Everyone is familiar with the traditional definition of capital as accumulated wealth in the form of investments, factories, and equipment. "Natural capital," on the other hand, comprises the resources we use, both nonrenewable (oil, coal, metal ore) and renewable (forests, fisheries, grasslands). Although we usually think of renewable resources in terms of desired materials, such as wood, their most important value lies in the services they provide. These services are related to, but distinct from, the resources themselves. They are not pulpwood but forest cover, not food but topsoil. Living systems feed us, protect us, heal us, clean the nest, let us breathe. They are the "income" derived from a healthy environment: clean air and water, climate stabilization, rainfall, ocean productivity, fertile soil, watersheds, and the less-appreciated functions of the environment, such as processing waste — both natural and industrial.
Until the 1970s, the concept of natural capital was largely irrelevant to business planning — and it still is, in most companies. Throughout the industrial era, economists considered manufactured capital — money, factories, etc. — the principal factor in industrial production, and perceived natural capital as a marginal contributor. The exclusion of natural capital from balance sheets was an understandable omission. There was so much of it, it didn’t seem worth counting. Not any longer.
Historically, economic development has faced a number of limiting factors, including the availability of labor, energy resources, machinery, and financial capital. The absence or depletion of a limiting factor can prevent a system from growing. If marooned in a snowstorm, you need water, food, and warmth to survive. Having more of one factor cannot compensate for the absence of the other. Drinking more water will not make up for lack of clothing if you are freezing.
Because economies grow and change, new limiting factors occasionally emerge. When they do, massive restructuring occurs. Nothing works as before. Behavior that used to be economically sound becomes unsound, even destructive.
Economist Herman E. Daly cautions that we are facing a historic juncture in which, for the first time, the limits to increased prosperity are not the lack of manmade capital but the lack of natural capital. The limits to increased fish harvests are not boats, but productive fisheries; the limits to irrigation are not pumps or electricity, but viable aquifers; the limits to pulp and lumber production are not sawmills, but plentiful forests.
Wasting Resources
Means Wasting People
Industry has always sought to increase the productivity of workers, not resources. And for good reason. Most resource prices have fallen for 200 years — due in no small part to the extraordinary increases in our ability to extract, harvest, ship, mine, and exploit resources. If the competitive advantage goes to the low-cost provider, and resources are cheap, then business will naturally use more and more resources in order to maximize worker productivity.
Such a strategy was eminently sensible when the population was smaller and resources were plentiful. But with respect to meeting the needs of the future, contemporary business economics is pre-Copernican. We cannot heal the country’s social wounds or "save" the environment as long as we cling to the outdated industrial assumptions that the summum bonum of commercial enterprise is to use more stuff and fewer people. Our thinking is backward: We shouldn’t use more of what we have less of (natural capital) to use less of what we have more of (people). While the need to maintain high labor productivity is critical to income and economic well-being, labor productivity that corrodes society is like burning the furniture to heat the house.
Our pursuit of increased labor productivity at all costs not only depletes the environment, it also depletes labor. Just as overproduction can exhaust topsoil, over- productivity can exhaust a workforce. The underlying assumption that greater productivity would lead to greater leisure and well-being, while true for many decades, has become a bad joke. In the United States, those who are employed, and presumably becoming more productive, find they are working 100 to 200 hours more per year than 20 years ago. Yet real wages haven’t increased for more than 20 years.
In 1994, I asked a roomful of senior executives from Fortune 500 companies the following questions: Do you want to work harder in five years than you do today? Do you know anyone in your office who is a slacker? Do you know any parents in your company who are spending too much time with their kids? The only response was a few embarrassed laughs. Then it was quiet — perhaps numb is a better word.
Meanwhile, people whose jobs have been downsized, re-engineered, or restructured out of existence are being told — as are millions of youths around the world — that we have created an economic system so ingenious that it doesn’t need them, except perhaps to do menial service jobs.
In parts of the industrialized world, unemployment and underemployment have risen faster than employment for more than 25 years. Nearly one-third of the world’s workers sense that they have no value in the present economic scheme.
Clearly, when one billion willing workers can’t find a decent job or any employment at all, we need to make fundamental changes. We can’t — whether through monetary means, government programs, or charity — create a sense of value and dignity in people’s lives when we’re simultaneously developing a society that doesn’t need them. If people don’t feel valued, they will act out society’s verdict in sometimes shocking ways. William Strickland, a pioneer in working with inner-city children, once said that "you can’t teach algebra to someone who doesn’t want to be here." He meant that urban kids don’t want to be here at all, alive, anywhere on earth. They try to tell us, but we don’t listen. So they engage in increasingly risky behavior — unprotected sex, drugs, violence — until we notice. By that time, their conduct has usually reached criminal proportions — and then we blame the victims, build more jails, and lump the costs into the GDP.
The theologian Matthew Fox has pointed out that we are the only species without full employment. Yet we doggedly pursue technologies that will make that ever more so. Today we fire people, perfectly capable people, to wring out one more wave of profits. Some of the restructuring is necessary and overdue. But, as physicists Amory Lovins and Ernst von Weizsäcker have repeatedly advised, what we should do is fire the unproductive kilowatts, barrels of oil, tons of material, and pulp from old-growth forests — and hire more people to do so.
In fact, reducing resource use creates jobs and lessens the impact we have on the environment. We can grow, use fewer resources, lower taxes, increase per capita spending on the needy, end federal deficits, reduce the size of government, and begin to restore damaged environments, both natural and social.
We Need a Resource Revolution
Economists argue that rational markets make this the most efficient of all possible economies. But that theory works only as long as you use financial efficiency as the sole metric and ignore physics, biology, and common sense. The physics of energy and mass conservation, along with the laws of entropy, are the arbiters of efficiency, not Forbes or the Dow Jones or the Federal Reserve. The economic issue is: How much work (value) does society get from its materials and energy? This is a very different question than asking how much return it can get out of its money.
If we already deployed materials or energy efficiently, it would support the contention that a radical increase in resource productivity is unrealistic. But the molecular trail leads to the opposite conclusion. For example, cars are barely one percent efficient in the sense that, for every 100 gallons of gasoline, only one gallon actually moves the passengers. Likewise, only eight to ten percent of the energy used in heating the filament of an incandescent lightbulb actually becomes visible light. (Some describe it as a space heater disguised as a lightbulb.) Modern carpeting remains on the floor for up to 12 years, after which it remains in landfills for as long as 20,000 years or more — less than .06 percent efficiency.
According to Robert Ayres, a leader in studying industrial metabolism, about 94 percent of the materials extracted for use in manufacturing durable products become waste before the product is even manufactured. More waste is generated in production, and most of that is lost unless the product is reused or recycled. Overall, America’s material and energy efficiency is no more than one or two percent. In other words, American industry uses as much as 100 times more material and energy than theoretically required to deliver consumer services.
In 1976, energy experts used to argue about whether the United States could achieve energy savings of 30 percent. Twenty-one years later, having already obtained savings of more than 30 percent over 1976 levels — savings worth $180 billion a year — experts now wonder whether we can achieve an additional 50 to 90 percent. Lovins thinks we might possibly save as much as 99 percent. That may sound ridiculous, but certainly no more so than the claim that textile workers could use gears and motors to increase their efficiency a hundredfold would have sounded at the beginning of the Industrial Revolution. The resource productivity revolution is at a similar threshold. State-of-the-shelf technologies — fans, lights, pumps, superefficient windows, motors, and other products with proven track records — combined with intelligent mechanical and building design, could reduce energy consumption in American buildings by 90 percent. State-of-the-art technologies that are just being introduced could reduce consumption still further. In some cases — wind power, for example — the technologies not only operate more efficiently and pollute less, they also are more labor-intensive. Wind energy requires more labor than coal-generated electricity, but has become competitive with it on a real-cost basis.
The resource revolution is starting to show up in all areas of business. In the forest products industry, clearinghouses now identify hundreds of techniques that can reduce the use of timber and pulpwood by nearly 75 percent without diminishing the quality of housing, the "services" provided by books and paper, or the convenience of a tissue. In the housing industry, builders can use dozens of local or composite materials, including those made from rice and wheat straw, wastepaper, and earth, instead of studs, plywood, and concrete. The Herman Miller company currently designs furniture that can be reused and remanufactured a number of times; DesignTex, a subsidiary of Steelcase, a leading manufacturer of office furniture, sells fabrics that can be easily composted.
Although a new "hypercar" is now in development, "new urbanist" architects, such as Peter Calthorpe, Andres Duany, Elizabeth Plater-Zyberk, and others, are designing communities that could eliminate 40 to 60 percent of driving needs. (A recent San Francisco study showed that communities can decrease car use by 30 percent when they double population density.) Internet-based transactions may render many shopping malls obsolete. Down the road we’ll have quantum semiconductors that store vast amounts of information on chips no bigger than a dot; diodes that emit light for 20 years without bulbs; ultrasound washing machines that use no water, heat, or soap; hyperlight materials stronger than steel; deprintable and reprintable paper; biological technologies that reduce or eliminate the need for insecticides and fertilizers; plastics that are both reusable and compostable; piezoelectric polymers that can generate electricity from the heel of your shoe or the force of a wave; and roofs and roads that do double duty as solar energy collectors. Some of these technologies, of course, may turn out to be impractical or have unwanted side effects. Nevertheless, these and thousands more are lining up like salmon to swim upstream toward greater resource productivity.
Resource Politics
How can government help speed these entrepreneurial "salmon" along? The most fundamental policy implication is simple to envision, but difficult to execute: We have to revise the tax system to stop subsidizing behaviors we don’t want (resource depletion and pollution) and to stop taxing behaviors we do want (income and work). We need to transform, incrementally but firmly, the sticks and carrots that guide business.
To create a policy that supports resource productivity will require a shift away from taxing the social "good" of labor, toward taxing the social "bads" of resource exploitation, pollution, fossil fuels, and waste. This tax shift should be "revenue neutral" — meaning that for every dollar of taxation added to resources or waste, one dollar would be removed from labor taxes. As the cost of waste and resources increases, business would save money by hiring less-expensive labor to save more-expensive resources. The eventual goal would be to achieve zero taxation on labor and income.
Of course, a tax shift alone will not change the way business operates; a broad array of policy changes on issues of global trade, education, economic development, econometrics (including measures of growth and well-being), and scientific research must accompany it. For the tax shift to succeed, we must also reverse the wrenching breakdown of our democracy, which means addressing campaign finance reform and media concentration.
It is easier, as the saying goes, to ride a horse in the direction it is going. Because the costs of natural capital will inevitably increase, we should start changing the tax system now and get ahead of the curve. Shifting taxes to resources won’t — as some in industry will doubtless claim — mean diminishing standards of living. It will mean an explosion of innovation that will create products, techniques, and processes that are far more effective than what they replace.
Some economists will naturally counter that we should let the markets dictate costs and that using taxation to promote particular outcomes is interventionist. But all tax systems are interventionist; the question is not whether to intervene but how to intervene.
A tax system should integrate cost with price. Currently, we dissociate the two. We know the price of everything but the cost of nothing. Price is what the buyer pays. Cost is what society pays. For example, Americans pay about $1.50 per gallon at the gas pump, but gasoline actually costs up to $7 a gallon when you factor in all the costs. Middle Eastern oil, for instance, costs nearly $100 a barrel: $25 to buy and $75 a barrel for the Pentagon to keep shipping lanes open to tanker traffic. Similarly, a pesticide may be priced at $35 per gallon, but what does it cost society as the pesticide makes its way into wells, rivers, and bloodstreams?
The Future
Today, the prospect of a resource productivity revolution in the next century is hard to fathom. But this is what it promises: an economy that uses progressively less material and energy each year and where the quality of consumer services continues to improve; an economy where environmental deterioration stops and gets reversed as we invest in increasing our natural capital; and, finally, a society where we have more useful and worthy work available than people to do it.
For business, the opportunities are clear and enormous. With the population doubling sometime in the next century, and resource availability per capita dropping by one-half to three-fourths over that same period, which factor in production do you think will go up in value — and which do you think will go down? This basic shift in capital availability is inexorable.
Ironically, organizations like Earth First!, Rainforest Action Network, and Greenpeace have now become the real capitalists. By addressing such issues as greenhouse gases, chemical contamination, and the loss of fisheries, wildlife corridors, and primary forests, they are doing more to preserve a viable business future than are all the chambers of commerce put together. While business leaders hotly contest the idea of resource shortages, there are few credible scientists or corporations who argue that we are not losing the living systems that provide us with trillions of dollars of natural capital: our soil, forest cover, aquifers, oceans, grasslands, and rivers. Moreover, these systems are diminishing at a time when the world’s population and the demand for services are growing exponentially.
Looking ahead, if living standards and population double over the next 50 years as some predict, and if we assume the developing world shared the same living standard we do, we would have to increase our resource use (and attendant waste) by a factor of 16 in five decades. Publicly, governments, the United Nations, and industries all work toward this end. Privately, no one believes that we can increase industrial throughput by a factor anywhere near 16, considering the earth’s limited and now fraying life-support systems.
So why be hopeful? Because the solution is profitable, creative, and eminently possible. Societies may act stupidly for a period of time, but eventually they move to the path of least economic resistance. The loss of natural capital services, lamentable as it is in environmental terms, also affects costs. So far, we have created convoluted economic theories and accounting systems to work around the problem.
You can win a Nobel Prize in economics and travel to the royal palace in Stockholm in a gilded, horse-drawn brougham believing that ancient forests are more valuable in liquidation — as fruit crates and Yellow Pages — than as a going and growing concern. But soon (I would estimate within a few decades), we will realize collectively what each of us already knows individually: It’s cheaper to take care of something — a roof, a car, a planet — than to let it decay and try to fix it later.
Despite the shrill divisiveness of media and politics, Americans remain remarkably consistent in what kind of country they envision for their children and grandchildren. The benefits of resource productivity align almost perfectly with what American voters say they want: better schools, a better environment, safer communities, more economic security, stronger families and family support, freer markets, less regulation, fewer taxes, smaller government, and more local control.
The future belongs to those who understand that doing more with less is compassionate, prosperous, and enduring, and thus more intelligent, even competitive.
Paul Hawken is a businessman, environmentalist, and author of several bestselling books including Growing a Business, The Ecology of Commerce, Seven Tomorrows, and The Next Economy. He currently serves as chairman of The Natural Step, an educational foundation that assists world government and business leaders in achieving long-term competitive advantage through environmental sustainability.
Excerpted with permission from Paul Hawken’s "Natural Capitalism," originally published in Mother Jones magazine, ©1996, Foundation for National Progress. Sixteen-page full-color reprints of the entire article are available for $2.50 each from Mother Jones Reprints, 731 Market St., 6th Floor, San Francisco, CA 94103. Bulk rates also available.