Natural Economics

New Economics for the 21st Century: Natural Economics

There are two aspects about the term Economy.

(1) Economy means household management---societys household or the household of earth. The basic building block of any strong state is a strong household, strong family.

(2) Sound economy includes the avoidance of waste and is built on a sense of frugality. In many daily terms such as to economize or even the term fuel economy---to improve fuel economy does not mean using more and more gasoline for every new car you buy, it means the opposite. An improved economy is one that uses and wastes less, and yet today we are all urged to spend more, year by year by year.

What is needed today is a reformulated economics, which takes Nature as its framework, measure and model. We need a new discipline of Natural Economics which in detail spells out the why�s and how�s of a sound economy operating within the basic framework laid down by nature. It is not only possible to create such an economic system; it is also our only choice.

A few basic principles of Natural Economics.

(1) The acceptance of natural systems as the primary systems.
(2) Living off Natural Income, not Natural Capital.
(3) A re-evaluation of Value in modern society.
(4) Active reinvestment in the health of natural systems.
(5) A realization of the prime importance of resource productivity in production.
(6) A realization that consumption and accumulation of wealth cannot produce human happiness.

1. The acceptance of natural systems as the primary systems.
Nature is always the main system, other man-made systems such as, for example, economic systems, can only be sub-systems. If main system and sub-system collides, the sub-system cannot win, it will lose. If the mother company/Nature goes bankrupt, all subsidiaries will go bankrupt along with it. We cannot win a fight against Nature; we can only win the fight against ourselves and our own greed. This is a fight which we must win by finding a way to operate human society in such a way that it can function within the tolerance limits, the carrying capacity of Nature for thousands and thousands of years.

How many economists today would say that the environment is more important than the economy? How many business leaders would dare to utter the opinion that their companies cannot continue to grow forever? And how many politicians have the courage to free themselves from their blind faith in Capitalism and modern economics and their devotion to Gross Domestic Products as our main yardstick for economic welfare?

2. Living off Natural Income, not Natural Capital
Modern civilization was built on the exploitation of natural capital. Any corporate manager knows that if a company is run on the depletion of capital, instead of creating sufficient continuous streams of revenue, it is only a matter of time before the company goes bankrupt. The more employees you have, and the higher the costs they incur, the faster the road toward the abyss. Why is it then that we, the managers of Earth, Inc. have not yet learned this lesson? Why is it that we continue to build our materials and energy economy overwhelmingly on natural capital? With the very wasteful and luxurious ways of some of the richest employees of Earth, Inc., it should be crystal clear that this is suicidal behavior. It certainly has nothing whatsoever to with economics ---a sound and frugal use of available resources.

What is our natural income? It is quite simply the sources of energy that can be renewed endlessly and the use of materials which can be replenished, either through mindful and frugal use thereof or through the continuous reuse and recycling of materials.

We have no choice but to work with renewable energy and material sources.

3. A re-evaluation of Value in modern society
In modern economics, 20 dollars worth of oil, 20 dollars worth of wheat, 20 dollars worth of shoes and 20 dollars worth of hotel coupons are treated as if they were of the same value. However, there is a very fundamental difference between these different 20 dollar items. Oil and wheat are primary sources of value, from the Earth, Natural Capital. One of these is non-renewable, oil; the other is renewable, wheat.

Shoes and hotel coupons are secondary products created by men. Shoes are treated as products, with material substance, and hotel coupons provide a service without direct material substance. As long as our economic system treats these different categories of value as equal, there is no incentive to protect non-renewable natural capital, including the semi non-renewable natural capital, soil, which is the foundation for the production of many primary but renewable products as well as of many secondary products. Soil and water are preconditions for the production of most primary products and we cannot produce secondary products without a primary system that functions.

Our economic parameters, including taxes and incentives, must be structured so as to encourage the protection of primary value and the shift from non-renewable to renewable sources hereof.

What we are talking about here is a fundamental restructuring of entire systems based on a re-evaluation of what constitutes sustainable value creation.

Using up primary, non-renewable resources such as oil within another generation or two represents the ultimate selfishness. We take all this precious value for ourselves and leave nothing thereof for our children. Is that really the responsible behavior of mature adults? How can we face our children or our grandchildren without being embarrassed?

What will future historians say of us, if we do not change our ways, and do not do it so soon? One could imagine a history text in the year 2150 saying, There were some ten generations of human beings, living roughly from 1850 to 2050 who thought they had the right to use all of Earths resources just for themselves. They learned nothing from history and left virtually nothing for the Future. They are now known as the mindless spenders, people who knew only how to spend today and appeared to have no idea about how to conserve for tomorrow. Restoring natural systems after these ten generations was an enormous task which has still not yet been completed.

If we do not re-evaluate our notions of value now and recreate our economic systems to reflect this, I fear that this is what future historians may very well write of us.

4. Active reinvestment in the health of natural systems
A new notion o value naturally leads to the conclusion that makes a lot of sense, economically, socially, culturally, to invest and reinvest in the health of natural systems. If forests are depleted, we must invest in their replenishment. If top soil is deteriorating, we must invest in whatever recovery is possible. If crucial systems such as a stable climate of a sufficient ozone layer show signs of stress, it is obvious that we must invest in the restabilization of these. And, as most corporate managers will know, the earlier such investments are made, the lower the cost.

Every corporation today should have as part of its charter, the intention to reinvest in the health of natural systems.

5. A realization of the prime importance of resource productivity in production
Certainly, labor productivity will continue to be an important management issue, but the time has come to realize that another kind of productivity is today of far greater importance and urgency. That is the question of how to raise resource productivity immensely. That not only means how to squeeze more out of every kilogram of material, which would seem a rather out-dated way of looking at things, rather it includes the redesign of production processes so that the least possible amount of resources is used and the highest possible degree of resource recovery is allowed for.

Our crucial scarcity today does not lie in the lack of labor; it arises from the depletion of natural capital and the increasing dysfunction of our natural systems, including topsoil, water, climate, etc.

Resource productivity is not an issue for the environmental department; it is a vital top management issue.

However, since the increase in resource productivity relates to something that no single individual or organization could own---that which is often called the commons---commonly shared natural capital and natural systems---it may not be sufficient to let corporations decide whether or not they wish to increase resource productivity. As with the question of what is valuable, we also need legislative guidance to ensure that companies who increase resource productivity are rewarded and companies who do not care to make an effort are punished.

Without increasing resource productivity dramatically, it will not be possible for 9.3 billion people in 2050 or 10 billion in 2100 to live decent lives. Without increasing resource productivity---starting now and starting in the industrialized nations---we will never be able to overcome frictions between the North and the South. Bridging the gap between rich and poor---allowing more people on Earth to live a decent life---depends on our ability to achieve much higher levels resource productivity.

6. A realization that consumption and accumulation of wealth cannot produce human happiness
Of course, people who do not have enough food should have food. People without shelter should be allowed decent dwellings. People who have too little of everything should be allowed to consume more.

But whether it is for these people, or for the over-consuming people in the richer nations, it is not consumption which produces happiness. Consumption occurs everyday all over Earth; it is a basic function of life. Until a certain threshold, more consumption of material goods does indeed bring a greater degree of happiness, but beyond this threshold, more consumption does not really improve quality of life. Beyond a basic level of survival, it is not consumption but rather a complex combination of non-material factors which decide whether a person or a society enjoy a sense of happiness.

In natural economics, it is accepted that consumption is of vital importance in daily life. It is a sense of contentment that brings about happiness. The urge to consume ever more creates ever-lasting unhappiness---never can you have enough, always must you want more. Knowng how much is enough, on the contrary leads to a feeling of contentment, which is a critical factor in achieving any form of happiness.

Economics is the study of frugality---of knowing what you can spend, what the limits and possibilities are in the natural system.
People in ancient societies knew that consumption was not a virtue and knew that a society which had no restrictions on the consumption of natural resources would inevitably be brought to fall by nature. The basic message was: know how much enough is or perish. We must nurture a feeling of contentment unrelated to demands forever more consumption, or we must perish. We cannot live with the present economy, in which it is virtually a sin to economize. We cannot continue with a culture which falsely believes that the accumulation of wealth is a proof of your value as a human.

If we want to have a future, any future, if we want to leave some hope for our children and theirs again, we must take new choices today. This is not denouncing the great achievements of our forefathers; on the contrary it is building upon their work taking us one step further in human evolution.

Speech by Tachi Kiuchi - Chairman, Future 500