Commentary / World

Toward a zero marginal cost society

by Takamitsu Sawa

Hikone,

As Jeremy Rifkin says in his 2014 book “The Zero Marginal Cost Society,” the internet and renewable energy will play leading roles in bringing about changes to lifestyles and society during the first half of the 21st century. They both will reduce the marginal cost of goods and services to near zero. In other words, we will soon enter into an age in which we can obtain many goods and services free of charge without going through markets.

A rather academic explanation may be helpful here. The marginal cost is defined as the cost a corporation needs to shoulder when it increases the goods or services it provides by one unit. In the case of manufacturing industries that process raw materials, a large portion of the marginal cost in producing one more unit is accounted for by the cost of incremental raw materials and the additional labor cost arising from longer working hours.

In the early 1990s, I started using email. Until then, postal services, telephone and facsimile machines had been an indispensable means of communication for me. And the cost of communicating through these means was quite high — especially overseas telephone calls. But today, I can send emails to the United States, China, Europe or any other part of the world free of charge because the marginal cost of email transmission is zero.

Similarly, getting information and data on the internet is free in most cases. In making the content of a majority of ebooks, the information printed in previously published books is digitally transformed and then this digitalized information is electronically filed. This method essentially eliminates the cost of printing, bookbinding and distribution as well as space. The marginal cost of ebooks consists of only the copyright fee, which accounts for about 30 percent of the prices of printed books. That is why the cost of an ebook is drastically lower than the price of a printed book.

As it is possible for an e-book marketing company to strike a deal with a book publisher to make the marginal cost zero (that is by buying up the copyright), it becomes possible to launch a new service that enables customers to read all the ebooks they want to for, say, ¥850 a month. Another service enables customers to read more than 200 magazine titles by paying ¥400 a month. Since the copyright remains valid for 50 years after the death of an author in Japan, and for 70 years in most other advanced countries, electronic versions of many classic books can be downloaded for free.

There are a countless number of cases in which goods and services that customers used to have to pay for have now been made free of charge thanks to the internet. Encyclopedias have been replaced by Wikipedia. With a simple input of the destination and the desired time of arrival, one can receive information free of charge on the time, route and transfer point of trains and buses. One can also easily make reservations for trains, airlines and hotels the world over without cost. The internet provides detailed information on new home appliances and electronic equipment. Until a decade or so ago, a laptop computer was needed to obtain free information or to do internet shopping. Today, however, a smartphone can do the job. With the downloading of a free map application, a smartphone can serve as a navigation system.

The marginal cost of renewable energy is also near zero. Once solar panels are installed on a roof, they generate electric power at a close to a zero marginal cost. The same is true of wind power generation. On the other hand, generating an extra 1 kilowatt-hour of electricity at a thermal or nuclear power plant entails at least some incremental fuel cost, therefore the marginal cost cannot become zero. Renewable energy in Japan is currently considered to be more costly than thermal or nuclear energy as a source of power generation. But in the not-distant future, renewable energy should be cheaper than thermal or nuclear energy, as is the case in advanced countries in Europe and North America. This is because the marginal cost of renewable energy is zero, after all.

A number of well-known universities in the United States are offering massive open online courses (MOOC) free of charge and with unlimited participation and open access, enabling anybody in any part of the world to receive a university education. Since the marginal cost of such courses is zero, students do not have to pay tuition. In 2013, a 15-year-old high school student of Mongolia achieved a perfect score in the “circuits and electronics” course in the MOOC offered by the Massachusetts Institute of Technology. At the age of 16, the student was admitted to MIT on a scholarship. MOOC aims to discover geniuses in all corners of the world. The Mongolian student was one of 340 participants who scored perfect in the circuits and electronics course, which was taken by more than 150,000 people.

One of the key phrases for the 21st century will be “zero marginal cost society.” The principal players in such society will be nothing other than the internet and renewable energy. Zero marginal cost means nearly free of charge. The age of “money comes first” is over.

The internet enabled the impoverished 15-year-old Mongolian high school student to be admitted to MIT on a scholarship. Renewable energy can generate electricity with near-zero marginal cost. All necessary information can be obtained with a smartphone free of charge. Consumers can produce anything they want on their own by using a 3-D printer. What Rifkin calls the “age of prosumers” is right around the corner.

A longtime contributor to The Japan Times, Takamitsu Sawa is a distinguished professor at Shiga University.