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NATURAL CAPITALISM: CREATING THE NEXT INDUSTRIAL REVOLUTION Before the Industrial Revolution, there were few machines to multiply labor. A worker's output was essentially fixed, like a horse's: if you wanted two horsepower, you literally had to have two horses. Now, of course, we can fit several hundred horses under the hood of a car, and our per-capita output is vastly higher than what our ancestors produced with hand tools and beasts of burden. Which is the main reason material standards of living have risen so dramatically over the past couple of centuries-and why labor productivity remains one of economists' and industrialists' chief preoccupations. But conditions have changed since the start of the Industrial Revolution. Then, natural resources were abundant, people relatively scarce. Now, there's a surplus of people, while nature is in decline. Saddled with an outdated view of the world, our economic system wastes both resources and people. The next industrial revolution, like the last one, will be a response to changing patterns of scarcity. It will transform industrial processes and business practices to economize on what is now the limiting factor of production-natural capital. It will create undreamed-of new wealth for its practitioners and for society. And it's already under way. That's the message of Natural Capitalism: Creating the Next Industrial Revolution, by bestselling author Paul Hawken and Rocky Mountain Institute co-founders Amory Lovins and Hunter Lovins. A groundbreaking blueprint for a new economy, the book describes a hopeful future in which business and environmental interests merge, and in which corporations will play a pivotal role in bringing humanity back within its planetary limits.
As If Current business practices essentially assign no value at all to ecosystem services other than the indirect costs imposed by environmental regulations. As a result, "industrial capitalism" defies its own logic. Instead of reinvesting in its largest stock of capital, it's spending its 3.8-billion-year store of natural capital as if it were income-and at the current burn rate it'll be largely gone in a century. That's not a good survival strategy for a company or for its customers. Maybe someday business will be forced to value natural capital properly, but don't hold your breath. Fortunately, we don't have to wait. It's usually more profitable to do business as if natural capital were properly valued, even when (as now) it's valued at zero. And thanks to efficient new technologies and techniques, the business opportunities are increasing all the time. Natural Capitalism offers hundreds of examples of companies that are pioneering the next industrial revolution by availing themselves of these opportunities. They're improving their bottom lines today and giving themselves a competitive edge for tomorrow. Not only that, their leaders and employees are feeling better about what they do: firing the unproductive tons, gallons, and kilowatt-hours often makes it possible to keep the people, who foster the innovation that drives future success. The journey to natural capitalism involves four major shifts in business practices. They go together as a package: any one is worth doing on its own, but the greatest benefits come from implementing all four together.
Resource Productivity Yet given finite resources and a growing population, that's what must happen if we hope to enjoy sustained prosperity while enabling poorer nations to satisfy their aspirations. As it happens, we're so darned wasteful now that it shouldn't be hard to achieve such radical gains in efficiency. Only six percent of the vast flow of materials in the U.S. economy-more than a million pounds per American per year-ends up in products, and much of that is packaging. The efficiency of converting fuel from a power plant into light from a standard bulb is only three percent. And after a century of development, today's cars use only one percent of their fuel energy to move the driver. The difference between these dubious achievements and what's possible represents a vast business opportunity worth several trillion dollars a year in the United States alone. Advanced resource productivity is the no-brainer of natural capitalism. Efficient new products-from lighting to air-handling systems to vehicles-are readily available and constantly improving, the savings are reasonably quantifiable, and almost any business can make stellar returns by investing in efficiency. Moreover, efficiency typically produces collateral benefits such as greater comfort (efficient buildings are less drafty), cleaner air, less noise, and greater employee satisfaction (which, incidentally, can translate into higher productivity). Natural Capitalism is full of examples of profitable advances in resource productivity in the automobile, real estate, timber, manufacturing, agriculture, and water industries. With resource productivity, no one has to choose between business and the environment: what's good for one is good for the other. In fact, the massive inefficiencies that are causing environmental degradation almost always cost more than the measures that would reverse them. Resource efficiency postpones depletion while improving environmental health, buying time for even better techniques. And the money it saves can finance investment in natural capitalism's other three principles.
Ecological Redesign Biological systems, in contrast, operate in closed loops. There's no waste-every output either is returned harmlessly to the ecosystem as a nutrient, like compost, or becomes an input for another process. Closed-loop industrial systems would be more common in the United States if government subsidies didn't reward waste and maintain artificially low prices for virgin materials. In Germany, where most companies are legally responsible for disposing of their products, manufacturers are motivated to design cars and computers for remanufacture, turning waste back into value. But even without such legislation, the economics of resource productivity are already encouraging industry to shift to biologically inspired production models that don't just reduce waste but eliminate the very concept of waste. Eco-industrial parks provide venues where one tenant's "waste" is another's "food." DuPont is now closing the loop on its $800-million-a-year polyester film business-thanks to a new process of "unzipping" polyester molecules, the company is able to take back used film from its customers and recycle it more cheaply than making new film from virgin materials. Many other companies-from pallet distributors to makers of "disposable" cameras-are finding profitable ways to reuse or recycle their products. Meanwhile, growing competitive pressures to save resources are inspiring companies to turn away from mechanical systems requiring heavy metals, combustion, and petroleum, and instead emulate nature's life-temperature, low-pressure, solar-powered assembly techniques, whose products rival anything human-made. We can look forward to the end of the witches' brew of dangerous substances invented this century, from DDT and PCBs to CFCs and PVCs, that were created to accomplish functions that can now be carried out far more efficiently with biodegradable and naturally occurring compounds.
Service and Flow That's the third principle of natural capitalism: moving from the sale of goods to the delivery of a continuous flow of services. This subtle shift in the producer-consumer relationship can have profound implications. When you're in the business of selling products, you have an incentive to make them cheaply and persuade consumers to buy lots of them; how long the products last, and how much it costs to operate or dispose of them, are secondary concerns. But when you lease the service that the product provides, suddenly you and your customer are on the same side of the table. You're both rewarded for accomplishing the service in ever cheaper, more efficient, and more durable ways. Not only that, the producer benefits from reduced risk (no inventory backlogs and surpluses), while the customer gets automatic upgrades without the responsibility of owning and disposing of the product. Almost by definition, this "service-and-flow" business model is better for the environment because it rewards the producer for reducing, reusing, and recycling. That reinforces natural capitalism's first two principles-especially when it reveals ways to satisfy the end use while eliminating the product altogether. For example, instead of being paid by the square centimeter of parts degreased, Dow's German subsidiary can even be compensated for improving a customer's process to reduce or eliminate the need for solvent in the first place. Air conditioner manufacturer Carrier now offers cooling services, where its specialists work with clients to retrofit their buildings so that they need little or no air conditioning-better service at lower cost.
Invest in Natural Capital That situation may be changing, though. As natural capital becomes scarcer, its price is going up, even if companies and governments don't actually reflect it on their balance sheets. Certain signals-higher landfill fees, insurance claims from climate-change-related storms, consumer preference for green companies-are influencing business decisions and making investment in natural capital look more sound. Capital begets more capital; a company that depletes its own capital is eroding the basis of its future prosperity. In time, companies will realize that the forms of capital they've been investing in-manufactured and financial capital-are ultimately dependent on the health of natural capital.
A Way Forward That emphasis may not appeal to some environmentalists, concedes co-author Amory Lovins, but he makes no apology for it. "I think profits honorably earned can serve the wider society as well as the shareholders," he says. "We offer a set of operational principles for right livelihood that anyone should be proud to pursue." But the book taps into more than just rational self-interest. "As we go around talking to business people, we're finding an increasing number of them don't want to be part of the problem," notes Hunter Lovins. "Their motivation is not, How do I make the most money in the shortest amount of time, but rather, What legacy can I leave for my children and for the world? And they're realizing that there is not a contradiction between making money-making a lot of money-and leaving this legacy." Natural Capitalism resolves this contradiction. Transcending ideology, it offers solutions that every reader-from environmentalists to corporate executives-can agree on. It shows a way forward that seems truly achievable because, as the book's closing words state, "it is necessary, possible, and practical." This review originally appear in RMI Solutions (Fall/Winter 1999), the semi-annual newsletter of the Rocky Mountain Institute (www.rmi.org). Natural Capitalism is published by Little, Brown in the United States and by Earthscan in Europe. You can order it from Rocky Mountain Institute for $17.95 plus shipping and handling. |
