The Third Industrial Revolution: How Lateral Power is Transforming Energy, the Economy, and the World

The Third Industrial Revolution: How Lateral Power is Transforming Energy, the Economy, and the World by Jeremy Rifkin  (Palgrave Macmillan 2011)

This is a very important and very new book by a stellar economic and futuristic thinker and activist. This book is about our changing situation and how it might re-manifest into a new form. Revolutions according to Rifkin are centered around new forms and relationships of energy and communications. This book is Rifkin’s “narrative” as to how this new post-carbon ‘Collaborative Age” may come about.

Rifkin sees this change coming about over the next 50 years give or take. The hierarchical and centralized business models are slowly giving way to what he calls ‘distributive business practices’ and what he calls ‘lateral power.’ This lateral power is a collaborative power. One important venue for the unleashing of this collaborative power is in the joining of internet technology and renewable energy. The possibilities for the new “smart grids” to collect and distribute energy, he says, will be a big factor in making these new relationships.

He notes that oil prices are based ultimately on supply and supply is dwindling and finite so prices continue to rise overall and this affects prices for food and our other basic needs. Eventually a tipping point will come when renewable energy sources will be more rewarding, especially to implement on the small scale in localized and regional networks. This is already happening all over Europe and some in the US but as technology gradually gets better and fossil fuel supply drops more it will be developed to greater degrees of input and efficiency. Actually I think it may take a little more than the 50 years but this depends on overall demand for energy around the world.

Rifkin refers to the so-called financial crisis that began in July 2008 as “peak globalization.”  This he calls the limit of economic growth in the fossil fuel age. He also calls this “global peak oil per capita,” which means ‘peak oil’ when averaged among the people on the earth. Actual peak oil production for the entire world is predicted sometime between 2010 and 2035 depending on who you ask. It may have occurred in 2006 as the International Energy Agency (IAE) states. But peak oil per capita is thought to have happened back in 1979 so according to that scenario the whole Second Industrial Revolution dependent on fossil fuels peaked then and has since been declining.

Rifkin describes the newer generation growing up with “social media” as living in world where the emphasis is on “transparency, collaborative behavior, and peer-to-peer relations.” He sees the recent upheavals in the Middle East as the transformation from patriarchal power structures to lateral power – being powered in a big way by the networking potential of the internet and social media. He says that the Second Industrial Revolution also peaked in the 1980’s with the completion of the Interstate Highway System in the U.S. when construction in suburbia bloomed. The communication revolution of the 1990s did not totally pan out and so the dot com bubble burst and later when people began spending more of their savings the sub-prime mortgages were offered with no downpayments which resulted in the current crisis. Of course, these were predatory lending practices offered to people who should have known better. Anyway, he says all this – including the current unemployment problems, is due to the deceleration of the Second Industrial Revolution. He calls the “entropy bill” for the Second Industrial Revolution the global warming thought to be occurring. Rifkin, along with many scientists and policy makers, makes the assumption that global warming and uncontrollable climate change is happening at full tilt with all the potential accelerations and catastrophic effects. Whether this is happening at such a rate or not it is certain that fossil fuel pollutes, is finite, and is likely to increase in cost as time goes on.

Obama’s vision of a green economy seems to have fluttered – perhaps bogged down by pilot projects and siloed programs. Pilot projects do not get the advantages of ‘scale up’ and so costs are typically higher at the pilot level. The ‘silo effect’ refers to isolated (usually pilot) projects that don’t incorporate synergies and holistic input.

Rifkin notes that steam power and printing merged in a First Industrial Revolution to create fast and cheap newsprint which resulted in mass literacy with public schooling further aiding a literate work force. The Second Industrial Revolution resulted from the convergence of electrical communication and the oil-powered internal combustion engine. Cars, electrified mass production factories, telephones and their infrastructure, radio, and television – then the highway networks and the population settling along their nodes – complete the picture. In the Third Industrial Revolution (TIR), “... hundreds of millions of human beings will be generating their own green energy in their homes, offices, and factories and sharing it with one another across intelligent distributed electricity networks – an intergrid – just like people now create their own information over the internet and share it on the Internet.”

He gives the five pillars of TIR as: “1) shifting to renewable energy; 2) transforming the building stock of every continent into micro-power plants to collect renewable energies on-site; 3) deploying hydrogen and other storage technologies in every building and throughout the infrastructure to store intermittent energies; 4) using Internet technology to transform the power grid of every continent into an energy-sharing intergrid that acts just like the Internet and; 5) transitioning the transport fleet to electric plug-in and fuel cell vehicles that can buy and sell electricity on a smart, continental, interactive power grid.” This all requires massive investment and initially the rewards will not be big – but gradually they will grow.

Rifkin sees “grid parity” – where the cost to generate renewable energy becomes the same as the cost to generate an equivalent amount of fossil fuel energy – happening in Europe in 2012 and maybe a bit later here as Europe is way ahead on TIR infrastructure. The mix of renewable energies includes solar, wind, hydro, geothermal, and biomass. Ethanol is not included in biomass since it takes as much energy to make it as it puts out. “Feed-in tariffs” have given green energy providers a price advantage. The observation that fossil fuels are only in certain places but green energy is available everywhere (though in differing amounts) makes it potentially attractive as a universal pastime. Wind farms and solar parks will no doubt be built but so too will renewable energy collection and distribution systems in most business and residential areas. Another incentive is the “green mortgage” where solar or other renewable energy would qualify one for reduced interest rates and later when payback on the renewable system is reached, that along with sellback to the utility could be leveraged against the mortgage. Creating the massive infrastructure would create many construction and installation jobs and create “millions of mini energy entrepreneurs.”

The third pillar – energy storage – is key to this set-up working but is yet to be established with any certainty and in any mass way. Presumably the technology is available (although Rifkin does not seem to make this clear) it just has to be implemented, better tested, and then mass implemented. Storage via hydrogen will make the so-called “net zero metering” more of a profitable reality.

Smart grids are essential for measurement and reduction of waste – for most utility systems – electric and water in particular. These are good investments for many reasons and will be implemented throughout the world as time goes on. Energy trading via internet could be profitable in bits as if and when prices change due to differing demand at various times of the day or in different weather. The best time to sell back to the grid would be at peak usage times which would also be the best time to conserve. The early idea was for a ‘centralized smart grid’ but now a ‘distributed smart grid’ seems more useful in that digitalized information can be up-to-the-minute. Advance electronic controls to allow the quick movement of these bursts of energy from storage to the grid will be required. IBM is a leader here as they are in water recycling technologies. Another notion that would likely happen is that of “unbundling” or “separation of the supply and retail business from the monopoly infrastructure.” This unbundling – particularly of the generation and transmission sides of the utilities, along with the mini energy entrepreneurs would be akin to the “democratization of energy” and the breakup of centralized utility monopolies. I don’t think this will happen quickly and without opposition and some chaos. New business models are required for these processes where energy management and information management become specialized. Apparently, IBM’s plan is for a reformist smart grid in the states and a revolutionary one in Europe who is ahead in development of a TIR infrastructure as well as being a more suitable venue for distributed power system.

The fifth pillar – plug-in transport – further turns the micro-power plants into electric and fuel cell vehicle charging docks. Parking lots and garages could be outfitted with charging docks as well as the $1000 residential ones that could soon be sold. Hydrogen fuel cell vehicles have energy storage capacity and could potential sell energy back to the grid when the price is right for a net gain. So in the final set-up the five pillars are synergized and optimized.

Rifkin goes on to give many examples of meetings of government heads and business leaders in Europe and of specific projects in Rome, San Antonio, the small kingdom of Monaco, and the city of carbon-zero city of Utrecht in the Netherlands. Each area has its own strengths, weakness, and idiosyncrasies.

Rifkin refers to fossil fuels as ‘elite’ simply because they are found in select places but also they spawned an elite form of management to assure their availability and control. This required mass concentrations of capital and worked well with a top-down centralized hierarchichal power structure. He goes through the history of discovery then the building of infrastructure – particularly the railroad systems – which employed many people and made possible many new enterprises. The telegraph emerged alongside the railroad. This allowed massive flow of commerce and decreased transaction costs. The result was the proliferation of brand name products (the same ones that are poisoning us now) and bigger business chain stores that could build up massive inventories and ship them all over. Economies of scale arose. Workers and management were separated and worker efficiency was optimized. This was the centralized and rationalized business model. This model carried over from the First to the Second Industrial Revolution as oil companies, auto companies, and telephone companies jumped into the model. Profitability eventually led to a very wealthy elite that increased manifold from 1980 till now with big CEO pay – this made possible the 1% that OWS is now rightfully complaining about. Trickle down theories aside there is an obvious disproportionate benefit to these top managers.

According to Rifkin the new lateral and distributed energy regime that will arise will lead to a more equitable sharing of wealth. He goes through many of the changing business models that have arrived in recent years and beyond: the open-source movements, various media-sharing networks, information networks, social media and cyberspace commons, etc. Home energy production and marketing, so-called 3-D printing where people actually manufacture products at home with machines, and marketing of such products through on-line shops like Etsy could also spur profitable home businesses. He also mentions the personalization of relationships between buyer and seller through on-line networking and dialogue and conferences. The idea here is “empathic consciousness” to reestablish a sense of community in the worlds of business. This is in line with the TIR model of collaborative business practices. Micro-loans are another tool that has proven to be a great means to empower the poorest peoples and improve their living standards and ability to produce for their livelihood. This is more applicable to the poorer third world countries. This has proven to be a win-win for both lenders and borrowers. Other things he mentions are things like community-supported agriculture (CSAs), Zipcars and other urban car-sharing businesses, ‘couch-surfing’ – the networking of travelers and hosts who they stay with on their travels, and performance contracting and other shared savings agreements where efficiency and the eventual savings from renewable energy are built into contracts so that costs of greening will be mitigated and eventual benefits shared. Another model is that of ‘social business’ where profits are partially diverted to benefit the underserved.

He makes some interesting notes about the illusions of our so-called free market capitalism. He points out that government has always been involved in business and gives many examples including the developments of the highway system, the telephone/telecom business and infrastructure, and suburban housing construction via FHA loans. He also notes that that relationship was often hidden – particularly in the American version, perhaps to paint the illusion that the economic ideology (ie. free market capitalism) is the reason for success. The duality of capitalism good and socialism bad is illusory and detrimental and hides the fact that in practice all is a mix of these two theoretical ideological extremes. The power of financial influence and lobbying is well attested and a rightfully protested. We seem to demand a separation of market and state yet allow uncontrolled corporate influence of elections. Rifkin even suggests that our notions of Calvinism and hatred of big government contribute to a model of corporate greed where all regulation is seen as evil socialism. In contrast, he describes the nature of Third Industrial Revolution as:

“... an open and transparent collaboration between government, business, and civil society, which represents the interests of all the American people, not just those of a corporate elite.”

Not only are new business models emerging but also are new ways of thinking about politics. The tired American two party left vs. right system has long been dead in Europe. Rifkin talks about his meetings with Spanish president Zapatero and Zapatero’s new wave style of thinking that saw the need to dissolve the old hierarchy that was supported by the ethnic “machismo” of the culture. Network access to internet and social media has served to break down the ‘old orders’ of many types as people see that there are better and more functional ways to interact. Rifkin goes through many of his meetings in Europe with high level political people and heads of state and notes their variable political affiliations showing that overall a more flexible political foundation is becoming more necessary. It seems to me that in the US this duality has endured due to the greater apparent success of the economy and the lack of overall flexibility of the population. Rifkin thinks that the powerful big energy lobbies have slowed green energy development in America. This may well be so but ‘timing’ could also be a factor as green energy is not quite optimal yet in technological capability and cost effectiveness to be implemented on a mass scale.

Next he asserts the advantages of “continentalism” over “globalization.” Continents are connected by land and so by solid access and so continent-wide networks and models make better economic sense than global connections in several venues. This has the potential to function in business and politics as trans-regional unions are developed and refined. The European Union, the Asean Union, the African Union, the South American Union, and various pieces of a North American Union concept are examples. Here regions with similar geographic and cultural features are a natural fit for economic and infrastructure integration. A big feature of Rifkin’s vision is a transformation from ‘geopolitics’ to ‘biosphere politics.’ The biosphere is the region from the ocean floor to outer space. We may each own bits of the globe but we all share the biosphere as its processes know no geopolitical boundaries. Sharing the biosphere, he says, will foster “biosphere consciousness.”

Next we have Rifkin’s analysis of economic theory. He notes the vast influence of Adam Smith and his theories that synch with Newtonian physics with the supply and demand equilibrium being akin to equal and opposing forces cancelling one another out. But Rifkin notes that: “...real economic activity is all about the irreversibility of events – how energy and material resources are harnessed, transformed, utilized, used up, and discarded.”

Rifkin sees economics as more in tune with the – Second Law of Thermodynamics – which states that the total energy in a system is constant and that entropy always increases. Entropy is a term referring to degree of disorder or chaos in a system, originally referring to “energy that is no longer usable.” Several economists and theorists including Rifkin himself have written tomes about the relationship between economics and entropy. Energy ends up used up and discarded in all economic processes. Indeed, all biological activity results in net entropic gain. Acceleration of used up energy may lead to undesired climate change. Therefore efficiency and reduction of waste are helpful in reducing entropy – and in many cases in saving money as well. Rifkin refers to an “entropy bill” in terms of climate change, pollution, and destruction of ecosystems that is beginning to gradually become due so that all of our perceived profitability in the early Industrial Revolutions was somewhat illusory. Here is an interesting quote regarding our delicate relationship (as consumers) with nature:

“From a thermodynamic perspective, the most important lesson we can learn is how to budget our consumption patterns to conform with nature’s recycling schedules, so that we can live more sustainably on Earth.”

He mentions the idea of “biomimicry” – studying and imitating nature in order to achieve synergy and symbiosis with it. Increasing energy efficiency and reducing waste – I think – is a very key issue in sustainability – one of the most important. TIR smart grids will greatly increase efficiency and reduce waste as well as to provide further incentives to keep this up. Infrastructure improvements to commercial and residential buildings are also key to increasing energy efficiency. Initials costs of laying in TIR infrastructure are high – and this initial cost will likely delay its implementation – but efficiency improvements and better management will eventually result in sustained payback – especially with a boost of technological developments.

Ownership of property was a key point in the First and Second Industrial Revolutions, a core feature of capitalism, as Rifkin says. In tracing the history of property he notes that hunter-gatherer societies put little emphasis on property and that with the advent of agriculture, settled societies, and trade surpluses – property gained in importance. He thinks that access to “vast global networks” is replacing private property rights as a value. This breaks down the notion that humans are foremost competitive, selfish, and predatory as early Darwinian biology asserted. More and more we are finding that compassion and empathy and the collaboration and caring that it brings about – are just as human, perhaps even more so. Access is where it’s at and we are less and less willing to tolerate blocking of access to the networks that provide economic and educational possibilities and that are tending to break down outdated political modes. Internet has cut down on newspaper and magazine influence. Sharing of biological and genetic discoveries in ‘open-source commons’ has bettered scientific and technological collaboration. Many of us want free and open access to renewable energy. Social capital in the form of access to collaborative networks – or access to sharing on such networks – may well replace (at least partially) financial capital generated in the form of transaction of property. Already we see – network subscriptions – where we can share, use, and get some financial advantages  - winning out over simply buying and owing a product. Mark-ups/transaction costs and middle men are eliminated. Sharing is more in line with the reality of our finite transient lives than the illusion of ownership – so in that sense it is a more intuitive relationship of consumer with product. So I guess instead of being consumers we become subscribers. We are temporary users, time-sharers. In this sense property remains in the hands of the supplier and ideas of planned obsolescence fall away as it becomes in the best interest of the producer to make a product that functions as long as possible. The bottom line is that access is eclipsing ownership.

Rifkin makes an important observation that “quality of life” is replacing the old American Dream of independence, wealth, autonomy, and success:

“The dream of quality of life can only be collectively experienced. It is impossible to enjoy a quality of life in isolation and by excluding others. Achieving a quality of life requires active participation by everyone in the life of the community and a deep sense of responsibility by every member to ensure that no one is left behind.”

So in this scenario social wealth/health increases in importance over economic wealth/health.

Rifkin speaks also of a new scientific worldview where nature is seen as a series of relationships rather than as objects. Thus there is shift from making nature productive to making it sustainable. He sees this shift from productivity to generativity as our species re-integrating with the overall biological/ecological systems.

Next he tackles the needed restructuring of education. He notes that smart grid management is being integrated into cirriculums. Educating for productivity is being eclipsed by educating for ideas of newer times.

He gives an interesting progression of societal consciousnesses through time. Hunter-gatherers had mythological consciousness. Agricultural societies organized around writing developed theological consciousness. The First Industrial Revolution centered around print, steam, and coal changed into an ideological consciousness. Electronic communication brought about psychological consciousness. Today, he says that the convergence of distributed information and communication technologies and renewable energy is beginning to lead to biosphere consciousness. Since we are all part of a shared biosphere it should then be beneficial if we oriented our systems to this acknowledgement. We can then celebrate our interconnectivity in new and exciting ways. He notes that empathy is what provides for the coherence for us to look upon one another as familiar – friend rather than foe. He sees Homo empathicus as the next stage of the human. Many have suggested that we have become separated from nature due to differentiation and specialization of our daily tasks brought about by settled then urban society. Biosphere consciousness involves reintegrating with nature, thinking ‘ecopsychologically’ – seeing ourselves as part of a bigger system, or cultivating our ‘ecological self’ or reestablishing our ‘biophilia’ connection. Rifkin (and others) suggests that our social evolution has increased our self-awareness through time and thus has also increased our capacity for empathic behavior:

“The growing self-awareness of the human race is the psychological mechanism that allows empathy to grow and flourish. As we become increasingly aware of our individuality, we come to realize that our life is unique, unrepeatable, and fragile.”

This realization allows us to empathize with the life journey of others. One available aspect of empathic education is increased importance of community service, volunteerism, counseling, tutoring, and otherwise socializing with those who can be benefited by such contact. The dualistic model of teacher transferring knowledge to student is thus taking new forms other than this “top-down, one-to-one” set-up. The objectivity of knowledge also breaks down on closer inspection and so too are our methods of teaching and learning becoming more imbued with the subjective. Rifkin refers to ‘lateral learning’ where empathic sensibilities are emphasized.

He has an interesting section called – Rethinking Work – which suggests that in the future work will be defined differently. He lists the four areas where people engage in work as: market, government, informal economy, and, civil society. Market employment he thinks will continue to shrink as smart technology gets better and better. Government work should shrink for the same reasons. He thinks civil society, or ‘third sector’ employment will see big increases. Work for non-profits, NGOs, and CSOs (civil society organizations) is apparently way up. Rifkin suggests that the collaborative and empathic nature of such ventures is attractive to the internet generation.

This book offers very much to think about and is just as the author suggests – a narrative of what the emerging future might be like. There is as of yet much uncertainty and though things may end up being much different than the scenarios he lays out – I have yet to see a more thorough, detailed, and holistic attempt at what our economic future might be like. I hope he is right about increased empathic abilities developing among humans although there is still way too much cruelty in the world. I am currently reading his previous book which is a huge tome called – The Empathic Civilization.