Friday, July 24, 2020

The Possible Future Isn't Necessarily the Inevitable Future

I finished reading Jeremy Rifkin's Zero Marginal Cost Society, and there was a major problem with the book. Rifkin's thesis is that technological advancement will drive marginal cost to zero for most items. He then assumes that this process will drive profit to zero, thus ending capitalism. What Rifkin doesn't allow for is the ability of monopoly to charge a price above marginal cost. Yes, competitive firms will languish, but firms that can create barriers to competition can enjoy supernormal profits. And that's what we see in the modern world. Every industry is becoming more concentrated. There's a firm with lower average total costs throughout the relevant market scale, making it the natural monopoly. This firm will charge a price above the admittedly-zero marginal cost.

Rifkin writes about the collaborative commons and the demise of the music industry, but the fact is that the music industry is beginning to recover from the digital disruption. Here's an industry with literally ZERO marginal cost and revenue in excess of $8 billion a year. Not quite the "end of capitalism" Rifkin imagines. Amazingly, there is only one mention of Digital Rights Management (DRM) in the entire book (p. 188), and only in the context of what legal changes energized 1999 protestors of the World Trade Organization.

Rifkin's book does a good job painting the picture of what the future could be, if only we don't allow rent-seekers to use government protections to preserve their profits.

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