environmental damage caused by the use of petrochemical fertilizers and pesticides. Energy and environmental costs are further reduced by eliminating plastic packaging and the long-haul transport of produce.
The Internet has been a great facilitator of CSA by making it easier for farmers and consumers to connect in peer-to-peer networks. Local CSA websites also allow farmers and customers to stay in constant contact, sharing up-to-date information on crop performance and delivery schedules. CSAs replace sellers and buyers in the conventional market with providers and users exchanging produce on a social Commons. In a sense, consumers become prosumers by crowd-financing the means of production that deliver the end products they will consume. There are thousands of CSA enterprises scattered around the world, and their numbers are growing as a younger generation becomes increasingly comfortable with the idea of exercising more of its commercial options in a social economy on the Commons. Community Supported Agriculture is likely to grow even more quickly in developing regions of the world where farmers often lack sufficient capital to adequately finance the next year’s crop. Electrification and the convergence of the Communication Internet with a digitalized renewable Energy Internet and a digitalized smart Transportation and Logistics Internet is likely to speed the development of Community Supported Agriculture in the poorest regions of the world.
The United Nations Industrial Development Organization (UNIDO) has made a commitment to help empower local populations to lay down a Third Industrial Revolution (TIR) infrastructure that can bring green electricity to 1.5 billion impoverished people. In 2011, I joined Dr. Kandeh Yumkella, director general of UNIDO and the head of U.N. Energy, at the organization’s global conference in support of the TIR build-out in developing nations. Yumkella declared that “we believe we are at the beginning of a third industrial revolution and I wanted all member countries of UNIDO to hear the message and ask them the key question: How can we be part of this revolution?” The goal is to make electricity universally available by 2030. The electrification of every community on Earth will provide the impetus to lift the world’s poor out of poverty and toward the zone of comfort that can sustain a decent quality of life for every human being.
Rethinking Economics in an Ecological Era
The transformation to an Internet of Thing infrastructure and a Third Industrial Revolution paradigm is forcing a wholesale rethinking of economic theory and practice. The unleashing of extreme productivity wrought by the digitalization of communication, energy, and transportation is leading to a reassessment of the very nature of productivity and a new understanding of ecological sustainability. Conventional economists fail to recognize that the laws of thermodynamics govern all economic activity. The first and second laws of thermodynamics state that “the total energy content of the universe is constant and the total entropy is continually increasing.” The first law, the conservation law, posits that energy can neither be created nor destroyed—that the amount of energy in the universe has remained the same since the beginning of time and will be until the end of time. While the energy remains fixed, it is continually changing form, but only in one direction, from available to unavailable. This is where the second law of thermodynamics comes into play. According to the second law, energy always flows from hot to cold, concentrated to dispersed, ordered to disordered. For example, if a chunk of coal is burned, the sum total of the energy remains constant, but is dispersed into the atmosphere in the form of carbon dioxide, su lfurdioxide, and other gases. While no energy is lost, the dispersed energy is no longer capable of performing useful work. Physicists refer to the no-longer-useable energy as entropy.
All economic activity comes from harnessing available energy in nature—in material, liquid, or gaseous form—and converting it into goods and services. At every step in the production, storage, and distribution process, energy is used to transform nature’s resources into finished goods and services. Whatever energy is embedded in the product or service is at the expense of energy used and lost—the entropic bill—in moving the economic activity along the value chain. Eventually, the goods we produce are consumed, discarded, and recycled back into nature, again, with an increase in entropy. Engineers and chemists point out that in regard to economic activity there is never a net energy gain but always a loss in available energy in the process of converting nature’s resources into economic value. The only question is: when does the bill come due?
The entropic bill for the First and Second Industrial Revolutions has arrived. The accumulation in carbon dioxide emissions in the atmosphere from burning massive amounts of carbon energy has given rise to climate change and the wholesale destruction of the Earth’s biosphere, throwing the existing economic model into question. The field of economics, by and large, has yet to confront the fact that economic activity is conditioned by the laws of thermodynamics.
Until very recently, economists were content to measure productivity by two factors: machine capital and labor performance. But when Robert Solow—who won the Nobel Prize in economics in 1987 for his growth theory—tracked the Industrial Age, he found that machine capital and labor performance only accounted for approximately 12.5 percent of all of the economic growth, raising the question of what was responsible for the other 87.5 percent. This mystery led economist Moses Abramovitz, former president of the American Economic Association, to admit what other economists were afraid to acknowledge—that the other 86 percent is a “measure of our ignorance.”
Over the past 25 years, a number of analysts, including physicist Reiner Kümmel of the University of Würzburg, Germany, and economist Robert Ayres at INSEAD business school in Fontainebleau, France, have gone back and retraced the economic growth of the industrial period using a three-factor analysis of machine capital, labor performance, and thermodynamic efficiency of energy use. They found that it is “the increasing thermodynamic efficiency with which energy and raw materials are converted into useful work” that accounts for most of the rest of the gains in productivity and growth in industrial economies. In other words, “energy” is the missing factor.
A deeper look into the First and Second Industrial Revolutions reveals that the leaps in productivity and growth were made possible by the communication/energy/transportation matrix and accompanying infrastructure that comprised the general-purpose technology platform that firms connected to. For example, Henry Ford could not have enjoyed the dramatic advances in efficiency and productivity brought on by electrical power tools on the factory floor without an electricity grid. Nor could businesses reap the efficiencies and productivity gains of large, vertically integrated operations without the telegraph and, later, the telephone providing them with instant communication, both upstream to suppliers and downstream to distributors, as well as instant access to chains of command in their internal and external operations. Nor could businesses significantly reduce their logistics costs without a fully built-out road system across national markets. Likewise, the electricity grid, telecommunications networks, and cars and trucks running on a national road system were all powered by fossil fuel energy, which required a vertically integrated energy infrastructure to move the resource from the wellhead to the end users.
The general-purpose technology infrastructure of the Second Industrial Revolution provided the productive potential for a dramatic increase in growth in the twentieth century. Between 1900 and 1929, the United States built out an incipient Second Industrial Revolution infrastructure—the electricity grid, telecommunications network, road system, oil and gas pipelines, water and sewer systems, and public school systems. The Depression and World War II slowed the effort, but after the war the laying down of the interstate highway system and the completion of a nationwide electricity grid and telecommunications network provided a mature, fully integrated infrastructure. The Second Industrial Revolution infrastructure advanced productivity across every industry, from automobile production to suburban commercial and residential building developments along the interstate highway exits.
During the period from 1900 to 1980 in the United States, aggregate energy efficiency—the ratio of useful to potential physical work that can be extracted from materials—steadily rose along with the development of the nation’s infrastructure, from 2.48 percent to 12.3 percent. The aggregate energy efficiency leveled off in the 1990s at around 13 percent with the completion of the Second Industrial Revolution infrastructure. Despite a significant increase in efficiency, which gave the United States extraordinary productivity and growth, nearly 87 percent of the energy we used in the Second Industrial Revolution was wasted during transmission.
Even if we were to upgrade the Second Industrial Revolution infrastructure, it’s unlikely to have any measurable effect on efficiency, productivity, and growth. Fossil fuel energies have matured and are becoming more expensive to bring to market. And the technologies designed and engineered to run on these energies, like the internal-combustion engine and the centralized electricity grid, have exhausted their productivity, with little potential left to exploit.
Needless to say, 100 percent thermodynamic efficiency is impossible. New studies, however, including one conducted by my global consulting group, show that with the shift to a Third Industrial Revolution infrastructure, it is conceivable to increase aggregate energy efficiency to 40 percent or more in the next 40 years, amounting to a dramatic increase in productivity beyond what the economy experienced in the twentieth century.
Cisco systems forecasts that by 2022, the Internet of Things will generate $14.4 trillion in cost savings and revenue. A General Electric study published in November 2012 concludes that the efficiency gains and productivity advances induced by a smart industrial Internet could resound across virtually every economic sector by 2025, impacting “approximately one half of the global economy.”
The Rise of the Sharing Economy
While the developing digital infrastructure is making the traditional capitalist market more productive and competitive, it is also spurring the meteoric growth of the Sharing Economy. In the Sharing Economy, social capital is as vital as finance capital, access is as important as ownership, sustainability supersedes consumerism, cooperation is as crucial as competition, and “exchange value” in the capitalist marketplace is increasingly supplemented by “shareable value” on the Collaborative Commons. Millions of people are already transferring bits and pieces of their economic life to the Sharing Economy. Prosumers are not only producing and sharing their own information, news, knowledge, entertainment, green energy, transportation, and 3D-printed products in the Sharing Economy at near zero marginal cost. Forty percent of the US population is actively engaged in sharing homes, toys, tools, and countless other items. For example, millions of apartment dwellers and home owners are sharing their living quarters with millions of travelers, at near zero marginal cost, using online services like Airbnb and Couchsurfi