by Leslie Wells, Consultant for Natural Resources

This Advisor reviews Paul Hawken’s The Ecology of Commerce, highlighting its major themes, including the problems with the current system of commerce, efforts to address those problems, the role commerce should play in society and how to make that transition.

Paul Hawken, the cofounder of several successful businesses, including Smith and Hawken (the catalog company that sells upscale gardening supplies), has been recognized for operating his businesses in a socially responsible manner. His latest book, The Ecology of Commerce (New York: HarperCollins Publishers, 1993), takes a revolutionary look at the principles that guide today’s corporations and how they affect our communities and the environment. Hawken asserts that free-market capitalism is “largely unchallenged as the economic and social credo of just about every society on earth,” and as a result it is rarely evaluated for its effect on human and natural environments. He takes the view that what is good for Exxon is not necessarily good for the country and proposes that corporate America act more as an interactive member of society, serving citizens and being responsible for its effect on individuals and the natural world.

The Current System

Hawken calls our current understanding of business primitive. By saying that increased Gross National Product (GNP) is the only sign of a healthy economy we fail to incorporate into the accounting process how that money was made. Were the following costs included: environmental degradation and the need for subsequent cleanup, the depletion of nonrenewable resources, the threat to human health and safety, the decline of the existing community, or the exploitation of people? Hawken says that without regard for social welfare, producing and selling goods solely to make money is meaningless.

In the past, says Hawken, the by-products of industry and resulting pollution of the environment were not understood or were largely ignored. As damage to the environment and human health due to pollution or exposure to toxins was quantified, regulations to curb industry emissions were developed and implemented. Today, power plants have to pay to install scrubbers in their smokestacks to decrease pollution, and some industries have to treat their wastewater before diverting it to municipal treatment systems. These costs are incurred by the industries and show up where they should, at the source of the pollution. Unfortunately, society pays significant other costs, often unknowingly. These are both indirect and direct. Indirect costs include such things as not being able to swim in a nearby lake due to elevated contaminant levels. Direct costs include public dollars spent on cleaning up contamination left behind by businesses.

Hawken reports that since 1970, the United States has spent $1 trillion to monitor, litigate, contain, and curb pollution and hazardous waste. The amount an industry contributes to finance a cleanup is typically much less than the true cost, and the public continues to pay for these socially acceptable but destructive business practices.

Another example of costs not accounted for by traditional business accounting practices is cigarette smoking. Hawken cites an economic study, conducted by the University of California at San Francisco, that estimated the cost to Californians of cigarette smoking in the state is $7.6 billion yearly, predominantly due to lost wages and higher health care costs, which is equivalent to $3.43 per pack of cigarettes smoked. Current corporate accounting does not factor in the personal, social, and environmental costs of producing and consuming goods, only the profit to be made at the point of sale.

An additional concern with the existing business system is the need for better use of resources. Currently, the United States uses twice as much energy per dollar of GNP as Japan and Germany and generates twice as much waste as Germany and five times as much waste as Japan per dollar of GNP. Hawken contrasts this waste and inefficiency with natural systems, which become more efficient as they become more complex and biodiverse, with waste from one organism being used by another. Examples of businesses that have tried to adopt a systemic mode of production are given later in this discussion.

Despite their destructiveness and inefficiencies, corporations are flourishing, Hawken reports. The largest multinational companies are growing at a rate of 8 to 10 percent per year, compared to 2 to 3 percent for the world economy. Hawken says they resemble “separate nations without boundaries,” except corporations are not concerned with social welfare.

To illustrate his point, Hawken cites Waste Management, Inc., the largest waste hauler in the world. Waste Management has dumped PCBs in lagoons, contaminated groundwater with chemical and nuclear wastes, been fined by the EPA for numerous violations of environmental laws, and paid up to $45 million in fines and settlement costs to resolve contamination litigation in the last ten years. The costs are written off as part of doing business. The corporation, however, continues to grow, returning 20 percent pretax profits. Hawken explains that the amount of revenue generated is still greater than the fines, so it pays for them to continue current practices.

This lack of social concern and accountability can flourish because corporate influence extends to the political arena. According to Hawken, when our country was formed the founders were concerned about any institution dominating or suppressing newly won rights. Corporations were strictly regulated, and limits were placed on profits, indebtedness, and the amount of land a corporation could own. But little by little states began to lose control of corporations and, by the Civil War, corporations had amassed significant wealth and power. Corporations demanded “equal rights” and “due process” and subsequently were given the same status as a person, lifting many previous regulations.

Today, corporations have omnipresent lobbyists, sophisticated public relations firms, and persuasive attorneys in Washington, D.C., trying to influence regulation and policy according to their interests. Hawken reports that during the 1989–90 legislative session, members of the House of Representatives took 4,000 privately funded trips, nearly three-quarters of which were paid for by corporations.

Current Efforts

Despite the overwhelming lack of social responsibility in the business culture, Hawken explains that some businesses are trying to change their practices. He says they are doing so for three reasons: (1) to escape regulatory liabilities, (2) to avoid perceived or future liabilities, and (3) to try to change the nature of business and move toward socially responsible commerce. These businesses are encouraging recycling programs in their facilities, purchasing sustainably harvested wood, funding the replanting of trees, using soy-based ink, practicing waste reduction, and donating money to nonprofits.

While accepting an award for operating a socially responsible business, Hawken realized that his contributions were small and that the current way of conducting business and the existing incentive would have to change fundamentally to have an impact. For example, Herman Miller, the Knoll Group, and Wal-Mart have agreed to buy only sustainably harvested wood, but they will pay a higher price than if they purchased wood from traditional suppliers.

Based on our current incentive system to produce goods at the cheapest cost without consideration for environmental effects, the result of commerce is frequently damaging. Hawken stresses that restoration and preservation of human and natural communities should be the result of commerce, and he believes that this transition can be made.

How the System Should Be

Hawken proposes to develop a system for business that restores rather than destroys human and natural communities.

Business is based on development, and traditionally development in the United States has focussed on getting bigger, not necessarily better or smarter. As a result, the efficiency of U.S. industry lags behind its global competitors, resources are being depleted, and the environment is being degraded. Hawken sees in natural systems a model for a better business system.

In nature, says Hawken, waste for one organism is food for another. By transferring this process to the business world and using a more cyclic and less linear production process, we can increase our standard of living while saving resources and reducing environmental degradation.

A prototype of this “industrial ecology” is currently being practiced in Denmark. A coal-fired power plant sends its waste heat in the form of steam to a nearby refinery, pharmaceutical company, greenhouses, a fish farm, and local residents, allowing 3,500 oil-burning heating systems to be shut off. The refinery produces surplus gas; sulfur is removed from the gas and sold to a chemical company, and the gas is sold to a sheetrock factory. The fly ash from the coal plant is used in road construction and concrete production. Waste heat from the refinery is used at the fish farm, which produces fish sold on European markets, and fish sludge is used by local farmers as fertilizers.

This reuse of waste among businesses is remarkable because it was unplanned and not a result of regulation. Imagine the potential, says Hawken, if the synergy between industries were further explored and exploited.

Even within a single business, the amount of waste generated and energy used can be significantly reduced. In the United States, the 3M Company has eliminated more than 500,000 tons of waste and pollutants by modifying its production process, saving $482 million since 1973; the company saved an additional $650 million by conserving energy.

Hawken also points out the need for systems of feedback and accountability that encourage restorative behavior. Currently, businesses make more money by producing less durable goods that must be disposed of and replaced more frequently. Consumers are drawn by marketing ploys and manipulative images rather than by the quality and necessity of the product; consumers have become more passive. Hawken posits that if consumers had honest information and were aware of real costs, they would make intelligent decisions to improve their lives and the world around them. They would be transformed from consumers into customers whose needs would have to be met by commerce. A covenant would be developed between businesses and their customers based on gratitude.

Japan has adopted this philosophy of providing customers with the best quality product and, in turn, many of their companies are the most competitive in the world. Hawken takes the potential role of business a step further and explains that as businesses become more concerned about the effect of their processes on humans and the environment and receptive to the needs of their customers, the business community can coevolve with the natural and human communities it serves.

How to Get There

Hawken proposes many types of changes that would help to transform businesses, some are more philosophical and others are market based. Only a few are mentioned here.

On the broadest scale, Hawken sees the need for a greater distinction between the roles of governance and commerce. Government should be the guardian, and its role is to set standards within the community and to ensure that the community is not compromised. Commerce’s role is to abide by the standards, not to try to alter them to benefit some and harm others, as it freely pursues trade.

Hawken stresses the importance of regionalism. Several studies have shown that when a product is locally produced and marketed, a community will benefit more. More revenues are kept locally, distribution costs are reduced, and fewer resources are used. Regional planning also creates greater opportunities for integrating businesses and reusing industrial waste.

Taking a more market-based approach, Hawken stresses the need for the real cost of products to be reflected in market prices. Consumers would have a better idea of the actual cost of a product, allowing them to make more knowledgeable decisions, and businesses would respond by changing their production processes to be more efficient and create less waste. The real cost of goods could be assigned using various types of “green taxes,” such as automotive fees and fees on the use of pesticides and fertilizers. To keep these taxes from being construed as another means for government to raise revenue, there could be a proportionate reduction in the taxes being paid on income, profits, sales, and savings. As a result, the taxation of “goods” would be replaced by taxation of “bads.”

Hawken proposes to better manage various resources by using “utilities.” An example would be a salmon utility. On the Pacific coast, the number of salmon is decreasing significantly every year. Part of the problem is the degradation of their spawning habitat. As shorelines of the coastal rivers are being developed, the salmon habitat is degraded and the rivers are no longer able to support their reproduction. A salmon utility could manage a region by collecting a fee for all salmon caught on the Pacific coast and using the revenue to restore and protect habitat. As a result, the salmon would be available, but their cost would reflect the price society pays.

Conclusion

Hawken steps back from today’s society and, using historical context and contemporary case studies, describes the evolution of global corporations and the effect they are having on the world today. He astutely points out that corporations, by putting a priority on producing and supplying a good at the lowest price and not including all of the costs (social and environmental) in their accounting system, place a significant burden on society.

While his analysis is thorough, the solutions he proposes are based on three naive assumptions: (1) Consumers can be counted on to make intelligent decisions, (2) politicians can be impervious to industry influence, and (3) businesses can relinquish their need to influence government and can abide by the rules. A small percentage of the population is currently acting according to these assumptions, but the majority is not.

To transform our economy into a “restorative” one, each of these three “wishes” would have to be granted, and unless someone has access to a genie, we will have to settle for attempting incremental, market-based steps, such as Hawken’s resource management utilities, which, once implemented, may encourage further “real pricing.”

While The Ecology of Commerce contains a large amount of information and the reader may not agree with everything said, Hawken poses some provocative questions and answers from which we can all learn.

Copyright © 1994

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