Waking up to the new world of the Third Industrial Revolution [Big Read]

There is little doubt that as climate change visibly devastates the world we desperately need new economic ideas and cultural models.

These new paradigms should help us move rapidly to avert the worst effects of global heating as well as giving us a positive overview of what lies ahead.

Every era and each generation produces its own pathfinders – the guides who help to lay out road maps for progress. At the end of this Fossil Fuel Age, Jeremy Rifkin is one of our most inspiring sherpas.

Rifkin is an economist and progressive thinker, whose book “The Third Industrial Revolution: How Lateral Power Is Transforming Energy, the Economy, and World” is helping to reshape economic strategy in the EU, China and other parts of the globe.

He is not only senior lecturer at the Wharton School’s Executive Education Programme at the University of Pennsylvania and president of the Foundation on Economic Trends in Washington but also author of 19 books and a tireless advocate of the need for every country and corporation to wake up to the profound economic shifts happening right now.

Falling productivity

The current industrial revolution is running out of momentum and nearing the end of its useful life while globally, economies are in crisis. Falling productivity, slow growth, rising unemployment and steep inequality together with rapid exhaustion of natural resources demands new forms of economic life.

Scientists continue to warn us that as the planet heats up and we continue to overuse our natural resources, we are now in the sixth extinction wave in the history of the planet. The last one was 65 million years ago and we’ve been around in our current form for less than 200,000 years. We are not guaranteed a place on the planet.

We need to move fast but with the right political will and cultural shifts, Rifkin believes we can create sustainable, efficient and more balanced economies across the world.

He says that there are three defining transformative technologies which emerge and converge to create a revolution in infrastructure that fundamentally changes how we manage, power and move economic activity.

Looking back, we can see that the first industrial revolution was marked by steam-powered printing with cheap energy in the form of coal and the steam engine that transported the coal. Similarly, the second industrial revolution, led by the US, saw centralised communications – telephone, radio, TV – meshed with cheap energy from oil, that powered the combustion engine and road networks.

Three prime technologies

Rifkin argues that a Third Industrial Revolution is now emerging, based on the convergence of three prime technologies – “a digitalised Communication Internet, a digitalised Renewable Energy Internet, and a digitalised Automated Mobility Internet.”

So, the new communication technology more efficiently manages economic activity while new sources of energy more efficiently power economic activity, and new transportation and logistics more efficiently move economic activity.

We can easily recognise the first of the three, embodied in the smart phones that we use to share, buy, sell and learn. The other two elements are just starting to emerge – decentralised renewable energy structures and automated transport infrastructures.

Why is this so important? Well, we know that GDP is falling around the globe as productivity continues its long-term decline, from peaks in the early 1990s – with the severe effects on employment, particularly among young people. Economists forecast currently that this slow-growth pattern will continue for the next 20 years.

And the reason for this decline is an in-built problem with the economic system that cannot deliver better aggregate efficiency.

Rifkin explains:

“Aggregate efficiency works the same way in economic production as it does in nature. When a lion chases down an antelope and kills it, only about 10 to 20 percent of the entire energy in the antelope gets embedded into the lion; the rest is heat lost in the transition. So the lion’s aggregate efficiency is only 10 to 20 percent. If it could consume more of its prey’s energy, or use less of its own in the hunt, the lion would gain productivity as a predator.

“Economists are now learning that aggregate efficiency is a critical determiner in productivity growth. In the past, economists have missed this because they have not been trained in thermodynamics; chemists, engineers, biologists, and architects get it.”

Aggregate efficiency is the third part of the productivity mesh, along with better machines and better performing workers, which drive economic progress. And as Robert Solow, Nobel prize winner for economics in 1987 said, the latter two actually account for only 14% of increased productivity, with aggregate efficiency the other 86%.

And businesses working within the second industrial revolution infrastructure cannot significantly increase aggregate efficiency and productivity in managing, powering, and moving goods and services through the value chains.

Good news

But the good news is that in the Third Industrial Revolution, the energy saved at each step of the digital manufacturing process globally, from reduction in materials used, to less energy expended in making the product, should see extraordinary increases in energy efficiency, dwarfing those seen in the first two industrial revolutions.

If you then add to this the generation of renewable energy on site to power production processes the full impact of these gains is clear.

Rifkin says:

“Since approximately 84 percent of the productivity gains in the manufacturing and service industries are attributable to increases in thermodynamic efficiencies — only 14 percent of productivity gains are the result of capital invested per worker — we begin to grasp the significance of the enormous surge in productivity that will accompany the Third Industrial Revolution and what it will mean for society.”

Underlying everything – the Internet of Things

In the Third Industrial Revolution, the three Internets – communications, energy, transport – actually flow on top of an “Internet of Things” infrastructure, transforming economic life.

Sensors embedded in every device and appliance will enable communication with each other and with internet users, providing timely data to inform that management, powering, and moving of economic activity.

There are more than 14 billion sensors attached to warehouses, road systems, factory production lines, the electricity transmission grid, offices, homes, stores, and vehicles – and this number is growing at every moment. By 2030, it is estimated there will be more than 100 trillion sensors collecting and transmitting data.

These sensors are continually feeding Big Data into the Communication, Energy and Mobility Internets, which will fundamentally transform the way we manage economic activity.

This Big Data and analytics is being used by companies and governments to develop algorithms that can increase productivity, address climate change and dramatically lower the cost of producing, distributing, consuming, and recycling goods and services.

For Mark Sait, CEO of SaveMoneyCutCarbon, the harvesting of data and its smart application to maximise the efficiency of energy systems is crucial to long-term sustainability of any business, organisation or home.

He says:

“As we move into the Third Industrial Revolution, we’ll be also be using apps to control every device, monitor and manage all systems, with exactly the right data we need to make the best choices.

“Energy efficiency will be the reason we can build a better, more sustainable way of life. Using less to achieve more is surely a sane way forward, great for our economies, great for our future and great for the planet.”

Near zero marginal cost

According to Rifkin, the marginal cost of some goods and services will even approach zero, allowing millions of people connected to the Internet of Things to produce and exchange things with one another for nearly free in a developing Sharing Economy.

Early examples of this new form are clear in a digital generation that produces and shares music, videos, news blogs, social media, free e-books and massive open online college courses at near zero marginal cost.

The crippling effects of the zero marginal cost phenomenon on the old entertainment and information companies was balanced by the birth of thousands of new enterprises – including giants like Google, Alibaba, Facebook, Tencent, Twitter and YouTube –  generating huge profits through new applications and building networks for the flourishing Sharing Economy.

Rifkin says:

“The Internet of Things will also allow conventional businesses to make and distribute their own renewable energy, share driverless electric vehicles, and make their own products using 3D-printers at a low marginal cost in the market exchange economy, or at near zero marginal cost in the Sharing Economy, just as people do now with digital information.”

Sharing economy

The smart digital infrastructure – ultra-fast 5G communication internet, renewable energy internet and driverless mobility internet, connected to the Internet of Things –  is enabling a new sharing economy, transforming the way we manage, power and move economic life.

Rifkin believes that in the sharing economy access replaces ownership, with providers and users in place of sellers and buyers while social capital becomes as important as market capital.

It could develop into a circular economy where goods and services are redistributed among multiple users, dramatically reducing society’s ecological footprint. At the same time, consumerism gives way to sustainability, and quality of life indicators are seen as important than GDP.

Smart Europe

Rifkin is a key advisor to the EU and his advocacy on the Third Industrial Revolution are actively reshaping the union’s economic models and infrastructure. Clearly, the EU is intensively focused on creating the conditions for a vast green digital economy.

The EU’s Smart Europe plan has the imprint of Rifkin’s ideas and lays out how the 350 regions will develop the detailed road maps for the three internets and the internet of things platform. In fact, in the north of France, Luxembourg, and the Netherlands the transition is not only active but is gathering pace.

Recognising the new opportunities and challenges in this new technological revolution, the governments of Hauts-de-France, the Grand Duchy of Luxembourg, and the Metropolitan Region of Rotterdam and The Hague are actively collaborating with Rifkin through his TIR Consulting Group.

The focus is on political governance that is distributed, collaborative, open and laterally-scaled.

They are pursuing plans that will transform their economic and political life. For example, the Rotterdam and Hague region has a 534-page plan with solid objectives and targets to migrate to a zero carbon economy over the next 40 years.

To make this work, the 23 municipalities have moved from a role as centralised manager to that of a lateral facilitator for stakeholders, including business, society groups, local government and academia, working as equal partners.

Energy efficient

Similarly radical, Luxembourg’s detailed plan was developed with Rifkin and more than 300 stakeholder groups.

It plans to refurbish and retrofit buildings and other infrastructure to make them more energy efficient with a high share of electricity, heat, and cooling generated by renewable energy technologies.

It has also introduced a feed-in tariff to encourage early adopters to transform buildings and property sites into micro-power generation facilities. The tariffs guarantee a premium price above market value for renewable energy generated locally and sent back to the electricity grid.

And Rifkin is also advising China, which has developed strategies in the country’s 13th Five-Year Plan modelled on the Third Industrial Revolution book, including a budget of billions on renewable energy investment, encouraging local communities to generate their own electricity within a smart grid system, with excess fed back into the grid.

Breathtaking transformation

The scale of the undertaking in the EU is breathtaking. The entire communication network would be upgraded with universal 5G broadband and free wi-fi while the old energy infrastructure of fossil fuel and nuclear will migrate to renewable sources.

At the same time, it will be essential to retrofit millions of buildings, converting them into micro power plants, with renewable energy harvesting installations, and building storage technologies throughout the infrastructure to balance intermittent renewable energy.

Every building would need to be equipped to mine Big Data, using analytics to create algorithms and apps that increase aggregate efficiency and productivity, reducing marginal costs at every point of economic activity.

Around this, a smart digital Energy Internet will take the place of the electricity grid to manage the flow of energy from the millions of green micro power plants.

We will see the full move to digital transportation and logistics, with millions of EV charging stations and thousands of hydrogen fuelling stations and countless sensors on smart roads, distributing information on traffic flows and freight movements.

In the UK, we’re also seeing the strategic commitment to long-term transformation of the economic infrastructure, focusing on 5G/fibre communications, renewable energy, AI and zero carbon.

Employment (not robots)

All this is very good news for the labour market over the next 20 years with the need for semi- skilled, skilled, professional, and knowledge workers to achieve the economic transformation.

It should not only create millions of jobs but also preserve countless existing jobs in manufacturing, engineering, electric utilities, transport and logistics, ICT, construction, and real estate sectors, as well as the retail and agricultural sectors.

There will be a need for extensive retraining and education that focuses on the appropriate skills needed.

The hope is that this new form of economic activity will not only create sustainable jobs but also reduce the inequalities that currently provide the conditions for just eight people to have as much wealth as half the world’s population.

Many challenges

It’s true that there are many challenges on the dark side, not least how to ensure network neutrality and equal access to the Internet of Things (IOT) platform, along with checks and balances that prevent governments from distorting the IOT, hobbling its efficiency.

There will always be a tension with the new monopolies of our digital age, as they seek to maximise their commercial advantage of data that is valued more highly than any other economic form. We need robust privacy frameworks and even more solid data security, and the best defences against digital crime and terrorism.

And there is only very limited time left to make the enormous number of changes needed to ensure we don’t move into a catastrophic period caused by global heating.

Change in consciousness

Rifkin says:

“We’re witnessing the birth of a new economic system: a hybrid of the existing capitalist structure and the sharing economy. Most of the goods and services that [make up our] quality of life will be much less expensive. It will be easier to broaden prosperity, without having to fight over scarce resources, in part because it will be much easier to make the most of the resources we have.

“Investor capitalism won’t disappear; it will live side by side with the sharing economy. In the emerging era, the cooperative form of business is being reinvigorated because of the lateral scaling advantages made possible by a digitally interconnected global economy with near-zero marginal cost.”

Rifkin’s vision, shared and developed by numberless others, is bold but he refuses to be saddled with the label of “idealist”. He is guardedly optimistic about our future but all too aware of the task ahead. In the Biosphere Era, as he names it, every citizen becomes a steward of the clean renewable energy that covers the Earth, paving the way to a more sustainable world.

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