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WHAT IS NATURAL CAPITALISM?

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 We cannot heal the country's social wounds or "save" the environment as long as we cling to the outdated industrial assumptions that the summum bonum of commercial enterprise is to use more stuff and fewer people.

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 1 percent efficient in the sense that, for every 100 gallons of gasoline, only one gallon actually moves the passengers. Likewise, only 8 to 10 percent of the energy used in heating the filament of an incandescent lightbulb actually becomes visible light.

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 1 or 2 percent. In other words, American industry usesas 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 - experts now wonder whether we can achieve an additional 50 to 90 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.

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.

Taxes and subsidies are information. Everybody, whether rich or poor, acts on that information every day. Taxes make something more expensive to buy; subsidies artificially lower prices. In the United States, we generally like to subsidize environmental exploitation, cars, big corporations, and technological boondoggles.

We subsidize the disposal of waste in all its myriad forms -- from landfills, to Superfund cleanups, to deep-well injection, to storage of nuclear waste. In the process, we encourage an economy where 80 percent of what we consume gets thrown away after one use.

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.

The purpose of this tax shift would be to change what is taxed, not who is taxed. But no tax shift is uniform, and without adjustments for lower incomes, a shift toward taxing resources would likely be regressive. Therefore, efforts should be made to keep the tax burden on various income groups more or less where it is now.

A shift toward taxing resources would require steady implementation, in order to give business a clear horizon in which to make strategic investments. A time span of 15 to 20 years, for example, should be long enough to permit businesses to continue depreciating current capital investments over their useful lives.

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.

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.

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.

It is difficult for economists, whose important theories originated during a time of resource abundance, to understand how the decline in ecosystem services is laying the groundwork for the next stage in economic evolution. This next stage, whatever it may be called, is being brought about by powerful and much-delayed feedback from living systems. As we surrender our living systems, social stability, fiscal soundness, and personal health to outmoded economic assumptions, we are hoping that conventional economic growth will save us. But if economic "growth" does save us, it will be anything but conventional.

The future belongs to those who understand that doing more with less is compassionate, prosperous, and enduring, and thus more intelligent, even competitive.

Written by: Paul Hawken From Natural Capitalism by Paul Hawken, L. Hunter Lovins, Amory Lovins


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