Hawkins and Lovin’s Natural Capitalism

The debate between business and the environment is often characterized by knee jerk politics and rhetorical conflict. Business hate environmental regulation. Environmentalists think business has a natural tendency to harm the environment and feel it should be heavily regulated. Its sad, but few people try to navigate a middle path between these extreme views.

An exception to this rancor is a collaborative work by Paul Hawkins, Amory Lovins and Hunter Lovins titled: Natural Capitalism. For those of you interested in both the environment and honest profit Natural Capitalism is the book for you. The piece takes a hard look at classical economics and shows that many of the core concepts of capitalism are compatible with a green vision of the economy.

The main idea has to do with capital. Classical economics argues that capital and labor are what ultimately determine value. Typically capital is divided into two elements, financial (cash and financial instruments) and infrastructure (machines, tools, etc.). Under classical economics labor is applied to capital to create saleable commodities. The authors take these three elements; financial & infrastructure capital and labor, but argue that a third type of capital- natural capital should play a role in the wealth equation. Natural capital is defined as natural resources such as living systems, oxygen and clean water – in short, the environment around us.

Having defined the environment as a form of capital, the authors say several interesting effects occur.

First, the increasing cost of waste will drive efficiency. Hawkins and Lovins say the increased cost of waste will force economic systems to innovate to eliminate the costs of inefficiency. For example, if a dollar value is fixed to industrial pollutants, power, coal and automotive companies would find ways to reduce costs by eliminating waste.

Second, resource constraints will pump up innovation and job growth. It is generally accepted that one reason for the industrial revolution in England was a shortage of timber. Lack of timber increased use of coal, which drove increases in production. This processes ultimately lead to the fantastic increases in efficiency and job growth under industrialization. Hawkins and Lovins argue the same processes will occur once the environment is conceptualized as a form of capital with its accompanying natural scarcities.

Third, the environment is preserved. Once the environment is viewed as capital – e.g. a fundamental unit of value, then the natural tendency is safeguard and preserve that value. For example, if carbon emissions have a dollar cost then people will actively seek to reduce them.

In summary, Natural Capitalism argues that if you conceptualize the environment as a form of capital and inject this conceptualization into the costs of doing business it’s possible to have real economic growth and employment without the associated degradation that is occurring today.

My take on this: Hawkins and Lovins have created an elegant and hard hitting idea. They are correct in their main point: reconceptualizing economic processes will ultimately impact environmental resource usage. From the standpoint of a person who strongly advocates for a limited role of government, the emphasis on market based economic processes instead of short sighted government programs is especially appealing.

So, to wrap up – definitely check this book out.

More info is available at:

www.natcap.org
Tom Butler-Bowdin’s 50 Prosperity Classics.