Natural Capitalism

Natural Capitalism is an U.S.-based social reform trend that wants to make capitalism accountable for its `negative externalities'.

URL = http://www.natcap.org/ [1]

Description

From http://www.natcap.org/sitepages/pid5.php

Natural Capitalism is an U.S.-based social reform trend that wants to make capitalism accountable for its `negative externalities'.

"Natural capital refers to the natural resources and ecosystem services that make possible all economic activity, indeed all life. These services are of immense economic value; some are literally priceless, since they have no known substitutes. Yet current business practices typically fail to take into account the value of these assets--which is rising with their scarcity. As a result, natural capital is being degraded and liquidated by the wasteful use of such resources as energy, materials, water, fiber, and topsoil.

The first of natural capitalism's four interlinked principles, therefore, is radically increased resource productivity. Implementing just this first principle can significantly improve a firm's bottom line, and can also help finance the other three. They are: redesigning industry on biological models with closed loops and zero waste; shifting from the sale of goods (for example, light bulbs) to the provision of services (illumination); and reinvesting in the natural capital that is the basis of future prosperity." (http://www.natcap.org/sitepages/pid5.php)

Principles

The Four Principles of Natural Capitalism

1) Radically Increase Resource Productivity. 2) Shift to biologically inspired production models (Biomimicry). 3) Move to a solutions-based business model. 4) Reinvest in natural and human capital.

From the Wikipedia:

"According to the authors, the "next industrial revolution" depends on the espousal of four central strategies: "the conservation of resources through more effective manufacturing processes, the reuse of materials as found in natural systems, a change in values from quantity to quality, and investing in natural capital, or restoring and sustaining natural resources".

While traditional industrial capitalism primarily recognizes the value of money and goods as capital, Natural Capitalism extends recognition to natural capital and human capital. Problems such as pollution and social injustice may then be seen as failures to properly account for capital, rather than as inherent failures of capitalism itself.

The fundamental assumptions of Natural Capitalism are as follows:

1) The limiting factor to future economic development is the availability and functionality of natural capital, in particular, life-supporting services that have no substitutes and currently have no market value.

2) Misconceived or badly designed business systems, population growth, and wasteful patterns of consumption are the primary causes of the loss of natural capital, and all three must be addressed to achieve a sustainable economy.

3) Future economic progress can best take place in democratic, market-based systems of production and distribution in which all forms of capital are fully valued, including human, manufactured, financial, and natural capital.

4) One of the keys to the most beneficial employment of people, money, and the environment is radical increases in resource productivity.

5) Human welfare is best served by improving the quality and flow of desired services delivered, rather than by merely increasing the total dollar flow.

6) Economic and environmental sustainability depends on redressing global inequities of income and material well-being." (http://en.wikipedia.org/wiki/Natural_Capitalism:_Creating_the_Next_Industrial_Revolution)

Discussion

The meaning of "capitalism" in 'natural capitalism'

From an interview with Paul Hawken, one of the coiners of the concept:

Q: What can you say about people who struggle with the concept or word, capitalism. And could you maybe help them better understand what you mean by "Natural Capitalism?

PH: "Three years before the book came out, I had written an article called "Natural Capitalism," and coined the term. And what I was writing about was Natural Capital, and that was (coined) by E. F. Schumacher. And what he was trying to say, as an economist, was (take a) look at this form of capital -- living systems and ecosystems services, what we call resources. We don't put this on the balance sheet of the world. We count it as zero, until we cut it down, extract it, mine it, kill it. And then it has value. But before we do that, it has zero value. That's crazy. It has more value before we touch it.

So, then it goes to Herman Daly, and what Herman Daly was saying is that the limiting factor to human prosperity to the world wasn't human productivity, but the productivity of our resources because we are in a resource restrained world caused by our industrial systems taking so much, so often and for so long. Therefore, when you have an economy and you see what the limiting factors are to development, then you work on maximizing what is limiting. And what is limiting to us isn't people, we have lots of people, too many some may say.

So my reason for writing the piece in Mother Jones, which was written in '96 and published in '97 (and the book in '99), was to say what kind of economy would it be if we were to maximize the production of natural capital, rather than maximizing the capital of people? When you maximize the productivity of people, you use less people. Well we have more people than there are jobs. Basically we are using less and less of what we have more of, and with natural capital, using more and more of what we have less of. And we are using more of it (natural capital) to make people more productive, to use less people. So this is upside down and backwards, we should be using more and more people to use less and less natural capital.

So when it came to titling it for the magazine, we called it Natural Capital -- "ism." It had nothing to do with capitalism, as such. It was actually meant to tweak the Mother Jones readers. And some of them were really mad, and my editor was fired for it. And was fired by people who had not really read the article. They felt like it was just about granola capitalism, or we were justifying capitalism. And it had nothing to do with capitalism, and it still doesn't. Now Amory (Lovins) and Hunter (Lovins) interpret it that way. But as a coiner of the term, and as one of the two authors of the book, I can tell you that "Natural Capitalism" is in no way meant to imply or be a justification or bull work to capitalist systems, which I think, are basically pathological.

I believe in commerce, I believe in entrepreneurship, I believe in business, I mean I want to make it really clear. But capitalism? No. I don't hold trump with that at all. It was meant to be a double entendre. A pun, a pun." (http://www.worldchanging.com/archives/010556.html)

Achieving True Costing

An explanation of the role of externalities and why they should be included in true costing. This is one of the key reforms proposed by the Natural Capitalism movement.

Cited by Kevin Carson [2], originally from the 'San Francisco Chronicle':

"CAPITALISM and sustainability are deeply and increasingly interrelated. After all, our economic activity is based on the use of natural and human resources. Not until we more broadly "price in" the external costs of investment decisions across all sectors will we have a sustainable economy and society.

The industrial revolution brought enormous prosperity, but it also introduced unsustainable business practices. Our current system for accounting was principally established in the 1930s by Lord Keynes and the creation of "national accounts" (the backbone of today's gross domestic product). While this system was precise in its ability to account for capital goods, it was imprecise in its ability to account for natural and human resources because it assumed them to be limitless. This, in part, explains why our current model of economic development is hard-wired to externalize as many costs as possible.

Externalities are costs created by industry but paid for by society. For example, pollution is an externality which is sometimes taxed by government in order to make the entity responsible "internalize" the full costs of production. Over the past century, companies have been rewarded financially for maximizing externalities in order to minimize costs....

....The "polluter pays" principle is just one example of how companies can be held accountable for the full costs of doing business....

In the nongovernmental sector, organizations such as World Resources Institute, Transparency International, the Coalition for Environmentally Responsible Economies (Ceres) and AccountAbility are helping companies explore how best to align corporate responsibility with business strategy. Over the past five years we have seen markets begin to incorporate the external cost of carbon dioxide emissions. This is happening through pricing mechanisms (price per ton of carbon dioxide) and government-supported trading platforms such as the European Union Emissions Trading Scheme in Europe. Even without a regulatory framework in the U.S., voluntary markets are emerging, such as the Chicago Climate Exchange and state-level initiatives such as the Regional Greenhouse Gas Initiative. These market mechanisms increasingly enable companies to calculate project returns and capital expenditures decisions with the price of carbon dioxide fully integrated....

As some have said, "We are operating the Earth like it's a business in liquidation." More mechanisms to incorporate environmental and social externalities will be needed to enable capital markets to achieve their intended purpose -- to consistently allocate capital to its highest and best use for the good of the people and the planet." (http://mutualist.blogspot.com/2006/06/signs-of-hope-in-unlikely-places.html)

Two strategies to reform capitalism

Tom Attlee at http://www.community-intelligence.com/blogs/public/archives/000267.html

"First Approach: Internalize all costs into the prices of goods and services. Currently many of the social and environmental costs of production, promotion, distribution, delivery, use and disposal of goods and services are paid by consumers or by the society at large in ways disconnected from those products and services. For example, taxes finance cleanups of business-generated toxics... everyone's health care costs rise to cover treatments for cancers caused by specific carcenogenic economic activities... everyone's lives are stressed by the overwork and pace of modern economic activity... insurance and food costs are rising rapidly due to the wild weather characteristic of global climate change triggered by corporate decisions about fossil fuels.... If such costs were internalized into the prices of things, self-interested consumers would prefer benign, sustainable products and services simply because they were cheaper than harmful products and services. Under these conditions, the market would work its wonders on behalf of the whole instead of only on behalf of corporate profits -- even though it was based on financial self-interest.

Second Approach: Consumers, investors and taxpayers bring ethical and other considerations to their choices regarding the use of their money. Stockholder activism, "triple bottom line" business (good for profits, society and the environment), socially conscious investment, socially conscious consumerism (including the simplicity movement, buy-local programs and consumer boycotts) and various taxpayer initiatives (including war tax resistance) and socially conscious taxes (like "green taxes") are all manifestations of this trend. In this case, public pressure (often guided by leaders who can show how social and environmental health serve people's self-interest) moves economic and political decision-making beyond the reductionist bottom line. One of the most powerful proposals is William Greider's suggestion that the six trillion dollars of pension funds -- the invisible thousand pound gorilla of the investment world -- be turned to socially responsible investments (see his The Soul of Capitalism: Opening Paths to a Moral Economy, or a summary like http://www.socialaction.com/11-2003/changing_capitalism.phtml). (Note that the current bankruptcy and privatization of government services -- even extending to the military through government's use of mercenaries -- is a counter-trend to all this, destroying our primary means of caring for our commons and reducing everything to profit-making.)" (http://www.community-intelligence.com/blogs/public/archives/000267.html)

Key Books to Read

Paul Hawken. The Ecology of Commerce

Review excerpt: "The whole point of this book I read (The Ecology of Commerce) by Paul Hawken was the idea that, if you look at the natural ecology, there is a remarkable efficiency to the way biological systems work. There is no waste whatsoever. It is the ultimate example of economic efficiency, applied to the problem of how to sustainably maintain a diverse biological environment healthily. The premise of Hawken’s argument was if business could adapt to incorporate this natural, organic efficiency, it would be not only more efficient, but more sustainable: economic efficiency and environmental sustainability and reduced ecological impact should go hand in hand." (http://blog.6thdensity.net/?p=210)

Peter Barnes. Capitalism 3.0