Last fall, Amory Lovins visited Dartmouth to speak on economics, engineering, and environmentalism; he filled Filene Auditorium and two overflow rooms. That was two terms ago, and campus today is not thinking much about that speech. But maybe they should be.

The talk was based on a book, “Natural Capitalism,” which Amory Lovins wrote in collaboration with Paul Hawkin and Hunter Lovins back in 1999. The book looks through the lenses of economics and business at the possibilities for improving resource efficiency and quality of life. By combining these perspectives, “Natural Capitalism” encourages a radical shift from modern production to a new, “natural” capitalism. Normally, economics books and business books completely ignore good engineering or the environment, while environmental books idealistically, and foolishly, ignore economic realities; thus, the integrationist approach of natural capitalism is quite exceptional.

Best of all, the book is about how to increase the quality of life. Most economics books are dry, and most environmental books are depressing, but this book is at once forceful, optimistic, and practical. The idea: by changing outdated economic and engineering paradigms, we can substantially increase resource productivity, and reduce waste and inefficiency. The net result will be happier, longer, wealthier lives—and all with more sustainable industry.

“Natural Capitalism” begins by denouncing current financial systems as not truly capitalist: “Capitalism, as practiced, is a financially profitable, non-sustainable aberration in human development. What might be called ‘industrial capitalism’ does not fully conform to its own accounting principles. It liquidates its capital and calls it income. It neglects to assign any value to the largest stocks of capital it employs—the natural resources and living systems, as well as the social and cultural systems that are the basis of human capital.”

The book essentially accuses current capitalism of the biggest accounting fraud in history. “Several recent assessments have estimated that biological services flowing directly into society… are worth at least $36 trillion annually. That figure is close to the annual gross world product of approximately $39 trillion—a striking measure of the value of natural capital to the economy.” This is a glaring omission, and one that pervades every business and politician and economist’s world-view. And it is only half the actual accounting blunder, as the book lists two kinds of ignored capital: natural capital and human capital. The authors cite, “The World Bank’s 1995 Wealth Index,” “…found the sum value of human capital to be three times greater than all the financial and manufactured capital reflected on global balance sheets.” Oops. In the 2001 talk, Mr. Lovins pointed out that, “Simply because of scale, these numbers are very approximate. But the value of these services is not zero. It is much better to be approximately right than to be precisely wrong.”

Those numbers are sobering, but the book is optimistic. As the authors point out, this optimism is based on the fact that it is bad accounting which leads to inefficient resource allocation and tremendous waste. Fix the accounting system, and market forces will take care of the waste by themselves, leading to four, ten, or even one hundred times the resource efficiency—economist jargon for better lives. The wastefulness of the Western world’s accounting practices is a tragedy, a result of a century of soulless economists and the political and business attitudes resulting from their misconceptions; however, waste is also a measure of the potential for opportunity, of the room for improvement.

And boy is today’s capitalism wasteful. “In the United States, the materials used by the metabolism of industry amount to more than twenty times every citizen’s weight per day—more than one million pounds per American per year.” I don’t know about you, but I have trouble even conceptualizing one million pounds of waste made for me. Where did it go? Why was it needed? Obviously societies do not need to use one million pounds per person-year, so what accounts for this?

“Natural Capitalism” has the answer, “The present industrial system is, practically speaking, a couch potato: It eats too much junk food and gets insufficient exercise. In its late maturity, industrial society runs on life-support systems that require enormous heat and pressure, are petrochemically dependent and materials-intensive, and require large flows of toxic and hazardous chemicals.” Although comparing modern society to a fat lazy man eating cheesy poofs and reclining on a couch seems hokey, it also seems to fit. One example of the metaphor making sense is when the authors write, “…the U.S. economy remains astoundingly inefficient: It has been estimated that only 6 percent of its vast flows of materials actually end up in products… the ratio of waste to the durable products that constitute material wealth may be closer to one hundred to one.” That number measures waste, but it signifies pervasive sloth and apathy in industry. Although I’m becoming repetitive, it’s worth reiterating that sloth and apathy in industry result from the absence of market incentives caused by not accounting for human and natural capital.

The authors also point out that resulting industrial waste leads to destruction of the already undervalued capital. Because environments and people are not considered parts of the capitalist equation, “…industrial ‘empty calories’ end up as pollution, acid rain, and greenhouse gases, harming environmental, social, and financial systems.” The longer capitalism remains “industrial” capitalism, the greater the total destruction of the capital on which we all depend to survive.

The authors argue that the world is ripe for a whole new industrial revolution, “In the next century, as human population doubles and the resources available per person drop by one-half to three-fourths, a remarkable transformation of industry and commerce can occur.” They point out that the first industrial revolution resulted from the creation of market systems that efficiently created and reinvested in human-made capital, and ask what sort of revolution might occur if markets accounted for environment services and human capital. After all, the industrial revolution saw hundredfold efficiency improvements: “What took two hundred workers in 1770 could be done by a single spinner in the British textile industry by 1812.”

The authors are not simply being optimists; they have good reason to think that the world is on the verge of a second industrial revolution. Here’s their thought process: “At the beginning of the industrial revolution, labor was overworked and relatively scarce… while global stocks of natural capital were abundant and unexploited.” The scarcity of labor stimulated innovation and revolutionary progress. The authors point out that times have changed and a second revolution is overdue, “But today the situation has been reversed: After two centuries of rises in labor productivity, the liquidation of natural resources at their extraction cost rather than their replacement value, and the exploitation of living systems as if they were free, infinite, and in perpetual renewal, it is people who have become an abundant resource, while nature is becoming disturbingly scarce.” In several industries this reversal is already complete: “Today, our continuing progress is restricted not by the number of fishing boats but by the decreasing numbers of fish; not by the power of pumps but by the depletion of aquifers; not by the number of chainsaws but by the disappearance of primary forests.” Market forces, now more than ever, drive industry to continually innovate to increase resource efficiency.

The authors argue that these innovations are building on—and reinforcing—a new business paradigm that values all four types of capital (industrial, financial, human, and environmental). In their view the change in values is a result of four influential ideas: one, radical resource productivity gains are possible and often immediately attainable; two, imitation of biological systems can cheapen industrial systems and eliminate toxins; three, a service and flow economy is more efficient (and more lucrative) than a purchase and disposal economy; and four, reinvestment in natural capital, the most undervalued capital today, is both good for the planet and increasingly lucrative. After being explained, each of these ideas seems commonsensical and obvious, rather than radical or revolutionary, and the authors even take the extra time to offer multiple examples of each principle reshaping the world of business.

Resource productivity is obviously a good thing; it seems ridiculously redundant to argue that for businesses more resource productivity is good. Surely everyone knows more is better. Who wouldn’t like more juice per kilowatt hour? Or a little more building per board foot? But the point made in “Natural Capitalism” is not that efficiency is preferable, but that radical improvement in resource productivity is within reach—and is happening. The point is that businesses which go looking for radical ways to reengineer themselves to cut waste and cost usually succeed.

But the increase in resource productivity does not simply mean more stuff for less environmental damage. As the authors point out, “Using resources more effectively has three significant benefits: It slows resource depletion at one end of the value chain, lowers pollution at the other end, and provides a basis to increase worldwide employment with meaningful jobs.” That is, every time physical stuff is used more efficiently, the demand for human capital—i.e. the number of available jobs—goes up.

A $500,000 physical example of dramatic gains in resource productivity was built between 1982 and 1984 on the Front Range in Colorado. Called the Rocky Mountain Institute, it conserves ninety-nine percent of heating energy, ninety percent of electricity, and more than half its water consumption. These energy savings also mean cost reductions: the design saves about $19/day. The savings paid for all the extra energy-related building and design costs within ten months. The authors do not, however, dwell on the technical fixes that made this possible. Instead, their focus is on the engineering and business perspectives that make it possible; that’s where the other three principles come in.

Each of the other principles is a specific change in business paradigms which results in better engineering, efficiency, and sustainability. The imitation of biological systems—biomimicry—contains tremendous potential. Spiders make silk with strength properties comparable to steel (which is made in high temperature, high pressure, toxin-producing processes). Crustaceans make shells as strong as our best ceramics—and they do it from seawater. Many of our systems have no biological equivalents, but many do, and there are gains possible in those areas by taking a leaf from nature’s book.

The idea to service and flow economies is that when the focus shifts from ownership of a material good to the consistent provision of a service, industries become more competitive, successful, and environmental all at once. For example, an air conditioning company has begun to rent a service called “coolth,” rather than selling air-conditioners. Now consumers do not need to wade through endless statistics on energy efficiency and environmental impact in order to pick the most efficient air conditioning machine. Since the industry now has to cover all energy expenses and material and disposal costs, including toxic disposals costs, these externalities are all reflected in a simple rental price (dollars per coolth per month) and the company faces a continual incentive to innovate toward more efficient, long-lasting models, while the most environmental machine becomes the one the consumer prefers.

From this review it may be easy to suspect this book of being over-optimistic, of having too much cheer based on too little fact, but that is because this review quotes only the first chapter in a fifteen-chapter book. It was not possible, however, to summarize the whole book; it is truly encyclopedic in scope and depth. For every thesis in the intro there are entire chapters dedicated to supporting case-studies.

This book is not a flash in a pan; it and its authors are and will remain central to a large and growing effort to become efficient and sustainable. Even at Dartmouth, these authors have been making regular appearances for years. As noted, Amory Lovins gave a very well-attended presentation last fall; he was also here to give a talk back in 2001, and will surely be back again soon. Hunter Lovins actually taught classes here way back in 1982, though now she teaches sustainability at the first business school to have an accredited sustainability MBA program.

In the words of Edward Woodward, the chairman of DuPont, “Corporations that take such opportunities seriously will do very well… while those that don’t won’t be a problem, because ultimately they won’t be around.”