ChAPter five

extreMe ProdUCtivity, the internet

of things, And free energy

if I had told you 25 years ago that, in a quarter century’s time, one-third of the human race would be communicating with one another in huge global networks of hundreds of millions of people—exchanging audio,

video, and text—and that the combined knowledge of the world would be accessible from a cellphone, that any single individual could post a new idea, introduce a product, or pass a thought to a billion people simultane-ously, and that the cost of doing so would be nearly free, you would have shaken your head in disbelief. All are now reality.

But what if I were to say to you that 25 years from now, the bulk of the energy you use to heat your home and run your appliances, power your business, drive your vehicle, and operate every part of the global economy will likewise be nearly free? That’s already the case for several million early adopters who have transformed their homes and businesses into micro power plants to harvest renewable energy on site. Even before any of the fixed costs for installation of solar and wind are paid back—often in as little as two to eight years—the marginal cost of the harvested energy is nearly free.1 Unlike fossil fuels and uranium for nuclear power, in which the commodity itself always costs something, the sun collected on your rooftop, the wind traveling up the side of your building, the heat coming up from the ground under your office, and the garbage anaerobi-cally decomposing into biomass energy in your kitchen are all nearly free.

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70 the Zero MArginAl Cost soCiety

And what if nearly free information were to begin managing nearly free green energy, creating an intelligent communication/energy matrix and infrastructure that would allow any business in the world to connect, share energy across a continental Energy Internet, and produce and sell goods at a fraction of the price charged by today’s global manufacturing giants? That too is beginning to evolve on a small scale as hundreds of start-up businesses establish 3D printing operations, infofacturing prod-ucts at near zero marginal cost, powering their Fab Labs with their own green energy, marketing their goods for nearly free on hundreds of global websites, and delivering their products in electric and fuel-cell vehicles powered by their own green energy. (We will discuss the up-front fixed capital costs of establishing the collaborative infrastructure shortly.)

And what if millions of students around the world who had never be-fore had access to a college education were suddenly able to take courses taught by the most distinguished scholars on the planet and receive credit for their work, all for free? That’s now happening.

And finally, what if the marginal cost of human labor in the produc-tion and distribution of goods and services were to plummet to near zero as intelligent technology substitutes for workers across every industry and professional and technical field, allowing businesses to conduct much of the commercial activity of civilization more intelligently, efficiently, and cheaply than with conventional workforces? That too is occuring as tens of millions of workers have already been replaced by intelligent technology in industries and professional bodies around the world. What would the human race do, and more importantly, how would it define its future on Earth, if mass and professional labor were to disappear from economic life over the course of the next two generations? That question is now being seriously raised for the first time in intellectual circles and public policy debates.

extreMe ProdUCtivity

Getting to near zero marginal cost and nearly free goods and services is a function of advances in productivity. Productivity is “a measure of pro-ductive efficiency calculated as the ratio of what is produced to what is required to produce it.”2 If the cost of producing an additional good or service is nearly zero, that would be the optimum level of productivity.

Here again, we come face-to-face with the ultimate contradiction at the heart of capitalism. The driving force of the system is greater pro-ductivity, brought on by increasing thermodynamic efficiencies. The pro-cess is unsparing as competitors race to introduce new, more productive technologies that will lower their production costs and the price of their products and services to lure in buyers. The race continues to pick up mo-mentum until it approaches the finish line, where the optimum efficiency is reached and productivity peaks. That finish line is where the marginal

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cost of producing each additional unit is nearly zero. When that finish line is crossed, goods and services become nearly free, profits dry up, the ex-change of property in markets shuts down, and the capitalist system dies.

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 14 percent of all of the economic growth, raising the question of what was responsible for the other 86 percent. This mystery led economist Moses Abramovitz, for-mer 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.”3

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 ther-modynamic efficiency of energy use. They found that it is “the increas-ing 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, “en-ergy” is the missing factor.4

A deeper look into the First and Second Industrial Revolutions reveals that the leaps in productivity and growth were made possible by the com-munication/energy matrix and accompanying infrastructure that com-prised 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 opera-tions 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 in-ternal 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 infrastruc-ture to move the resource from the wellhead to the refineries and gasoline stations.

This is what President Barack Obama was trying to get at in his now-famous utterance during the 2012 presidential election campaign: “You didn’t build that.” While the Republican Party opportunistically took the quote out of context, what Obama meant was that successful businesses

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