Natural capitalism: creating the next industrial revolution.By Paul Hawken, Amory Lovins, & L.Hunter Lovins. Little, Browns & Co. $26.95, 396 [...]

July 1 2000 by Ronald Bailey

Natural capitalism: creating the next industrial revolution.

By Paul Hawken, Amory Lovins, & L.Hunter Lovins. Little, Browns & Co. $26.95, 396 pp.

The aims of natural capitalism are laudatory, but the authors fail to understand the root of the environmental problems they address. They identify the symptoms but get the diagnosis wrong, which means they end up prescribing the wrong medicine.

Co-authored by Paul Hawken, co-founder of Smith & Hawken, and the co-CEOs of the environmentalist Rocky Mountain Institute, Amory and L. Hunter Lovins, Natural Capitalism claims that “capitalism, as practiced, is a financially profitable, non-sustainable aberration in human development.” They blame environmental problems like air and water pollution, depleted fisheries, and tropical deforestation on conventional economics, which they say cannot take the value of these and other natural resources into proper account. Therefore they conclude that consumers and businesses end up wasting resources and undermining “ecosystem services” like the purification of water in wetlands. “For the first time, the limits to increased prosperity are due to the lack not of human-made capital but rather of natural capital,” they write.

So what did they get wrong? Essentially, nearly any environmental problem is, in large measure, a result of an institutional defect in property rights called an “open access commons.” People dump smoke in the air or trash in a stream or cut trees faster than they grow or chase after fish until the last one is gone because no one owns the resource, and thus no one has an interest in stopping others from abusing it. In most cases, such resources were originally held in common because they were so abundant. Today, if a person owned a stretch of river and a factory was dumping sludge into it, he or she could tell the factory owners to stop it or to pay for the right to do it. Thus the factory and consumers of its products would bear that cost and have an incentive to pollute less. If we want rapid environmental improvements, this is the way we should go. Iceland and New Zealand, for example, have privatized their fisheries and have dramatically rebounded as a result-making fishers, consumers, and environmentalists happy. Economists know how to solve these environmental problems one encloses the commons and assigns ownership and the rest is politics.

Having missed this vital point, the authors make a mishmash of proposals, including urging businesses to increase resource productivity radically, to practice biomimicry, to shift to a service and flow economy, and to invest in natural capital. For example, increasing resource productivity-getting more from less is something businesses already do. The average worker today produces 10 times more value than a worker in 1900 did. Clearly businesses have been busy boosting productivity. The authors are right to argue that subsidies to businesses and agriculture should be eliminated. But they point approvingly to a Swedish oil company that got the government to hike taxes on its competitors’ higher carbon gasoline and urge makers of recyclable carpets to lobby for prohibitions on landfilling used carpets—hardly the free market.

The authors urge businesses to mimic nature by reusing materials, saying that nature wastes nothing. While that may be generally true, from the point of view of a cow, manure is waste. Bacteria, insects, and plants—not the cow——take care of recycling manure. So why should companies be forced to reuse wastes? A company should responsibly dispose of the wastes it owns, whether selling it to others for reuse or paying for its disposal. After all, Mother Nature herself uses landfills-billions of tons of carbon are sequestered in coal beds.

They also recommend that we adopt “a service economy.” Instead of owning a good, people would lease them from providers, which would be responsible for their upkeep, replacement, and improvement. They believe this would encourage manufacturers to be more frugal with resources. However, as economics shows, it doesn’t matter much if it is the consumer or the producer who is responsible for the ultimate disposition of a product, just so long as someone is responsible. Curiously, the authors do not address the well-known phenomenon of renter irresponsibility-if one doesn’t own a good, one is less likely to take care of it.

Despite having missed the forest for the trees, this book does offer some suggestions and case studies on how to improve resource efficiency that managers may find useful. Mine it for those and ignore its misconceived notions of how to revamp capitalism.

Ronald Bailey is the science correspondent for Reason magazine. He edited Earth Report 2000, which was recently published by McGraw-Hill.