The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons and the Eclipse

of Capitalism

Chapter I: The Great Paradigm Shift from Market Capitalism to Collaborative Commons

The capitalist era is passing.

The collaborative commons are rising its way and can definitely change our lives.

Today’s economy is hybrid. Part Collaborative commons, part capitalism. Sometimes they compete
but mostly they go intended.

They add value one from the other, trying to absorb each other and replacing it.

Even in this early stage of the paradigm shift we can appreciate how the capitalist system including
the complicated global trade functioning of today has peeked and has begun a descent.

The change to Collaborative Commons is taking force and even though capitalism wont’ disappear
it will not be the dominant economic system for the rest of the century.

Capitalism has had a short timeline comparing to other economic paradigms but its impact has
been bigger than any other in world’s history.

Capitalism is being demolished by the dramatic success of the very operative assumptions that
govern it. The driving mechanism that has propelled it to the commanding heights where it is now
it’s itself a contradiction. It’s necessary to clarify that all of this economic paradigms are made up
by humans, they are not part of nature.

Capitalism consists in bringing every part of human’s life to economic arena and transforming it
into a commodity for being trade in the market. Everything now has been thrown into the
capitalist system and assigned a price.

Today every aspect of our life is related to commercial trade. The market define us. But there in
lays a contradiction.

Capitalism’s operative logic is designed to fail while succeeding.

In The Wealth of Nations, Adam Smith says that capitalism operates the same way as the laws of
gravity. As in nature (for every action there’s a reaction), supply and demand balance each other
through the free self-regulating market. Also, Jean Baptiste says as same as the law of inertia, once
the economic system is set in motion it will remain in motion i.e. the creation of a product will
open the market for a lot of new products. And, as most of neoclassicists say as a law, the increase
of technology allows the growth of production and the decrease of cost. The increase of supply
creates more demand lowering the prices, making the opposition create new technology to sell at
lower prices. That works as a perpetual cycle, increase of productivity and lower prices make the
consumers have more money to spend elsewhere. That creates competition between sellers.

The problem is that this assumptions work in a competitive market. Whenever a seller is capable
of eliminating the others and creating a monopoly or oligopoly, especially when he produces
essential products, he’ll keep the prices artificially high. In this case, knowing the lack of choices by
the buyers, the seller has no interest and need in creating new technologies to increase
productivity and become more competitive. This has happened along all history, but in short
periods of time. In long term, new competitors tend to appear and introduce new technology and
lower prices with alternative or new goods, breaking the monopolist’s power.

Taking these assumptions into the capitalist market logic, we’ll reach an extreme productivity and
we’ll get to the point economists call The Optimum General Wealth. Then, according to
capitalism’s logic new technologies will lower the marginal cost of every market nearly to zero.
That will make the goods almost free, disappearing profit, the vital part of capitalism.

The Zero Marginal Cost phenomenon has already happened in the publishing, communication and
entertaining industries, where tons of data has been put for free at the reach of billions of people,
being its only cost the time invested in producing it and the time and effort of uploading it. All that
data and the one produced by almost a third of the population with cellphones, personal
computers and cheap electronic devices are being put available at nearly zero marginal cost. That
constructs the collaborative network world.

Nowadays, the zero marginal cost phenomenon is reaching other industries such as renewable
energy, 3D printing manufacturing and online higher education. In that way prossumers
(consumers that create their own goods at near zero marginal cost) are creating green energy,
manufacturing their own goods and taking courses held by the most prestigious professors in the
worlds online.

Even when the upfront cost for this sectors is still relatively high and their marginal cost near zero,
they are presenting exponential growth curve. That will make that in the next two or three
decades, prossumers will be supplying the world with nearly free goods produced at nearly zero
marginal cost.

The leaders of zero marginal cost revolution assure that nearly free goods will become more
prevalent and will create more opportunities for other products at a sufficient profit margin to
maintain growth and even allow the capitalist system to flourish.

Chris Anderssen former editor of Wired magazine remind us that giveaway products draw
potential consumers to buy other goods. Today in the music industry, artists accept giving their
albums for free on the internet expecting to create consumers that will pay for concerts. The same
strategy is utilized by The Economist, displaying percentages of articles on their website but
knowing that consumers willing to have extra data will pay the subscription. The free goods are a
marketing device to build the customer base for pay purposes. This is short-sighted and perhaps
naïve.

As more and more of the goods produced with nearly zero marginal cost become available almost
free in the market, the capitalist market place will shrink into narrow niches, making the profit
making enterprises survive in the edges of economy thanks to a diminishing customer base and,
specific and specialized needs.
The reluctance to adopt a nearly zero marginal cost is understandable, a big part if not all the
commercial arena can’t imagine how economic life can exist in a world where everything is nearly
free. Profit is defund, property is meaningless and the market is superfluous.

This problem was already glimpsed by some of the architects of modern economic thinking. They
wondered whether new technology could so boost productivity and decrease costs as to create
the coming state of affairs. Oscar Lange captured the sense of the conundrum underlining a
mature capitalism where the search of new technologies put the system in war with itself. He
asked in 1936 whether the institution of private property of the means of production will continue
indefinitely to foster economic progress or whether at a certain technological development the
very success of the system will become a shackle to its own future advance. So, when an
entrepreneur introduces new technology he gains temporary advantage over competitors that are
forced to introduce new techniques to lower prices to avoid the depreciation of their old
investment, and so on. But in mature industries where some companies had managed to grab
parts of the market, they will defend that position avoiding the introduction of new technologies
by the competitors.

The shift from the medieval economy to the capitalist economy brought problems to the notion of
property. According to John Locke’s rights’ theory everything added to nature by someone’s own
labor became his in the form of private property in this way, every product offered in the market
was product of a family’s labor. However, when capitalist era arrived, the craft man quitted to that
ownership of its labor taking a percentage in the form of wage. The rest became property of the
company as profit. Also ownership was transformed to stockholding investors, whose labor never
went into the product at all, and that even without knowing about the management of the
company they still received dividends from the profit appropriated from the workers’ surplus.

Were the workers being deprived of their natural right of full ownership and dispossessed of the
products they created with their own labor?

Feeble attempts tried to justify the appropriation of workers’ surplus value by saying that capital is
a stored labor added by stockholders later to the process.

Richard Schlatter stated that the classical school starting in the assumption that labor was the
creation of property was unable to construct an economic theory being both consistent and not
leading to the conclusion that the man who profited without working was robbing the workman.

Socialist militants gaining voice in those years picked up on the contradiction. Socialist pressure
made classical economists debate between the classical school and the new and bulging capitalist
system. The economists finally decided to abandon John Locke’s Natural Rights law and search
another law or principle to fill the void. They found it in David Hume and Jeremy Bentham’s theory
of Utilitarian Value. Hume argued that property is a human convention inside born out of common
interest but that leaded to a general system or plan of actions according to reach a public utility,
saying that men followed the “laws of property” codes because they’re inside common interest.
Hume accepted John Locke’s theory but argued that private property should be encouraged not
because it was a natural right but because it was useful practice, and that every good should be
traded in the market place because it was beneficial to human society.