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CHAPTER 1 1 2 3 The Next Industrial Revolution 4 5 Emerging possibilities — A new type of industrialism — The loss of 6 living systems — Valuing natural capital — The industrial mind-set — 7 The emerging pattern of scarcity — Four strategies of natural capital- 8 ism — Radical resource productivity — Putting the couch potato of industrialism on a diet — An economy of steady service and flow — 9 Restoring the basis of life and commerce 10 11 12 13 14 IMAGINE FOR A MOMENT A WORLD WHERE CITIES HAVE BECOME PEACEFUL 15 and serene because cars and buses are whisper quiet, vehicles exhaust 16 only water vapor, and parks and greenways have replaced unneeded 17 urban freeways. OPEC has ceased to function because the price of oil 18 has fallen to five dollars a barrel, but there are few buyers for it because 19 cheaper and better ways now exist to get the services people once 20 turned to oil to provide. Living standards for all people have dramati- 21 cally improved, particularly for the poor and those in developing coun- 22 tries. Involuntary unemployment no longer exists, and income taxes 23 have largely been eliminated. Houses, even low-income housing units, 24 can pay part of their mortgage costs by the energy they produce; there 25 are few if any active landfills; worldwide forest cover is increasing; dams 26

are being dismantled; atmospheric CO2 levels are decreasing for the 27 first time in two hundred years; and effluent water leaving factories is 28 cleaner than the water coming into them. Industrialized countries have 29 reduced resource use by  percent while improving the quality of life. 30 Among these technological changes, there are important social changes. 31 The frayed social nets of Western countries have been repaired. With 32 the explosion of family-wage jobs, welfare demand has fallen. A pro- 33 gressive and active union movement has taken the lead to work with 34 business, environmentalists, and government to create “just transi- 35 tions” for workers as society phases out coal, nuclear energy, and oil. In 36 communities and towns, churches, corporations, and labor groups pro- 37 mote a new living-wage social contract as the least expensive way to 38 S ensure the growth and preservation of valuable social capital. Is this the 39 R

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2 NATURAL CAPITALISM 1 vision of a utopia? In fact, the changes described here could come about 2 in the decades to come as the result of economic and technological 3 trends already in place. 4 This book is about these and many other possibilities. 5 It is about the possibilities that will arise from the birth of a new 6 type of industrialism, one that differs in its philosophy, goals, and fun- 7 damental processes from the industrial system that is the standard 8 today. In the next century, as human population doubles and the 9 resources available per person drop by one-half to three-fourths, a 10 remarkable transformation of industry and commerce can occur. 11 Through this transformation, society will be able to create a vital econ- 12 omy that uses radically less material and energy. This economy can free 13 up resources, reduce taxes on personal income, increase per-capita 14 spending on social ills (while simultaneously reducing those ills), and 15 begin to restore the damaged environment of the earth. These neces- 16 sary changes done properly can promote economic efficiency, ecologi- 17 cal conservation, and social equity. 18 The industrial revolution that gave rise to modern capitalism greatly 19 expanded the possibilities for the material development of human- 20 kind. It continues to do so today, but at a severe price. Since the mid- 21 eighteenth century, more of nature has been destroyed than in all prior 22 history. While industrial systems have reached pinnacles of success, able 23 to muster and accumulate human-made capital on vast levels, natural 24 capital, on which civilization depends to create economic prosperity, is 25 rapidly declining,1 and the rate of loss is increasing proportionate to 26 gains in material well-being. Natural capital includes all the familiar 27 resources used by humankind: water, minerals, oil, trees, fish, soil, air, et 28 cetera. But it also encompasses living systems, which include grass- 29 lands, savannas, wetlands, estuaries, oceans, coral reefs, riparian corri- 30 dors, tundras, and rainforests. These are deteriorating worldwide at 31 an unprecedented rate. Within these ecological communities are the 32 fungi, ponds, mammals, humus, amphibians, bacteria, trees, flagellates, 33 insects, songbirds, ferns, starfish, and flowers that make life possible 34 and worth living on this planet. 35 As more people and businesses place greater strain on living sys- 36 tems, limits to prosperity are coming to be determined by natural capi- 37 tal rather than industrial prowess. This is not to say that the world is S38 running out of commodities in the near future. The prices for most raw R39 materials are at a twenty-eight-year low and are still falling. Supplies are 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 3

THE NEXT INDUSTRIAL REVOLUTION 3 cheap and appear to be abundant, due to a number of reasons: the col- 1 lapse of the Asian economies, globalization of trade, cheaper transport 2 costs, imbalances in market power that enable commodity traders and 3 middlemen to squeeze producers, and in large measure the success of 4 powerful new extractive technologies, whose correspondingly extensive 5 damage to ecosystems is seldom given a monetary value. After richer 6 ores are exhausted, skilled mining companies can now level and grind 7 up whole mountains of poorer-quality ores to extract the metals 8 desired. But while technology keeps ahead of depletion, providing what 9 appear to be ever-cheaper metals, they only appear cheap, because the 10 stripped rainforest and the mountain of toxic tailings spilling into 11 rivers, the impoverished villages and eroded indigenous cultures — all 12 the consequences they leave in their wake — are not factored into the 13 cost of production. 14 It is not the supplies of oil or copper that are beginning to limit our 15 development but life itself. Today, our continuing progress is restricted 16 not by the number of fishing boats but by the decreasing numbers of 17 fish; not by the power of pumps but by the depletion of aquifers; not by 18 the number of chainsaws but by the disappearance of primary forests. 19 While living systems are the source of such desired materials as wood, 20 fish, or food, of utmost importance are the services that they offer,2 ser- 21 vices that are far more critical to human prosperity than are nonrenew- 22 able resources. A forest provides not only the resource of wood but also 23 the services of water storage and flood management. A healthy envi- 24 ronment automatically supplies not only clean air and water, rainfall, 25 ocean productivity, fertile soil, and watershed resilience but also such 26 less-appreciated functions as waste processing (both natural and indus- 27 trial), buffering against the extremes of weather, and regeneration of 28 the atmosphere. 29 Humankind has inherited a .-billion-year store of natural capital. 30 At present rates of use and degradation, there will be little left by the 31 end of the next century. This is not only a matter of aesthetics and 32 morality, it is of the utmost practical concern to society and all people. 33 Despite reams of press about the state of the environment and rafts of 34 laws attempting to prevent further loss, the stock of natural capital is 35 plummeting and the vital life-giving services that flow from it are criti- 36 cal to our prosperity. 37 Natural capitalism recognizes the critical interdependency between 38 S the production and use of human-made capital and the maintenance 39 R 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 4

4 NATURAL CAPITALISM 1 and supply of natural capital. The traditional definition of capital is 2 accumulated wealth in the form of investments, factories, and equip- 3 ment. Actually, an economy needs four types of capital to function 4 properly: 5 . 6 human capital, in the form of labor and intelligence, culture, and organization 7 . financial capital, consisting of cash, investments, and monetary instruments 8 . manufactured capital, including infrastructure, machines, tools, and factories 9 . natural capital, made up of resources, living systems, and ecosystem services 10 11 The industrial system uses the first three forms of capital to transform 12 natural capital into the stuff of our daily lives: cars, highways, cities, 13 bridges, houses, food, medicine, hospitals, and schools. 14 The climate debate is a public issue in which the assets at risk are not 15 specific resources, like oil, fish, or timber, but a life-supporting system. 16 One of nature’s most critical cycles is the continual exchange of carbon 17 dioxide and oxygen among plants and animals. This “recycling service” 18 is provided by nature free of charge. But today carbon dioxide is build- 19 ing up in the atmosphere, due in part to combustion of fossil fuels. In 20 effect, the capacity of the natural system to recycle carbon dioxide has 21 been exceeded, just as overfishing can exceed the capacity of a fishery to 22 replenish stocks. But what is especially important to realize is that there 23 is no known alternative to nature’s carbon cycle service. 24 Besides climate, the changes in the biosphere are widespread. In the 25 past half century, the world has a lost a fourth of its topsoil and a third 26 of its forest cover. At present rates of destruction, we will lose  percent 27 of the world’s coral reefs in our lifetime, host to  percent of marine 28 life.3 In the past three decades, one-third of the planet’s resources, its 29 “natural wealth,” has been consumed. We are losing freshwater ecosys- 30 tems at the rate of  percent a year, marine ecosystems by  percent a 31 year.4 There is no longer any serious scientific dispute that the decline 32 in every living system in the world is reaching such levels that an 33 increasing number of them are starting to lose, often at a pace acceler- 34 ated by the interactions of their decline, their assured ability to sustain 35 the continuity of the life process. We have reached an extraordinary 36 threshold. 37 Recognition of this shadow side of the success of industrial produc- S38 tion has triggered the second of the two great intellectual shifts of the R39 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 5

THE NEXT INDUSTRIAL REVOLUTION 5 late twentieth century. The end of the Cold War and the fall of commu- 1 nism was the first such shift; the second, now quietly emerging, is the 2 end of the war against life on earth, and the eventual ascendance of 3 what we call natural capitalism. 4 Capitalism, as practiced, is a financially profitable, nonsustainable 5 aberration in human development. What might be called “industrial 6 capitalism” does not fully conform to its own accounting principles. It 7 liquidates its capital and calls it income. It neglects to assign any value 8 to the largest stocks of capital it employs — the natural resources and 9 living systems, as well as the social and cultural systems that are the 10 basis of human capital. 11 But this deficiency in business operations cannot be corrected sim- 12 ply by assigning monetary values to natural capital, for three reasons. 13 First, many of the services we receive from living systems have no 14 known substitutes at any price; for example, oxygen production by 15 green plants. This was demonstrated memorably in – when the 16 scientists operating the $ million Biosphere  experiment in Ari- 17 zona discovered that it was unable to maintain life-supporting oxygen 18 levels for the eight people living inside. Biosphere 1, a.k.a. Planet Earth, 19 performs this task daily at no charge for  billion people. 20 Second, valuing natural capital is a difficult and imprecise exercise 21 at best. Nonetheless, several recent assessments have estimated that bio- 22 logical services flowing directly into society from the stock of natural 23 capital are worth at least $ trillion annually.5 That figure is close to the 24 annual gross world product of approximately $ trillion — a striking 25 measure of the value of natural capital to the economy. If natural capi- 26 tal stocks were given a monetary value, assuming the assets yielded 27 “interest” of $ trillion annually, the world’s natural capital would be 28 valued at somewhere between $ and $ trillion — tens of thou- 29 sands of dollars for every person on the planet. That is undoubtedly a 30 conservative figure given the fact that anything we can’t live without 31 and can’t replace at any price could be said to have an infinite value. 32 Additionally, just as technology cannot replace the planet’s life- 33 support systems, so, too, are machines unable to provide a substitute 34 for human intelligence, knowledge, wisdom, organizational abilities, 35 and culture. The World Bank’s  Wealth Index found the sum value 36 of human capital to be three times greater than all the financial and 37 manufactured capital reflected on global balance sheets.6 This, too, 38 S 39 R 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 6

6 NATURAL CAPITALISM 1 appears to be a conservative estimate, since it counts only the market 2 value of human employment, not uncompensated effort or cultural 3 resources. 4 It is not the aim of this book to assess how to determine value for 5 such unaccounted-for forms of capital. It is clear, however, that behav- 6 ing as though they are valueless has brought us to the verge of disaster. 7 But if it is in practice difficult to tabulate the value of natural and 8 human capital on balance sheets, how can governments and conscien- 9 tious businesspersons make decisions about the responsible use of 10 earth’s living systems? 11 12 CONVENTIONAL CAPITALISM 13 Following Einstein’s dictum that problems can’t be solved within the 14 mind-set that created them, the first step toward any comprehensive 15 economic and ecological change is to understand the mental model 16 that forms the basis of present economic thinking. The mind-set of the 17 present capitalist system might be summarized as follows: 18 . 19 Economic progress can best occur in free-market systems of production and distribution where reinvested profits make labor and capital increasingly pro- 20 ductive. 21 . Competitive advantage is gained when bigger, more efficient plants manufac- 22 ture more products for sale to expanding markets. 23 . Growth in total output (GDP) maximizes human well-being. 24 . Any resource shortages that do occur will elicit the development of substitutes. 25 . Concerns for a healthy environment are important but must be balanced 26 against the requirements of economic growth, if a high standard of living is 27 to be maintained. 28 . Free enterprise and market forces will allocate people and resources to their 29 highest and best uses. 30 31 The origins of this worldview go back centuries, but it took the 32 industrial revolution to establish it as the primary economic ideology. 33 This sudden, almost violent, change in the means of production and 34 distribution of goods, in sector after economic sector, introduced a new 35 element that redefined the basic formula for the creation of material 36 products: Machines powered by water, wood, charcoal, coal, oil, and 37 eventually electricity accelerated or accomplished some or all of the S38 work formerly performed by laborers. Human productive capabilities R39 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 7

THE NEXT INDUSTRIAL REVOLUTION 7 began to grow exponentially. What took two hundred workers in  1 could be done by a single spinner in the British textile industry by . 2 With such astonishingly improved productivity, the labor force was 3 able to manufacture a vastly larger volume of basic necessities like cloth 4 at greatly reduced cost. This in turn rapidly raised standards of living 5 and real wages, increasing demand for other products in other indus- 6 tries. Further technological breakthroughs proliferated, and as industry 7 after industry became mechanized, leading to even lower prices and 8 higher incomes, all of these factors fueled a self-sustaining and increas- 9 ing demand for transportation, housing, education, clothing, and other 10 goods, creating the foundation of modern commerce.7 11 The past two hundred years of massive growth in prosperity and 12 manufactured capital have been accompanied by a prodigious body of 13 economic theory analyzing it, all based on the fallacy that natural and 14 human capital have little value as compared to final output. In the stan- 15 dard industrial model, the creation of value is portrayed as a linear 16 sequence of extraction, production, and distribution: Raw materials are 17 introduced. (Enter nature, stage left.) Labor uses technologies to trans- 18 form these resources into products, which are sold to create profits. The 19 wastes from production processes, and soon the products themselves, 20 are somehow disposed of somewhere else. (Exit waste, stage right.) The 21 “somewheres” in this scenario are not the concern of classical econom- 22 ics: Enough money can buy enough resources, so the theory goes, and 23 enough “elsewheres” to dispose of them afterward. 24 This conventional view of value creation is not without its critics. 25 Viewing the economic process as a disembodied, circular flow of value 26 between production and consumption, argues economist Herman 27 Daly, is like trying to understand an animal only in terms of its circula- 28 tory system, without taking into account the fact it also has a digestive 29 tract that ties it firmly to its environment at both ends. But there is an 30 even more fundamental critique to be applied here, and it is one based 31 on simple logic. The evidence of our senses is sufficient to tell us that all 32 economic activity — all that human beings are, all that they can ever 33 accomplish — is embedded within the workings of a particular planet. 34 That planet is not growing, so the somewheres and elsewheres are 35 always with us. The increasing removal of resources, their transport 36 and use, and their replacement with waste steadily erodes our stock of 37 natural capital. 38 S 39 R 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 8

8 NATURAL CAPITALISM 1 With nearly ten thousand new people arriving on earth every hour, 2 a new and unfamiliar pattern of scarcity is now emerging. At the begin- 3 ning of the industrial revolution, labor was overworked and relatively 4 scarce (the population was about one-tenth of current totals), while 5 global stocks of natural capital were abundant and unexploited. But 6 today the situation has been reversed: After two centuries of rises in 7 labor productivity, the liquidation of natural resources at their extrac- 8 tion cost rather than their replacement value, and the exploitation of 9 living systems as if they were free, infinite, and in perpetual renewal, it 10 is people who have become an abundant resource, while nature is 11 becoming disturbingly scarce. 12 Applying the same economic logic that drove the industrial revolu- 13 tion to this newly emerging pattern of scarcity implies that, if there is to 14 be prosperity in the future, society must make its use of resources vastly 15 more productive — deriving four, ten, or even a hundred times as 16 much benefit from each unit of energy, water, materials, or anything 17 else borrowed from the planet and consumed. Achieving this degree of 18 efficiency may not be as difficult as it might seem because from a mate- 19 rials and energy perspective, the economy is massively inefficient. In the 20 United States, the materials used by the metabolism of industry 21 amount to more than twenty times every citizen’s weight per day — 22 more than one million pounds per American per year. The global flow 23 of matter, some  billion tons per year, most of it wasted, is largely 24 invisible. Yet obtaining, moving, using, and disposing of it is steadily 25 undermining the health of the planet, which is showing ever greater 26 signs of stress, even of biological breakdown. Human beings already 27 use over half the world’s accessible surface freshwater, have trans- 28 formed one-third to one-half of its land surface, fix more nitrogen than 29 do all natural systems on land, and appropriate more than two-fifths of 30 the planet’s entire land-based primary biological productivity.8 The 31 doubling of these burdens with rising population will displace many of 32 the millions of other species, undermining the very web of life. 33 The resulting ecological strains are also causing or exacerbating 34 many forms of social distress and conflict. For example, grinding 35 poverty, hunger, malnutrition, and rampant disease affect one-third of 36 the world and are growing in absolute numbers; not surprisingly, 37 crime, corruption, lawlessness, and anarchy are also on the rise (the S38 fastest-growing industry in the world is security and private police pro- R39 tection); fleeing refugee populations have increased throughout the 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 9

THE NEXT INDUSTRIAL REVOLUTION 9 nineties to about a hundred million; over a billion people in the world 1 who need to work cannot find jobs, or toil at such menial work that 2 they cannot support themselves or their families;9 meanwhile, the loss 3 of forests, topsoil, fisheries, and freshwater is, in some cases, exacerbat- 4 ing regional and national conflicts. 5 What would our economy look like if it fully valued all forms of cap- 6 ital, including human and natural capital? What if our economy were 7 organized not around the lifeless abstractions of neoclassical economics 8 and accountancy but around the biological realities of nature? What if 9 Generally Accepted Accounting Practice booked natural and human 10 capital not as a free amenity in putative inexhaustible supply but as a 11 finite and integrally valuable factor of production? What if, in the 12 absence of a rigorous way to practice such accounting, companies started 13 to act as if such principles were in force? This choice is possible and such 14 an economy would offer a stunning new set of opportunities for all of 15 society, amounting to no less than the next industrial revolution. 16 17 18 CAPITALISM AS IF LIVING SYSTEMS MATTERED 19 Natural capitalism and the possibility of a new industrial system are 20 based on a very different mind-set and set of values than conventional 21 capitalism. Its fundamental assumptions include the following: 22 . The environment is not a minor factor of production but rather is “an envelope 23 containing, provisioning, and sustaining the entire economy.”10 24 . The limiting factor to future economic development is the availability and 25 functionality of natural capital, in particular, life-supporting services that have 26 no substitutes and currently have no market value. 27 . Misconceived or badly designed business systems, population growth, and 28 wasteful patterns of consumption are the primary causes of the loss of natural 29 capital, and all three must be addressed to achieve a sustainable economy. 30 . Future economic progress can best take place in democratic, market-based 31 systems of production and distribution in which all forms of capital are fully 32 valued, including human, manufactured, financial, and natural capital. 33 . One of the keys to the most beneficial employment of people, money, and the 34 environment is radical increases in resource productivity. 35 . Human welfare is best served by improving the quality and flow of desired 36 services delivered, rather than by merely increasing the total dollar flow. 37 . Economic and environmental sustainability depends on redressing global 38 S inequities of income and material well-being. 39 R 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 10

10 NATURAL CAPITALISM

1 . The best long-term environment for commerce is provided by true democratic 2 systems of governance that are based on the needs of people rather than 3 business. 4 5 This book introduces four central strategies of natural capitalism 6 that are a means to enable countries, companies, and communities to 7 operate by behaving as if all forms of capital were valued. Ensuring a 8 perpetual annuity of valuable social and natural processes to serve a 9 growing population is not just a prudent investment but a critical need 10 in the coming decades. Doing so can avert scarcity, perpetuate abun- 11 dance, and provide a solid basis for social development; it is the basis of 12 responsible stewardship and prosperity for the next century and beyond. 13 1. RADICAL RESOURCE PRODUCTIVITY. Radically increased resource pro- 14 ductivity is the cornerstone of natural capitalism because using resources 15 more effectively has three significant benefits: It slows resource depletion 16 at one end of the value chain, lowers pollution at the other end, and 17 provides a basis to increase worldwide employment with meaningful 18 jobs. The result can be lower costs for business and society, which no 19 longer has to pay for the chief causes of ecosystem and social disrup- 20 tion. Nearly all environmental and social harm is an artifact of the 21 uneconomically wasteful use of human and natural resources, but radi- 22 cal resource productivity strategies can nearly halt the degradation of 23 the biosphere, make it more profitable to employ people, and thus safe- 24 guard against the loss of vital living systems and social cohesion. 25 2. BIOMIMICRY. Reducing the wasteful throughput of materials — 26 indeed, eliminating the very idea of waste — can be accomplished by 27 redesigning industrial systems on biological lines that change the 28 nature of industrial processes and materials, enabling the constant 29 reuse of materials in continuous closed cycles, and often the elimina- 30 tion of toxicity. 31 3. SERVICE AND FLOW ECONOMY. This calls for a fundamental change in 32 the relationship between producer and consumer, a shift from an econ- 33 omy of goods and purchases to one of service and flow. In essence, an 34 economy that is based on a flow of economic services can better protect 35 the ecosystem services upon which it depends. This will entail a new 36 perception of value, a shift from the acquisition of goods as a measure 37 of affluence to an economy where the continuous receipt of quality, S38 utility, and performance promotes well-being. This concept offers R39 incentives to put into practice the first two innovations of natural capi- 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 11

THE NEXT INDUSTRIAL REVOLUTION 11 talism by restructuring the economy to focus on relationships that bet- 1 ter meet customers’ changing value needs and to reward automatically 2 both resource productivity and closed-loop cycles of materials use. 3 4. INVESTING IN NATURAL CAPITAL. This works toward reversing world- 4 wide planetary destruction through reinvestments in sustaining, restor- 5 ing, and expanding stocks of natural capital, so that the biosphere can 6 produce more abundant ecosystem services and natural resources. 7 All four changes are interrelated and interdependent; all four gener- 8 ate numerous benefits and opportunities in markets, finance, materials, 9 distribution, and employment. Together, they can reduce environmental 10 harm, create economic growth, and increase meaningful employment. 11 12 RESOURCE PRODUCTIVITY 13 Imagine giving a speech to Parliament in  predicting that within 14 seventy years human productivity would rise to the point that one per- 15 son could do the work of two hundred. The speaker would have been 16 branded as daft or worse. Imagine a similar scene today. Experts are tes- 17 tifying in Congress, predicting that we will increase the productivity of 18 our resources in the next seventy years by a factor of four, ten, even one 19 hundred. Just as it was impossible  years ago to conceive of an indi- 20 vidual’s doing two hundred times more work, it is equally difficult for 21 us today to imagine a kilowatt-hour or board foot being ten or a hun- 22 dred times more productive than it is now. 23 Although the movement toward radical resource productivity has 24 been under way for decades, its clarion call came in the fall of ,when 25 a group of sixteen scientists, economists, government officials, and busi- 26 nesspeople convened and, sponsored by Friedrich Schmidt-Bleek of the 27 Wuppertal Institute for Climate, Environment, and Energy in Germany, 28 published the “Carnoules Declaration.” Participants had come from 29 Europe, the United States, Japan, England, Canada, and India to the 30 French village of Carnoules to discuss their belief that human activities 31 were at risk from the ecological and social impact of materials and 32 energy use. The Factor Ten Club, as the group came to call itself, called 33 for a leap in resource productivity to reverse the growing damage. The 34 declaration began with these prophetic words: “Within one generation, 35 nations can achieve a ten-fold increase in the efficiency with which they 36 use energy, natural resources and other materials.”11 37 In the years since, Factor Ten (a  percent reduction in energy and 38 S materials intensity) and Factor Four (a  percent reduction) have 39 R 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 12

12 NATURAL CAPITALISM 1 entered the vocabulary of government officials, planners, academics, 2 and businesspeople throughout the world.12 The governments of Aus- 3 tria, the Netherlands, and Norway have publicly committed to pursu- 4 ing Factor Four efficiencies. The same approach has been endorsed by 5 the European Union as the new paradigm for sustainable development. 6 Austria, Sweden, and OECD environment ministers have urged the 7 adoption of Factor Ten goals, as have the World Business Council for 8 Sustainable Development and the United Nations Environment Pro- 9 gram (UNEP).13 The concept is not only common parlance for most 10 environmental ministers in the world, but such leading corporations as 11 Dow Europe and Mitsubishi Electric see it as a powerful strategy to gain 12 a competitive advantage. Among all major industrial nations, the 13 United States probably has the least familiarity with and understanding 14 of these ideas. 15 At its simplest, increasing resource productivity means obtaining 16 the same amount of utility or work from a product or process while 17 using less material and energy. In manufacturing, transportation, 18 forestry, construction, energy, and other industrial sectors, mounting 19 empirical evidence suggests that radical improvements in resource pro- 20 ductivity are both practical and cost-effective, even in the most modern 21 industries. Companies and designers are developing ways to make nat- 22 ural resources — energy, metals, water, and forests — work five, ten, 23 even one hundred times harder than they do today. These efficiencies 24 transcend the marginal gains in performance that industry constantly 25 seeks as part of its evolution. Instead, revolutionary leaps in design and 26 technology will alter industry itself as demonstrated in the following 27 chapters. Investments in the productivity revolution are not only repaid 28 over time by the saved resources but in many cases can reduce initial 29 capital investments. 30 When engineers speak of “efficiency,” they refer to the amount of 31 output a process provides per unit of input. Higher efficiency thus 32 means doing more with less, measuring both factors in physical terms. 33 When economists refer to efficiency, however, their definition differs in 34 two ways. First, they usually measure a process or outcome in terms of 35 expenditure of money — how the market value of what was produced 36 compares to the market cost of the labor and other inputs used to cre- 37 ate it. Second, “economic efficiency” typically refers to how fully and S38 perfectly market mechanisms are being harnessed to minimize the R39 monetary total factor cost of production. Of course it’s important to 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 13

THE NEXT INDUSTRIAL REVOLUTION 13 harness economically efficient market mechanisms, and we share econ- 1 omists’ devotion to that goal. But to avoid confusion, when we suggest 2 using market tools to achieve “resource productivity” and “resource 3 efficiency,”we use those terms in the engineering sense. 4 Resource productivity doesn’t just save resources and money; it can 5 also improve the quality of life. Listen to the din of daily existence — 6 the city and freeway traffic, the airplanes, the garbage trucks outside 7 urban windows — and consider this: The waste and the noise are signs 8 of inefficiency, and they represent money being thrown away. They will 9 disappear as surely as did manure from the nineteenth-century streets 10 of London and New York. Inevitably, industry will redesign everything 11 it makes and does, in order to participate in the coming productivity 12 revolution. We will be able to see better with resource-efficient lighting 13 systems, produce higher-quality goods in efficient factories, travel more 14 safely and comfortably in efficient vehicles, feel more comfortable (and 15 do substantially more and better work)14 in efficient buildings, and be 16 better nourished by efficiently grown food. An air-conditioning system 17 that uses  percent less energy or a building so efficient that it needs 18 no air-conditioning at all may not fascinate the average citizen, but the 19 fact that they are quiet and produce greater comfort while reducing 20 energy costs should appeal even to technophobes. That such options 21 save money should interest everyone. 22 As subsequent chapters will show, the unexpectedly large improve- 23 ments to be gained by resource productivity offer an entirely new ter- 24 rain for business invention, growth, and development. Its advantages 25 can also dispel the long-held belief that core business values and envi- 26 ronmental responsibility are incompatible or at odds. In fact, the mas- 27 sive inefficiencies that are causing environmental degradation almost 28 always cost more than the measures that would reverse them. 29 But even as Factor Ten goals are driving reductions in materials and 30 energy flows, some governments are continuing to create and admin- 31 ister laws, policies, taxes, and subsidies that have quite the opposite 32 effect. Hundreds of billions of dollars of taxpayers’ money are annually 33 diverted to promote inefficient and unproductive material and energy 34 use. These include subsidies to mining, oil, coal, fishing, and forest 35 industries as well as agricultural practices that degrade soil fertility and 36 use wasteful amounts of water and chemicals. Many of these subsidies 37 are vestigial, some dating as far back as the eighteenth century, when 38 S European powers provided entrepreneurs with incentives to find and 39 R 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 14

14 NATURAL CAPITALISM 1 exploit colonial resources. Taxes extracted from labor subsidize pat- 2 terns of resource use that in turn displace workers, an ironic situation 3 that is becoming increasingly apparent and unacceptable, particularly 4 in Europe, where there is chronically high unemployment. Already, tax 5 reforms aimed at increasing employment by shifting taxes away from 6 people to the use of resources have started to be instituted in the 7 Netherlands, Germany, Britain, Sweden, and Denmark, and are being 8 seriously proposed across Europe. 9 In less developed countries, people need realistic and achievable 10 means to better their lives. The world’s growing population cannot 11 attain a Western standard of living by following traditional industrial 12 paths to development, for the resources required are too vast, too 13 expensive, and too damaging to local and global systems. Instead, radi- 14 cal improvements in resource productivity expand their possibilities 15 for growth, and can help to ameliorate the polarization of wealth 16 between rich and poor segments of the globe. When the world’s nations 17 met in Brazil at the Earth Summit in  to discuss the environment 18 and human development, some treaties and proposals proved to be 19 highly divisive because it appeared that they put a lid on the ability of 20 nonindustrialized countries to pursue development. Natural capitalism 21 provides a practical agenda for development wherein the actions of 22 both developed and developing nations are mutually supportive. 23 24 BIOMIMICRY 25 To appreciate the potential of radical resource productivity, it is helpful 26 to recognize that the present industrial system is, practically speaking, a 27 couch potato: It eats too much junk food and gets insufficient exercise. 28 In its late maturity, industrial society runs on life-support systems that 29 require enormous heat and pressure, are petrochemically dependent 30 and materials-intensive, and require large flows of toxic and hazardous 31 chemicals. These industrial “empty calories” end up as pollution, acid 32 rain, and greenhouse gases, harming environmental, social, and finan- 33 cial systems. Even though all the reengineering and downsizing trends 34 of the past decade were supposed to sweep away corporate inefficiency, 35 the U.S. economy remains astoundingly inefficient: It has been esti- 36 mated that only  percent of its vast flows of materials actually end up 37 in products.15 Overall, the ratio of waste to the durable products that S38 constitute material wealth may be closer to one hundred to one. The whole R39 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 15

THE NEXT INDUSTRIAL REVOLUTION 15 economy is less than  percent — probably only a few percent — as 1 energy-efficient as the laws of physics permit.16 2 This waste is currently rewarded by deliberate distortions in the 3 marketplace, in the form of policies like subsidies to industries that 4 extract raw materials from the earth and damage the biosphere. As long 5 as that damage goes unaccounted for, as long as virgin resource prices 6 are maintained at artificially low levels, it makes sense to continue to 7 use virgin materials rather than reuse resources discarded from previ- 8 ous products. As long as it is assumed that there are “free goods” in the 9 world — pure water, clean air, hydrocarbon combustion, virgin forests, 10 veins of minerals — large-scale, energy- and materials-intensive man- 11 ufacturing methods will dominate, and labor will be increasingly mar- 12 ginalized.17 In contrast, if the subsidies distorting resource prices were 13 removed or reversed, it would be advantageous to employ more people 14 and use fewer virgin materials. 15 Even without the removal of subsidies, the economics of resource 16 productivity are already encouraging industry to reinvent itself to be 17 more in accord with biological systems. Growing competitive pressures 18 to save resources are opening up exciting frontiers for chemists, physicists, 19 process engineers, biologists, and industrial designers. They are reex- 20 amining the energy, materials, and manufacturing systems required to 21 provide the specific qualities (strength, warmth, structure, protection, 22 function, speed, tension, motion, skin) required by products and end 23 users and are turning away from mechanical systems requiring heavy 24 metals, combustion, and petroleum to seek solutions that use minimal 25 inputs, lower temperatures, and enzymatic reactions. Business is switch- 26 ing to imitating biological and ecosystem processes replicating natural 27 methods of production and engineering to manufacture chemicals, 28 materials, and compounds, and soon maybe even microprocessors. Some 29 of the most exciting developments have resulted from emulating nature’s 30 life-temperature, low-pressure, solar-powered assembly techniques, 31 whose products rival anything human-made. Science writer Janine 32 Benyus points out that spiders make silk, strong as Kevlar but much 33 tougher, from digested crickets and flies, without needing boiling sul- 34 furic acid and high-temperature extruders. The abalone generates an 35 inner shell twice as tough as our best ceramics, and diatoms make 36 glass, both processes employing seawater with no furnaces. Trees turn 37 sunlight, water, and air into cellulose, a sugar stiffer and stronger than 38 S 39 R 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 16

16 NATURAL CAPITALISM 1 nylon, and bind it into wood, a natural composite with a higher bend- 2 ing strength and stiffness than concrete or steel. We may never grow as 3 skillful as spiders, abalone, diatoms, or trees, but smart designers are 4 apprenticing themselves to nature to learn the benign chemistry of its 5 processes. 6 Pharmaceutical companies are becoming microbial ranchers man- 7 aging herds of enzymes. Biological farming manages soil ecosystems in 8 order to increase the amount of biota and life per acre by keen knowl- 9 edge of food chains, species interactions, and nutrient flows, minimizing 10 crop losses and maximizing yields by fostering diversity. Meta-industrial 11 engineers are creating “zero-emission” industrial parks whose tenants 12 will constitute an industrial ecosystem in which one company will feed 13 upon the nontoxic and useful wastes of another. Architects and builders 14 are creating structures that process their own wastewater, capture light, 15 create energy, and provide habitat for wildlife and wealth for the 16 community, all the while improving worker productivity, morale, and 17 health.18 High-temperature, centralized power plants are starting to be 18 replaced by smaller-scale, renewable power generation. In chemistry, 19 we can look forward to the end of the witches’ brew of dangerous sub- 20 stances invented this century, from DDT, PCB, CFCs, and Thalidomide 21 to Dieldrin and xeno-estrogens. The eighty thousand different chemicals 22 now manufactured end up everywhere, as Donella Meadows remarks, 23 from our “stratosphere to our sperm.”They were created to accomplish 24 functions that can now be carried out far more efficiently with biode- 25 gradable and naturally occurring compounds. 26 27 SERVICE AND FLOW 28 Beginning in the mid-s, Swiss industry analyst Walter Stahel and 29 German chemist Michael Braungart independently proposed a new 30 industrial model that is now gradually taking shape. Rather than an 31 economy in which goods are made and sold, these visionaries imagined 32 a service economy wherein consumers obtain services by leasing or rent- 33 ing goods rather than buying them outright. (Their plan should not be 34 confused with the conventional definition of a service economy, in 35 which burger-flippers outnumber steelworkers.) Manufacturers cease 36 thinking of themselves as sellers of products and become, instead, 37 deliverers of service, provided by long-lasting, upgradeable durables. S38 Their goal is selling results rather than equipment, performance and R39 satisfaction rather than motors, fans, plastics, or condensers. 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 17

THE NEXT INDUSTRIAL REVOLUTION 17 The system can be demonstrated by a familiar example. Instead of 1 purchasing a washing machine, consumers could pay a monthly fee to 2 obtain the service of having their clothes cleaned. The washer would 3 have a counter on it, just like an office photocopier, and would be main- 4 tained by the manufacturer on a regular basis, much the way main- 5 frame computers are. If the machine ceased to provide its specific 6 service, the manufacturer would be responsible for replacing or repair- 7 ing it at no charge to the customer, because the washing machine would 8 remain the property of the manufacturer. The concept could likewise 9 be applied to computers, cars, VCRs, refrigerators, and almost every 10 other durable that people now buy, use up, and ultimately throw away. 11 Because products would be returned to the manufacturer for con- 12 tinuous repair, reuse, and remanufacturing, Stahel called the process 13 “cradle-to-cradle.”19 14 Many companies are adopting Stahel’s principles. Agfa Gaevert pio- 15 neered the leasing of copier services, which spread to the entire indus- 16 try.20 The Carrier Corporation, a division of United Technologies, is 17 creating a program to sell coolth (the opposite of warmth) to compa- 18 nies while retaining ownership of the air-conditioning equipment. The 19 Interface Corporation is beginning to lease the warmth, beauty, and 20 comfort of its floor-covering services rather than selling carpets. 21 Braungart’s model of a service economy focuses on the nature of 22 material cycles. In this perspective, if a given product lasts a long time 23 but its waste materials cannot be reincorporated into new manufactur- 24 ing or biological cycles, then the producer must accept responsibility 25 for the waste with all its attendant problems of toxicity, resource over- 26 use, worker safety, and environmental damage. Braungart views the 27 world as a series of metabolisms in which the creations of human 28 beings, like the creations of nature, become “food” for interdependent 29 systems, returning to either an industrial or a biological cycle after their 30 useful life is completed. To some, especially frugal Scots and New 31 Englanders, this might not sound a novel concept at all. Ralph Waldo 32 Emerson once wrote, “Nothing in nature is exhausted in its first use. 33 When a thing has served an end to the uttermost, it is wholly new 34 for an ulterior service.”21 In simpler times, such proverbial wisdom 35 had highly practical applications. Today, the complexity of modern 36 materials makes this almost impossible. Thus, Braungart proposed 37 an Intelligent Product System whereby those products that do not 38 S degrade back into natural nutrient cycles be designed so that they can 39 R 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 18

18 NATURAL CAPITALISM 1 be deconstructed and completely reincorporated into technical nutrient 2 cycles of industry.22 3 Another way to conceive of this method is to imagine an industrial 4 system that has no provision for landfills, outfalls, or smokestacks. If a 5 company knew that nothing that came into its factory could be thrown 6 away, and that everything it produced would eventually return, how 7 would it design its components and products? The question is more 8 than a theoretical construct, because the earth works under precisely 9 these strictures. 10 In a service economy, the product is a means, not an end. The manu- 11 facturer’s leasing and ultimate recovery of the product means that the 12 product remains an asset. The minimization of materials use, the maxi- 13 mization of product durability, and enhanced ease of maintenance not 14 only improve the customer’s experience and value but also protect the 15 manufacturer’s investment and hence its bottom line. Both producer 16 and customer have an incentive for continuously improving resource 17 productivity, which in turn further protects ecosystems. Under this 18 shared incentive, both parties form a relationship that continuously 19 anticipates and meets the customer’s evolving value needs — and mean- 20 while rewards both parties for reducing the burdens on the planet. 21 The service paradigm has other benefits as well: It increases employ- 22 ment, because when products are designed to be reincorporated into 23 manufacturing cycles, waste declines, and demand for labor increases. 24 In manufacturing, about one-fourth of the labor force is engaged in the 25 fabrication of basic raw materials such as steel, glass, cement, silicon, 26 and resins, while three-quarters are in the production phase. The 27 reverse is true for energy inputs: Three times as much energy is used to 28 extract virgin or primary materials as is used to manufacture products 29 from those materials. Substituting reused or more durable manufac- 30 tured goods for primary materials therefore uses less energy but pro- 31 vides more jobs.23 32 An economy based on a service-and-flow model could also help sta- 33 bilize the business cycle, because customers would be purchasing flows 34 of services, which they need continuously, rather than durable equip- 35 ment that’s affordable only in good years. Service providers would have 36 an incentive to keep their assets productive for as long as possible, 37 rather than prematurely scrapping them in order to sell replacements. S38 Over- and undercapacity would largely disappear, as business would no R39 longer have to be concerned about delivery or backlogs if it is contract- 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 19

THE NEXT INDUSTRIAL REVOLUTION 19 ing from a service provider. Gone would be end-of-year rebates to 1 move excess automobile inventory, built for customers who never 2 ordered them because managerial production quotas were increased in 3 order to amortize expensive capital equipment that was never needed 4 in the first place. As it stands now, durables manufacturers have a love- 5 hate relationship with durability. But when they become service 6 providers, their long- and short-term incentives become perfectly 7 attuned to what customers want, the environment deserves, labor 8 needs, and the economy can support.24 9 10 INVESTING IN NATURAL CAPITAL 11 When a manufacturer realizes that a supplier of key components is 12 overextended and running behind on deliveries, it takes immediate 13 action lest its own production lines come to a halt. Living systems are a 14 supplier of key components for the life of the planet, and they are now 15 falling behind on their orders. Until recently, business could ignore such 16 shortages because they didn’t affect production and didn’t increase 17 costs. That situation may be changing, however, as rising weather- 18 related claims come to burden insurance companies and world agricul- 19 ture. (In , violent weather caused upward of $ billion worth of 20 damage worldwide, a figure that represented more weather-related 21 losses than were accounted for through the entire decade of the s. 22 The losses were greatly compounded by deforestation and climate 23 change, factors that increase the frequency and severity of disasters. In 24 human terms,  million people were permanently or temporarily dis- 25 placed from their homes; this figure includes the dislocations caused by 26 Hurricane Mitch, the deadliest Atlantic storm in two centuries.)25 If the 27 flow of services from industrial systems is to be sustained or increased in 28 the future for a growing population, the vital flow of life-supporting ser- 29 vices from living systems will have to be maintained and increased. For 30 this to be possible will require investments in natural capital. 31 As both globalization and Balkanization proceed, and as the per- 32 capita availability of water, arable land, and fish continue to decline (as 33 they have done since ), the world faces the danger of being torn 34 apart by regional conflicts instigated at least in part by resource short- 35 ages or imbalances and associated income polarization.26 Whether it 36 involves oil27 or water,28 cobalt or fish, access to resources is playing 37 an ever more prominent role in generating conflict. In addition, 38 S many social instabilities and refugee populations — twelve million 39 R 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 20

20 NATURAL CAPITALISM 1 refugees now wander the world — are created or worsened by ecologi- 2 cal destruction, from Haiti to Somalia to Jordan. On April , , 3 Secretary of State Warren Christopher gave perhaps the first speech 4 by an American cabinet officer that linked global security with the 5 environment. His words may become prophetic for future foreign pol- 6 icy decisions: “. . . [E]nvironmental forces transcend borders and 7 oceans to threaten directly the health, prosperity and jobs of American 8 citizens....[A]ddressing natural resource issues is frequently critical 9 to achieving political and economic stability, and to pursuing our 10 strategic goals around the world.” 11 Societies need to adopt shared goals that enhance social welfare but 12 that are not the prerogatives of specific value or belief systems. Natural 13 capitalism is one such objective. It is neither conservative nor liberal in 14 its ideology, but appeals to both constituencies. Since it is a means, and 15 not an end, it doesn’t advocate a particular social outcome but rather 16 makes possible many different ends. Therefore, whatever the various 17 visions different parties or factions espouse, society can work toward 18 resource productivity now, without waiting to resolve disputes about 19 policy. 20 21 The chapters that follow describe an array of opportunities and possi- 22 bilities that are real, practical, measured, and documented. Engineers 23 have already designed hydrogen-fuel-cell-powered cars to be plug-in 24 electric generators that may become the power plants of the future. 25 Buildings already exist that make oxygen, solar power, and drinking 26 water and can help pay the mortgage while their tenants work inside 27 them. Deprintable and reprintable papers and inks, together with other 28 innovative ways to use fiber, could enable the world’s supply of lumber 29 and pulp to be grown in an area about the size of Iowa. Weeds can yield 30 potent pharmaceuticals; cellulose-based plastics have been shown to be 31 strong, reusable, and compostable; and luxurious carpets can be made 32 from landfilled scrap. Roofs and windows, even roads, can do double 33 duty as solar-electric collectors, and efficient car-free cities are being 34 designed so that men and women no longer spend their days driving to 35 obtain the goods and services of daily life. These are among the thou- 36 sands of innovations that are resulting from natural capitalism. 37 This book is both an overview of the remarkable technologies that S38 are already in practice and a call to action. Many of the techniques and R39 methods described here can be used by individuals and small busi- 26476 01 p001-169 r4ah 9/10/99 5:49 PM Page 21

THE NEXT INDUSTRIAL REVOLUTION 21 nesses. Other approaches are more suitable for corporations, even 1 whole industrial sectors; still others better suit local or central govern- 2 ments. Collectively, these techniques offer a powerful menu of new 3 ways to make resource productivity the foundation of a lasting and 4 prosperous economy — from Main Street to Wall Street, from your 5 house to the White House, and from the village to the globe. 6 Although there is an overwhelming emphasis in this book on what 7 we do with our machines, manufacturing processes, and materials, its 8 purpose is to support the human community and all life-support sys- 9 tems. There is a large body of literature that addresses the nature of spe- 10 cific living systems, from coral reefs to estuarine systems to worldwide 11 topsoil formation. Our focus is to bring about those changes in the 12 human side of the economy that can help preserve and reconstitute 13 these systems, to try and show for now and all time to come that there 14 is no true separation between how we support life economically and 15 ecologically. 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 S 39 R