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Abstract
In Europe, a new paradigm is emerging and it is shifting the global market from capitalism to a collaborative economy. Since monopolists have always created an unhealthy environment that discourages innovation to retain their market share, Rifkin (2014) believes that small businesses will find new and innovative ways of going around this challenge. In the new era of the information economy, no enterprises will have direct control over who produces and owns products. However, it will take time, and the European Union members are preparing for this change by encouraging manufacturing industries to usher in a new era of zero marginal cost economy and the “Internet of Things”.
Introduction
Globally, machines are expected to change the way humans view the world. Jeremy Rifkin, an iconic social scholar, the future will experience drastic changes where machines will replace human labor, infringe on personal privacy, and create a platform that supports the emerging trend of the economy where consumers prefer sharing goods and services. Consequently, a new paradigm is set in and it is set to destroy capitalism before the end of the 21st Century. This paper forecasts changes that are expected to take effect not only in Europe but also in other parts of the world. For example, in Germany, the energy sector is setting the pace by introducing a transformation mechanism to usher in a new economic paradigm. In the new world of the “Internet of Things”, machines will be autonomous to the extent of making their own spares, thus eliminating the need for human involvement. Machines will be connected to the “Internet of Things” and will be powered by an alternative source of power such as the sun, thus allowing them to run efficiently at almost zero cost. New evolutional machine technology is almost setting in where machines will be self-organized in a common network infrastructure that will support them to operate in a pervasive intelligent way like human beings.
Zero marginal cost in the renewable energy sector
By considering Rifkin’s (2014) arguments, businesses must change their strategic policy to remain competitive in the coming decade. For instance, driving the cost of production to nil implies that the cost of most goods and products will go down significantly. Consequently, the businesses’ ability to sustain profitability, in the end, will be affected adversely. In fact, if this projection were to happen, capitalism would have destroyed itself. According to the European Business Review (2015), the new paradigm of zero margins of cost does not support capitalism, which encourages individualism and a materialistic economy. Therefore, the European nations should be ready to usher in the changes that encourage civilization based on communitarianism. Other cheaper sources of energy will eventually take the place of conventional fuels. At that time, the cost of energy will go down in nearly all spheres spanning from business world to individual consumption. Even more interesting, in the coming decade, Warren and Apsimon (2000) argue that the marginal cost of producing additional power shall be free. A good example is in the UK where almost every home and business premise have transformed into a micro-power plant where the renewable source of energy is harvested through solar power. This move supports Rifkin’s stance as he predicts that 80 percent of electricity in the economy will be generated through solar energy.
The German energy sector is a good illustration of what is expected to come in a few years’ time. Currently, the German economy is relying on 27 percent on wind and solar renewable energy (Boisvert, 2013). The government estimates that by 2020, 35 percent of electricity will be generated from renewable wind and solar energy (Boisvert, 2013). The production and usage of renewable energy are on the increase in the contemporary times majorly due to the low costs associated with such form of energy generation. In fact, the cost of producing renewable energy has been going down in the last one and half decades courtesy of the emergence of novel technologies in the industry. Notably, in France and Germany, the cost of generating a single watt of solar energy was $76 in 1977(Boisvert, 2013). However, this cost has plummeted over the years to an estimated $0.36 by 2014 (Boisvert, 2013). The only challenge associated with the production of renewable energy is the initial cost of installation. After recouping this cost, the running expenses are almost zero. In the next few years, many countries within and outside Europe are likely to switch to lower-cost renewable solar and wind energy.
The majority of European nations now prefer solar and wind energy to fossil and nuclear power. The real impact of almost zero marginal cost of energy will have enormous consequences for businesses. Rifkin’s argument is highly possible considering that the sun generates 470 exajoules of energy every 88 minutes (Andersson & Mattsson, 2015). If all countries could tap one-fifth of one percent of the sun’s renewable energy, then zero marginal cost is real. In a recent study by the Stanford University, “it was noted that if the world were to harvest and use 20 percent of global wind, it could potentially generate five times more electricity than what is currently consumed globally” (Rifkin, 2015, p. 3). Therefore, zero marginal cost in renewable energy will enable consumers and businesses across Europe to monitor and optimize electricity consumption. Although renewable energy is yet to be fully tapped in Europe, it is expected that in most economies, vertically integrated power companies will adapt to the changing paradigm in the next few years. According to Saint (2015), Peter Terium, the CEO of a Germany-based Energy Company, echoes these sentiments by noting that in the future, the centralized power sector will turn to the distribution power supply.
The booming number of small electricity-generating companies across Europe has been facilitated by the realization that the energy sector can also be democratized. The future of small power firms’ income will be subject to the efficiency of handling the consumption of energy amongst their client base. Firms will collect huge data from their client and use it for analysis in order to increase overall efficiency by reducing marginal cost. Power generating companies will only profit more if they can efficiently manage energy by selling less. The zero margin cost energy has five pillars that must be interwoven in order to operate efficiently. The introduction of feed-in tariffs should be encouraged in order to promote users to turn their business premises into power-generating facilities. Therefore, the European nations will enjoy almost zero cost of energy, thus increasing productivity and efficiency in the economy. It will also encourage sustainable economic growth in the future. In particular, Germany has encouraged feed-in tariffs by reducing the fixed cost of generating renewable electricity.
The Creation of mass employment and new business opportunities
The EU forms part of the biggest consumer markets with more than half a billion consumers. With the emerging “Internet of Things” platform connecting the European nations and the esteemed customers, the “Internet of things” will allow both business enterprises and consumers to interact effectively. Moreover, it will allow the distribution of information, 3D printed products, and other products to be produced at nearly zero marginal cost with untold economic benefits for businesses. In order to achieve this target, the European nations should create an infrastructure that allows sharing of information efficiently.
In 2012, the European nations injected $ 741 billion into infrastructure-related projects. If this money were to be redirected towards the “Internet of things” infrastructure, a zero marginal cost economy could be achieved before 2040. However, this move would require a dramatic advancement of the communication networks in Europe in a bid to improve accessibility and reliability across the entire region. Sources of energy will have to be reconfigured from fossil fuel the cheaper renewable solar and wind energy. Storage technology “using hydrogen will have to be installed in the new infrastructure” (Solar News, 2015, par. 7). In addition, the energy grid in the region will require significant changes in a bid to accommodate the new form of renewable energy, which will come in huge amounts. Similarly, the transportation industry will have to undergo massive changes to accommodate digitized frameworks that can allow seamless running of operations. It will also require the European countries to build many charging stations before the introduction of electric transportation. In essence, all transport systems will have to be reconfigured in a bid to accommodate the emerging trends in the industry. These processes are tiresome and they involve a huge investment of capital. However, the European Union can engage giant companies with small players to introduce and manage the “Internet of Things” platform.
This process requires employees management, and thus it would create million of jobs for youths in Europe. The “Internet of Things” will also create enormous business opportunities for small, medium, and non-profit businesses by allowing them to produce goods and services at low marginal cost or nearly zero marginal cost. The process of shifting from the use of conventional fossil fuels to the emerging renewable sources requires huge labor costs. Therefore, it will create additional job vacancies and spawn millions of opportunities. New business opportunities will arise for energy-saving companies. In addition, “the installation of new storage hydrogen technologies to support the flow of green electricity will probably generate hundreds if not thousands of job opportunities and the reconfiguration of the European electricity grid will generate a million opportunities and give rise to web-app start-up enterprises” (Solar News, 2015, par. 11). In conclusion, the installation of smart digitalized “Internet of Things” infrastructure will create millions of job opportunities and present enormous business opportunities. In addition, the new infrastructure will create a multiplier effect in the economy, thus increasing the European Union GDP.
Rise of sharing economy
Traditional capitalism is becoming more productive and competitive due to the developing digital infrastructure. In fact, it is driving the European Union’s meteoric growth into a sharing economy. The sharing economy relies on capitalism for financial capital and sustainability, which supersedes consumerism. Capitalism is now increasingly supplemented by shared values through the cooperation of different sectors. Currently, the growth and proliferation of the Internet and technology have created a form of connectivity that allows consumers to share goods and services at a minimal marginal cost. For example, in contemporary American society, consumers are adopting the culture of sharing items with approximately 40 percent of the population involved in this practice. Mazumder (2012) posits that in New York City, 416,000 travelers are accommodated in individual apartments due to using online services such as the Airbnb website. In fact, from 2012 to 2013, hotels managers estimated that they had lost more than 1 million room nights to these websites. These websites allow travelers to contact dwellers who host them in their homes at almost zero marginal cost.
A comprehensive study released recently underscored sharing economy when it found that 62 percent of millennials encourage the sharing of goods and services (Rifkin, 2015). In another survey conducted in France, respondents noted the aspect of low costs, which directly lead to money-saving, features as one of the top advantages of sharing items (Rifkin, 2015). This realization is a clear indication that the world is moving into a sharing economy. This notion is supported by another research that required the respondents to predict their sharing behavior in the coming decade. The researchers noted that 75 percent of respondents were confident that the trend of sharing would gain popularity in the coming years.
The distribution of 3D printed goods and services
Virtually, the European Union industries are expected to integrate the “Internet of Things” infrastructure by phasing in zero marginal cost of goods and services. Some countries like France, Germany, and the UK are introducing new generation micro 3D-printing technology that is dramatically increasing productivity at almost zero marginal cost. This platform is enabling small and large enterprises to gain competitive advantage against invincible global corporate. The 3D domain encompasses the manufacturing of goods and services that accompanies IT economy (Groth, Esposito & Tse, 2014). These printers have software that directs molten feedstock that allows the build-up of physical products. These machines can be set in a way that allows the production of numerous diverse products. Indeed, “3Dprinters can now be used to produce airplane parts to human prostheses and jewelry” (Steffes, 2014, par. 14). Gruevski (2013) highlights that hobbyists are opting for cheap printers to print their own products. 3D printing is very distinct from the conventional practices employed in the common manufacturing industry. In traditional manufacturing, raw materials undergo sophisticated and time-consuming procedures before turning into the finished product. In most cases, a substantial amount of work-in-progress is wasted, which is then not part of the final product. However, in 3D printing, the software redirects molten material into the final product by adding one layer after another. Consequently, the 3D production process is seen as more efficient and productive than traditional manufacturing. Players in the manufacturing industry predict that 3D printing will grow by an estimated 106% within European Union by 2018 (Frischmann & Hogendorn, 2015). Interestingly, 3D printers “can produce their own spare parts without necessarily investing in expensive retooling” (Solar News, 2015, par. 17). This aspect saves time by avoiding delays due to breaking down. Boulos, Tsouros, and Holopainen (2015) conclude that traditional manufacturers use expensive fixed production chain designs for mass production, which cannot compete with a single 3D printer. These printers have the capacity to produce customized products at a very low marginal cost. Currently, 3D printers are being used in different industries including the construction industry and the health sector among others. In addition, the machines are being used in the recycling business where different items made of different materials including metal and plastic undergo recycling for reuse. This kind of printer can power itself by harnessing the renewable source of energy, which lowers the marginal production cost.
Considering the current rise in fuel and nuclear power energy, most small and medium enterprises in the European Union are powering their enterprises with a renewable source of energy that has almost zero marginal cost. Installing the “Internet of Things” infrastructure gives small enterprises a critical advantage over the centralized traditional enterprise as they can power their business with the energy Internet. This energy has nearly zero marginal cost, which enables businesses to break even fast. Moreover, it allows small enterprises to reduce the production and logistics costs significantly. Dlodlo, Foko, Mvelase, and Mathaba (2012) propose that 3D printing will change the way enterprises manufacture their products by enabling those who own, control, and produce, thus making the production of some goods irrelevant. In the future, most manufacturing firms in Europe will grow significantly. However, they will experience major “transformation due to the democratization of manufacturing, which favors small and medium enterprises and the manufacturing industry is also expected to witness major partnership between giant players and small to medium enterprise in a collaborative network” (Solar News, 2015, par. 19). Although small to medium enterprises will take advantage of the new paradigm, giant industries will remain competitive by aggregating and efficient management of product distribution.
Zero margins in transport and logistics
In Germany, the “Internet of Things” plays a significant role in redefining the transportation and logistics industry. Khosrowpour (2000) expresses that this platform supports the transportation of goods and services at a low marginal cost. However, in a bid to allow smooth flow of goods and services, numerous recharging points will have to be in place for motorists to recharge when necessary. Secondly, information sensors have to be installed across the logistic line in order to ensure an up-to-date flow of information within the value chain. Finally, physical goods will have to be standardized in a logical way that allows the effortless follow-up of goods across logistic lines like the way information flows in the World Wide Web.
Conclusion
The falling of marginal costs of production will be a game-changer in the world of business. Consequently, businesses will make low profits due to excessive competition. If this were to happen, capitalism will have destroyed itself. The new paradigm of zero margins of cost does not support capitalism, which encourages individualism and a materialistic economy. Therefore, the European nations should be ready to usher in the changes that encourage civilization based on communitarianism. The introduced decentralization of industries and alternative sources of energy will encourage a sharing economy. Moreover, it is expected that 3D printing will rise since it is effective and efficient, thus lowering the production cost to almost zero.
References
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Dlodlo, N., Foko, T., Mvelase, P., & Mathaba, S. (2012). The State of Affairs in Internet of Things Research. Electronic Journal of Information Systems Evaluation, 15(3), 244-258.
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Frischmann, M., & Hogendorn, C. (2015). Retrospectives: The Marginal Cost Controversy. Journal of Economic Perspectives, 29(1), 193-206.
Groth, O., Esposito, M., & Tse, T. (2014). Swarm Economics: How 3D Manufacturing Will Change the Shape of the Global Economy. The European Business Review. Web.
Gruevski, I. (2013). Effective marginal tax rates on corporate income in the republic of Macedonia. Economic Development, 2(3), 129-146.
Khosrowpour, M. (2000). Challenges of Information Technology Management in the 21st Century. Hershey, PA: Idea Group Publishing.
Mazumder, S. (2012). European Inflation and the New Keynesian Phillips Curve. Southern Economic Journal, 79(2), 322-349.
Rifkin, J. (2014). The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons and the Eclipse of Capitalism. New York, NY: Palgrave.
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Illustrations using the Abatement Strategies Assessment Model (ASAM). Journal of Environmental Assessment Policy & Management, 2(1), 119-21.
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