Zero Marginal Cost

Is it possible that the slow growth in GDP since the Great Recession could be attributed to something other than economic stagnation? Jeremy Rifkin thinks so. He wrote a book titled The Zero Marginal Cost Society in which he cites trends suggesting that an economy is not accurately represented by GDP statistics.

Technology is reducing the marginal costs of goods and services. Rifkin includes books, music, electricity, 3D printing, and online education as examples. Distributed marketing, the exchange of goods and services via the Internet, is growing rapidly. He gives Etsy as an example of a website that is bringing together buyers and sellers globally at low marginal cost. He writes, “Currently 900,000 small producers of goods advertise at no cost on the Etsy website. Nearly 60 million consumers per month from around the world browse the website.”

Rifkin estimates that purchases are fewer in number as more people redistribute and recycle goods. “A growing legion of consumers are also opting for access over ownership of goods, preferring to pay only for the limited time they use a car, bicycle, toy, tool, or other item, which translates to less GDP… The point is, while economic stagnation may be occurring for many other reasons, a more crucial change is just beginning to unfold which could account for part of the sluggishness.” Rifkin cites Airbnb, Uber, and other recent enterprises as evidence of a transformation from ownership to access, with access being the end goal, achievable in a shared economy.

Rifkin refers to this emerging economy as the Collaborative Commons. He foresees “the slow demise of the capitalist system and the rise of the Collaborative Commons in which economic welfare is measured less by the accumulation of market capital and more by the aggregation of social capital,” – the term he applies to the myriad formal and informal institutions that comprise what is often referred to as civil society.

The “zero marginal cost” of the book’s title is the result of what Rifkin calls the “ultimate contradiction at the heart of capitalism,” which is driven by the enduring quest for greater productivity. “The process 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 momentum until it approaches the finish line, where the optimum efficiency is reached and productivity peaks. That finish line is where the marginal cost of producing each additional unit is nearly zero.”

While this process would severely reduce profitability, Rifkin does not expect capitalism to disappear, but will shrink to serve only consumers of specialized products and services. He foresees capitalism will not be the dominant economic paradigm by 2050.