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The Zero Marginal Cost Society: How Does China Lead the IoT and Share Its Economy?

A new economic system is entering onto the world stage. The Collaborative Commons is the first new economic paradigm taking root since the advent of capitalism — and its antagonist socialism — in the early 19th century. The Collaborative Commons is flourishing alongside the capitalist market and is already transforming the way we organize economic life, offering the possibility of dramatically narrowing the income divide and democratizing the global economy in the first half of the twenty-first century.

The emergence of a new economic paradigm becomes all the more poignant with the news that China is expected to succeed the United States as the largest economy in the world by the end of 2014. To understand China’s likely role as the principle steward of the growing Collaborative Commons, we need to examine the evolution of economic history over the course of the industrial era.

The Zero Marginal Cost Society

The improvements in communication, power generation, and logistics and transport, brought on by the First and Second Industrial Revolution technology infrastructures, quickened the speed, volume, and potential commercial reach of economic activity, making possible a vast spatial expansion of commercial life beyond localities and regions to national and even continental and global markets. The First and Second Industrial revolutions increased productivity and reduced the marginal cost of producing energy, goods, and services. (Marginal costs are the costs of producing additional units of a good or service after fixed costs have been absorbed.) Cheaper energy, products, and services stimulated mass consumer demand, and a surge in mass employment, improving the standard of living of hundreds of millions of people.

Today, a new economic paradigm is evolving, with the potential of reducing marginal costs still further, to near zero, across large sectors of the capitalist economy, making many goods and services nearly free, abundant, and shareable on a Collaborative Commons. The zero marginal cost phenomenon sowed a path of destruction across the information goods industry over the past decade as hundreds of millions of consumers turned prosumers on the Internet and began to produce and share music, videos, news and knowledge with one another online, for nearly free, weakening revenues in the music industry, and in the newspaper, magazine, and book publishing fields.

China and the Third Industrial Revolution

While the United States led the world into the Second Industrial Revolution, China has set its sights on leading the world into the Third Industrial Revolution by being the first superpower to build out an Internet of Things (IoT) infrastructure and accompanying Collaborative Commons. In 2010, China leapt ahead of other countries, announcing its intention to erect an IoT, focusing on the smart Energy Internet and an automated Logistics and Transport Internet, with the goal of meshing them with the Communication Internet to create the infrastructure for a Third Industrial Revolution. The Chinese government expects to invest US$ 800 million on the initial build-out of the IoT by 2015. The Chinese Ministry of Information and Technology forecasts that the IoT market will exceed US$ 80 billion by 2015 and US$ 166 billion by 2020.

In December of 2013, the Chinese government took still another giant step, announcing that it is dedicating an initial US$ 82 billion to establish a Third Industrial Revolution distributed “Energy Internet” that will serve as the centerpiece of an IoT technology platform and infrastructure. Under the plan, millions of people in neighborhoods and communities across the country, as well as hundreds of thousands of businesses, will be able to produce their own solar- and wind-generated green electricity locally at near zero marginal cost, and share it on a national Energy Internet.

China is also setting the pace in the development of 3D printing. Beihang University is using 3D printing to manufacture sophisticated parts used in rockets and satellites. WinSun, another Chinese company, built ten small houses in less than 24 hours in 2014, using cheap recycled materials. The construction of the houses required very little human labor, and cost less than US$ 5000 a piece to construct, making possible the production of millions of cheap homes at low or near zero marginal cost in China and other developing countries. Tier time, China’s largest producer of desktop 3D printers for use in small businesses and households, unveiled its newest model UP! in 2014. The company is competing head to head with America’s leading producers of 3D printers, in the hopes of capturing much of the global market in the years ahead.

The productivity gains of the Third Industrial Revolution are likely to far outstrip those of the First and Second Industrial Revolutions. Several billion people and millions of organizations connected to the IoT allow the human race to share their economic lives in a global Collaborative Commons, in ways previously unimaginable. This turning point in connectivity potentially exceeds even the integration of economic activity wrought by electrification and the accompanying spread of the telephone, radio and television in the 20th century.

A General Electric study published in November 2012 concludes that the efficiency gains and productivity advances made possible by a smart industrial Internet could resound across virtually every economic sector by 2025, impacting “approximately one half of the global economy.”

Jeremy Rifkin

Jeremy Rifkin is an American economic and social theorist, writer, public speaker, political advisor, and activist. His most recent books include The Zero Marginal Cost Society (2014), The Third Industrial Revolution (2011).

By Jeremy Rifkin