Building Wealth with Natural Capitalism
Toward a Working Knowledge
by Robert Warren | June 23, 2008Print
Jim Puplava, Eric King, and several other financial authors have persuasively argued that identifying secular market trends is one key to gaining financial wealth. Finding and investing in market trends can make a lot of money. An individual would be lucky to find one or two of these trends in his lifetime but an opportunity is unfolding that comes along only once every couple of centuries or so. This opportunity is a revolution in the way business is conducted, the way society is organized, and promises to answer our most difficult global problems. This revolution is called natural capitalism.
In the late 18th century the textile industry faced a difficult problem. Relatively few skilled laborers able to produce cloth existed yet the raw materials were becoming over abundant. The industrial revolution solved this problem through dramatically improving the productivity of labor by over 100 fold within a decade. This spawned a tsunami of changes in both industry and society ultimately leading to the greatest wealth creation the world has ever known - capitalism.
Presently, industry is facing a similar but inverse problem. Natural resources are becoming increasingly scarce while labor is ever more abundant. Todays commodity prices reflect the trend toward resource scarcity and many authors such as Matt Simmons have demonstrated that we are at global peak oil production while others like Richard Heinberg show that the world also faces peak production of most of our critical natural resources.
The peaking of resource production places industry in a conundrum. The production of energy and other raw materials are poised to constrain consumption and reduce income. However, Lovins, Lovins, and Hawkings in their book Natural Capitalism argue that industry will choose a different path and that financial capital will flow to where the highest returns are possible through a dramatic increase in energy and resource efficiency. Within the coming decades a revolution is poised to occur that will increase resource efficiency by over 100 fold, transform society, and solve the most critical global environmental problems all due to the profit motive.
The term natural capitalism comes from the observation that our financial economy is embedded within the natural environment. Society and industry can only exist if the natural environment supplies us with air, water, food, a stable climate and other critical services. Conservative estimates, presented in journal �Nature,� estimate the value of ecosystem services are 33 trillion per year and some of these services are beyond our ability to replace them at any cost. These services are at ever greater risk and on some parts of the globe have begun a dismal decline. These areas mark not only ecosystem collapse but are the areas of the most difficult economic, political, and social problems on earth.
The present capitalist system regard these ecosystem services as free and infinite in scope. However, by under-valuing these services, business have missed out on a huge income stream and have significantly added to their expenses. It turns out that simple changes to the business model result in dramatic results for the profitability, shareholder value, and future generations.
Writing in the �Harvard Business Review� May June 1999 edition Amory Lovins and Paul Hawkings explain the four principles of natural capitalism. I reinterpret these principles below:
1. Dramatic increase in natural resource efficiency. In a world peaking out in resource production there will be diminishing financial returns on the attempt to increase supplies. The greatest returns on investment will be achieved through efficiency and reducing demand. Using 1970's technology a 4 fold increase in efficiency is easily attainable within the present business model and in many cases can earn over 100% return on investment each year. Further increases in efficiency will be achieved through a whole systems reengineering efforts. Surprisingly large increases in efficiency are often much less expensive than small incremental increases.
2. Shift to biologically inspired production modes. There are limits to the efficiency that can be gained within the present production models. However, nature provides templates for both production processes and material manufacturing that results in zero waste. Every waste product becomes a valuable input for a different part of the system and materials are manufactured using ecologically benign chemicals at low temperatures and pressures. Zero waste means maximal profits.
3. Move to a solutions based business model. The present business model seeks to sell goods to the consumer. The greater the quantity of goods sold the higher the income stream creating an incentive to simply make and sell more goods regardless of its impacts on the environment, and society. Contrastingly, providing solutions to the consumer creates the inherent incentive to reduce the quantity of goods and increase the quality of goods. The business that supply the best solutions at the greatest efficiency will achieve the greatest market advantage.
4. Reinvest in natural capital. The corner stone of capitalism is that business reinvests in the means of producing wealth. Ecosystem services, natural resources, and the health of society are the foundational basis of wealth creation. Therefore business will invest in those things that promise to make the greatest return on investment.
Businesses that make these simple changes will be positioned to make the greatest profits and those failing to do so risk an uncertain future. Already, multinational businesses and other large organizations are adopting these principles in order to maximize profits. One such organization is Toyota Motors.
In an interview on Financial Sense, Bill Reinert, Nat'l Mgr., Advanced Technology Group, Toyota Motor Sales explained that Toyota began their program that eventually lead to the present hybrid technology in 1992. One year before in 1991 Lovins, Lovins, and Hunter released the hyper car design into the public domain. One feature of the hyper car projected to achieve over 200 miles per gallon is the hybrid propulsion system that is now a reality.
Many other aspects of the hyper car design are just now making it into the auto industry. The results shown by Toyota who is beginning to adopt the principles of natural capitalism and apply those principles to the design of cars is clear from the price of Toyota Motors stock. Compare Toyota to General Motors over the last 10 years.
In future articles I intend to explore natural capitalism in more detail and point out the readers of these essays the businesses and institutions that are quietly ushering in this revolution in capitalism. I will explore the most critical global problems and show how natural capitalism is a whole systems approach that has the power to realistically address and solve these problems.
Indeed identifying and investing in major trends is one of the keys to building financial wealth. However, identifying and investing in the natural capitalist revolution will provide security to weather the coming financial storms while maximizing your profits.
Copyright © 2008 Robert Warren
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