Environmentalists' Economic Epiphany

No?l’s Book review: Natural Capitalism by Paul Hawken, Hunter Lovins, & Amory Lovins

Opinion:

I loved reading this book because we can judge how we did in implementing natural capitalism. With this scorecard lens, this book highlights which areas are front-running and lagging in the sustainability transition. Furthermore, it reaffirms the basic argumentation for sustainability and forms a strong foundation of principles that professionals can use in various fields. 

Natural capitalism is mandatory reading for anyone interested in sustainability, environmental economics, or circularity. For someone with sustainability interests, this book will be a series of rude awakenings and charming predictions. Although the book does read like a textbook at times, the argumentation is comprehensive and thorough. I know I will be implementing the principles of natural capitalism every day.

Key messages on sustainable business operation:

·       Innovation is crucial in all forms of capitalism.  

·       A business that functions as a learning organization will always outpace the corporate culture of paper-pushers.

·       Focus on service and flow of value: profits and long-term growth will follow.

·       Today’s abusers of ecosystem services are imposing a cost on the rest of society.

Chapter summaries:

1.      The Next Industrial Revolution

Natural capitalism is a transformation of the current system through the accurate valuation of living systems.

The authors do not waste any time in the opening chapter. They define natural capital as capital that consists of resources present in nature, living systems, and ecosystem services. Furthermore, they place this definition next to the other conventional capital definitions, such a financial or manufactured capital. The authors expertly point to the existing gap in the current capitalist system when it comes to our natural resources. Readers are promised that this book will propose a way to close this gap by devising a method for determining the value of unaccounted-for capital. 

However, the authors stress that applying a monetary valuation to natural capital does not transform industrial capitalism to natural capitalism for three reasons: lack of known substitutes for living systems and human intelligence, and inaccurate price discovery.  Instead, they have outlined Four central strategies of natural capitalism: Radical Resource productivity, biomimicry, service and flow economy, and investing in natural capital. It is abundantly clear after this chapter that behaving as if natural capital is valueless is crippling our environment.

2.      Reinventing the Wheels

Innovation is at the heart of natural capitalism.

This chapter shows the age of the book. The authors present a vision for transforming the automotive industry and urban planning to achieve environmental goals. Over the last 20 years, it is interesting to see that the environmental movement has made some of the author's dreams a reality and even gone beyond. For example, the authors illustrate the ideal car called the hypercar: ultralight, low-drag, and hybrid-electric. It is fair to say that these innovations have been achieved and surpassed with full-electric cars designed in wind tunnels. Nevertheless, this chapter provides a detailed look into how innovation is a similarity between natural and conventional capitalism.

3.      Waste Not

 Waste can be extremely resource-rich, and it is costing the current system money.

The authors comprehensively establish the foundations of what is referred to today as the circular economy. The idea is that society's approach to waste and resource use needs to radically transform from inefficient single-use to efficient multi-use system. The authors use environmental waste examples, and social missed opportunities such as the US criminal justice system to demonstrate that radical resource productivity is readily achievable, and high impact changes can transform an economy for the better.

4.      Making the World

Focus on efficiency first.

The authors expand upon the principles of the modern-day equivalent of the circular economy. The chapter provides a compelling case that companies, industries, and countries should focus on eliminating inefficiencies in their internal processes and designs to improve profitability without burdening natural resources dramatically. The readers will be blown away at just how inefficient conventional capitalism is. The authors present six categories where entities can start to apply these principles: Design, new technologies, controls, corporate culture, new processes, and saving materials. 

5.      Building Blocks

 Green Real Estate Development is a forgotten diamond in the rough.

This chapter is all about the promising development of green real estate development. The case studies and facts might be outdated, but the underlying thought and 1999 perspectives are valuable. The authors highlight three real estate projects that manage to combine the principles discussed earlier, and they use these cases to illustrate that we mostly take buildings for granted. By contrast, the readers are challenged to examine the built environment in which they live and work and to ask the question: what could be changed, which accurately accounts for natural capital? The authors are very optimistic about the difficulty and initial cost of these changes, but that is of less importance since it will be worth it in the long-run.

6.      Tunneling Through the Cost Barrier

Significant systemic cost-saving will reap larger and broader results than incremental savings.

The authors take a more theoretical approach in this chapter, tackling the idea of cost-efficiency. It is common to think that applying cost-saving measures such as insulation, or heat-pumps, will save you money to a point. After that point diminishing marginal returns kick in, and you would be spending more money than you would ever save. The authors dispute this conclusion by drawing on engineering principles of system optimization, including all measurable benefits and process management. The simple argument is that viewing the cost-saving measures as part of a more extensive system will result in more significant savings as the compound and have unaccounted for benefits. This argument might seem like semantics to many readers; however, this approach's results do reap more significant benefits for seemingly less work.  

7.      Muda, Service, and Flow

Relentless elimination of waste combined with business redefinition catalyzes prosperity.

 Based on the concepts from Lean Thinking by James Womack and Daniel Jones, and that of the father of Toyota’s Production system Taiichi Ohno. Lean Thinking is the continuous flow of value, as defined by the customer, at the customer's pull, in search of perfectionism. Meanwhile, Ohno created a framework for eliminating waste called Muda, which encapsulates waste in the broadest sense of the word. The authors argue that the combination of these concepts creates an environment for incredible profitability and stability. The profitability aspect will not surprise the readers; however, the stability might be unexpected. It is stable because the innovation is based on scalability and simplicity, which minimizes the uncertainties of growth.

Another important aspect of this chapter is the importance of developing a service economy. The authors demonstrate remarkable foresight by advocating for a service business model, as it is prevalent in today's economy and exhibits exactly the benefits outlined in the chapter. Hence, natural capitalism focuses on service and flow of value.

8.      Capital gains

Calculating the real cost of natural capital is essential for economic growth.

Current readers will be delighted to read the opening paragraph of this chapter. The authors demonstrate that natural capital is not part of the wall street calculus because there is no column in the Wall Street Journal dedicated to the latest news. I checked, and in 2020 there is a section and reporters dedicated to sustainability news. This progress is partly what the authors are trying to encourage in this chapter. Besides awareness of natural capital, the authors also expose the perverse incentives that the industry has to not conserve natural capital through subsidies, taxes, and investment schemes. The authors propose a shift in taxes away from labor and income, and more directly on natural resources. They acknowledge that there are powerful lobby groups that will work hard not to have this happen.  

9.      Nature’s Filaments

The textile and paper industries ripe for an efficiency upgrade.

This chapter is not particularly exciting as it was a proposal to reshape industries related to fibers. The authors’ central message that it was ripe for improved efficiency. The recommendations in this chapter are great initiatives, and over time society has come to expect industries to implement these proposals at the bare minimum.

10.  Food for Life

Implementing Natural capitalism can create food abundance.

Like the previous chapter, it is not particularly interesting since it was a proposal to ensure that the food industry is no longer wasteful, poor for the climate and treats animals better. These are salient topics in society today, yet progress has been extremely slow. The readers might feel that this chapter is a sore spot (It was for me).  

11.  Aqueous Solutions

Human impacts on water are far more costly, and yet the solutions it provides are extremely valuable.

Similar to the previous chapters, it is not particularly mind-blowing; however, it raises a crucial point that water is maybe an essential resource. Yet society treats it the worst because natural capital is not accounted for. Furthermore, many great innovations and solutions can retain, recover, and save water, requiring stimulation for comprehensive implementation. Many readers will be frustrated by the fact that we have left this opportunity whither all these years. Note that only in 2020 has water taken center stage at the UN and in sustainability reporting.

12.  Climate

Words from a time were ending global warming was still an immediate and near-future possibility.

 This is a confronting chapter for many modern-day readers; the authors tackle climate change and global warming. They provide numerous examples of how it can be stopped along with proper justification for why we should. It is interesting to see how the climate debate was framed at the time. Mainly because the science was not debated, but the approach to combating climate change was debated. It is quite shocking to see that this area of natural capitalism has seen no progress but actually regressed. The author's overall argument that efficiency makes sense both economically and environmentally still stands; however, the challenge has only grown over the years.

13.  Making Markets Work

Extend the sound principles of the market to all sources of material values.

This chapter is all about bursting ideological bubbles related to the free market and proving that natural capitalism is not replacing the conventional capitalist system, but in reality, it is augmenting the status quo for the better. The authors expertly compare the assumptions of the perfect market theory and list how this is a fantasy. Hence, nullifying industrialists' objection that natural capital will mess with the perfect and efficient market theory. The authors examine each market failure that creates the imperfect market in which we live and helpfully provide recommendations towards natural capitalism—hence demonstrating that natural capitalism can correct some market failures.   

14.   Human Capital

Empower people to weave a web of solutions.

Curitiba is held up as the bastion of sustainability and all the principles of natural capitalism. This city in Brazil is the centerpiece of the chapter, and the authors describe how unlocking human potential with natural capitalism leads to more productivity and ingenuity. There is a recognition that the entire book champions simplicity; however, this chapter asks that this should be flexible. Simple as possible, but complex problems will most likely require a web of solutions that might complicate things.

15.  Once Upon a Planet

Natural Capitalism is not revolutionary; it is evolutionary and inevitable.

The final chapter is a plea to the readers to realize that natural capitalism is here to stay and that the future depends on people's ability to apply the principles. The authors point to businesses as the essential implementers to see the benefits of natural capitalism materialize. They implore governments to support the environmental movement and remove the perverse incentives to ignore natural capital. Looking back, one could argue that the authors were right that the sustainability movement was inevitable, but it hasn't moved as quickly as hypothesized in this book.