The Next Reformation

The underlying principles of industrialism no longer work,
and a new system is emerging to take its place

One of the articles in Business On A Small Planet (IC#41)
Originally published in Summer 1995 on page 17
Copyright (c)1995, 1997 by Context Institute

There are few people who have contributed to our understanding of the role of business on a small planet as Paul Hawken has. He has founded several businesses, including Smith & Hawken, and is the author of The Ecology of Commerce, The Next Economy, and Growing a Business.

In addition to this interview, there is an article in this issue by Paul Hawken on The Natural Step.

Sarah: A lot of people are very concerned with recent events, particularly in the US, where we’re seeing attacks on environmental legislation at the state and federal levels, and an overall sense that our economic and governmental institutions are failing us. How do you interpret all this?

Paul: I see these events as masking a more fundamental shift, a shift so powerful that it will occur over the span of one lifetime if not more. We’re so accustomed – if not addicted – to rapid change that we are not able to perceive a powerful long-term shift, especially one that is so quiet and pervasive that it is not discernible by the methods we use to gauge change, power, and control.

When you read the papers of Volta, Galvani, Barrows, Shelley, Blake et al. at the beginning of the industrial revolution, they didn’t describe industrialism per se – they didn’t use the word – but they did describe its benefits, its promise, and its shadow. Nobody knew exactly what it was that they were describing. Nobody at a party could say, "How does it feel to be at the beginning of the industrial age?" And yet that is exactly what was happening. People could sense it.

My guess is that we are in precisely the same situation. People are naming it the Third Wave, the Information Age, etc. but I would say those are basically technological descriptions, and this next shift is not about technology – although obviously it will be influenced and in some cases expressed by technologies.

Industrialism is about the appropriation by a relatively small group of white Europeans of global resources that they mistakenly thought were theirs, that they "discovered." That appropriation of resources and the transformation of them into goods and services through the European production system characterized, and characterizes to this day, all industrial systems including the information age. If anything, the technologies used to "produce" the information age are proto-industrial. There is nothing about its underlying principles that are post-industrial.

The next stage, whatever it will be called, is being brought about by powerful and much-delayed feedback loops. Information from destructive activities going back a hundred years right up until today is being incorporated into the system. And as that happens the underlying framework of industrialism is collapsing and causing disintegration. We are losing our living systems, social systems, cultural systems, governing systems, stability, and our constitutional health, and we’re surrendering it all at the same time.

Sarah: Why is this such a well-kept secret? How is it that there isn’t more understanding about the decline of industrialism?

Paul: Globally and nationally we are still looking at this set of problems as distinct and unconnected rather than seeing them as inextricably bound to the underlying assumptions that inform linear industrial systems. Basically, the underlying principles of industrialism don’t work. In short, industrialism is over.

The massive inefficiencies of industrialism are not more apparent because they are masked by a financial system that gives improper information. This is a classic case of "garbage in, garbage out." In this case the "garbage in" is what money tells us, what prices tell us, what the markets tell us.

Instead of markets giving proper information, everything else is giving us proper information: our airsheds and watersheds, our soil and riparian systems, our bodies and health, our society, inner cities and rural counties, the breakdown of stability worldwide and the outbreak of conflicts based on environmental shortages. All these are providing the information that our prices should be giving us but don’t.

Sarah: What do you say to people who are feeling discouraged, particularly by the strength of the backlash represented by the Republican Congress?

Paul: The shift we’re seeing is incremental and slow, which is what you would expect if it’s to be long-lasting. What is being focused on, quite rightly and understandably, is the strengthening of a laissez-faire corporate socialism in Congress, and second, widespread attacks on the environmental movement and ethos.

Those two trends would seem to suggest that the environmental movement has reached the high-water mark and is now ebbing, and that something else is replacing it. And I would say it’s completely the other way. I think an old style of addressing environmental problems is ebbing, but the rise of the so-called conservative, political movement in this country is not a trend towards the future but a reaction to this very broad shift that we are undergoing. Newt and family are not pointing to an adventurous new civilization, as much as they would like to claim that ground. They are actually afraid of the future because their singular mindset cannot encompass its complexity, even its beauty.

Thus, the forces and value systems that are most threatened by this shift are becoming the most coherent and are rising to the top as minority or plurality powers. But they do not represent either the shift, the change, or the future. I think the media, Newt Gingrich, and others are mistaking reactive thinking for a long-term trend. I see it as a short-term oscillation, although we have to be careful here in recognizing that reactionary minorities can easily come to power and wreak terrible damage on societies, even the world as we experienced in the ’30s and ’40s.

If, as is natural, you focus on the corruption and on those threatened institutions that are trying to prevent change – even though they don’t really know what they’re trying to prevent – then you can get pessimistic.

But if you understand this collapse as both the precipitant and the symptom of a reformation, then you can read it in a different way. It’s still just as greedy, corrupt, or – probably the nicest thing you can say – inappropriate to this time and age. But you can also see it in a larger context and understand a pattern that’s occurring.

Sarah: What is the direction of this shift?

Paul: The shift is profoundly biological. It’s not about the celebration of nature, although that is certainly a part of it; it’s about the incorporation of natural systems into our industrial life, into our way of making things, our way of processing things and deprocessing things. And the only reason it’s going to happen is because it works profoundly better.

We are in the process of reinventing our entire system of making things, its relationship to living systems, our whole concept of waste, and in turn turning neoclassical economics on its head, reversing a 100-year process of emphasizing human productivity.

We are now heading down a centuries-long path toward increasing the productivity of our natural capital – the resource systems upon which we depend to live – instead of our human capital. We can no longer prosper by increasing human productivity. The more we try to do, the more poverty we will create.

We have spent the last century, and most of us, the last decades or so, working our tails off in order to make fewer and fewer people more and more productive using systems of manufacturing, distribution, and communication that use more and more stuff. We are all doing this precisely at a time when we have less and less stuff, and more and more people. Talk about speeding trains racing towards each other in the night.

So this next industrial revolution, a terrible term really, is about this great reversal. Not a reversal to little house on the prairie, but one to an elegantly designed and imagined interrelationship between human and living systems. We will do it because it’s the only alternative that allows us to stick around as a species, which most of us want to do.

Sarah: You said to me in a conversation quite some time ago that global corporations aren’t more efficient, they’re just more able to externalize their costs. Could you say more about that?

Paul: We assume that everything’s becoming more efficient, and in an immediate sense that’s true; our lives are better in many ways. But that improvement has been gained through a massively inefficient use of natural resources.

That inefficiency is masked because growth and progress are measured in money, and money does not give us information about ecological systems, it only gives information about financial systems. Global corporations are measured by that one financial denominator. They can most easily buy financial efficiency because they have the most capital. They can go to the factory, mining pit, forest, or country where they can do the most for the least money and do so quickly and do so on a scale that makes it very difficult for smaller companies to compete.

What this means is that we are seeing a worldwide pattern of decapitalization. Capital, whether it be natural capital in the form of resources, or human capital, in the form of low-wage workers, or local capital in the form of functional and healthy local economies, is being extracted and converted to financial capital at an increasingly accelerated rate. The financial capital is being concentrated by corporations, institutional investors, and even our pension funds, and being reinvested in companies that repeat this process because it provides the highest return on that financial capital.

This makes it nearly impossible for local or regional companies who internalize their costs, i.e. companies that do not degrade their resources, or do not take advantage of local labor surpluses, to contend because they cannot compete on price. I don’t know where the leadership will rise to turn this situation around.

At the same time, the globalization of the world economy is really due to the fact that energy has become increasingly less expensive for 119 years. Since oil was discovered, there have been some little price blips on the screen, but in constant dollars, energy is cheaper now per BTU than it ever has been in the history of the world. And at some point that will turn the other way. Interestingly, the oil companies know very well that in less than 30 years they will not only be charging very high prices, but that they will be uncompetitive with renewables.

When energy prices do go up and start to reflect their replacement value, you will also see some weakening of global transnational corporations. That’s because their advantage comes overwhelmingly from centralization and mass production, and those things depend on distribution and transportation networks that are basically cheaper than local systems.

Sarah: Could you clarify the distinction between the effects of a global corporation’s operation on the environment and the community and that of a local company?

Paul: A local company has more accountability. Local companies don’t have to internalize their costs, and few actually do, but they tend to more often because the owners live there and they have to show their face in town, and their kids play with other kids.

And also, more and more businesses really want to do the right thing. They feel better about themselves, their workers feel better, and so do their customers. I think this is equally true in the transnational corporations, but it is harder to express in those situations.

Sarah: Have you encountered businesses like that?

Paul: I think we all have. And I think we can all see that they’re frustrated because they’re playing on an uneven field. Businesses who are members of Businesses for Social Responsibility or the Social Venture Network are internalizing costs on a voluntary basis and therefore raising their costs of doing business, but their competitors are not required to. They can only do that to a certain degree before they hurt themselves, their company, and their future.

On the other hand, there are many things that companies can do to make themselves more efficient, that internalize costs at a savings rather than an expense. This is where the excitement is, and this is where what we can call the next industrial revolution will start. It’ll start where the systems are badly designed.

Companies that create more elegant ways of doing things, that create material and energy flows that are exponentially more efficient will become inefficiency arbitrageurs. They’ll force internalization onto their competitors because these companies will achieve efficiency at negative or nearly negative costs, which will set the standards for the rest of the industry. This will be the wedge, the foot in the door. It’s not going to begin with legislation or regulation; it’s going to begin by imagination.

Sarah: You’re talking about the kind of work being done with energy efficiency and so forth?

Paul: Yes, energy efficiency, material efficiency, and system efficiency. The term used commonly in Europe now is "factor" for the amount of efficiency, "factor four" being four times as efficient, or a 75 percent reduction in throughput of energy and materials.

State-of-the-art thinking now, led by Amory and Hunter Lovins of Rocky Mountain Institute, and Ernst von Wieszacker of the Wuppertal Institute in Germany, is that we are going to a factor ten economy, an economy that allows us to do what we do now with 90 percent less energy and materials. I agree. That’s the future, and those companies that understand it and move first – and I should say those countries, too – will find themselves in an advantaged position throughout the coming decades and century.

The good news is that the perverse incentives that have characterized industrial market economies are gradually failing, despite the best efforts of national legislatures to keep them in place, and there are now positive incentives to move towards efficient and sustainable systems that do not rely on altruism or regulation. I’m not against altruism, or against regulation either, but these new systems are self-regulating. It’s very exciting.

Sarah: Which companies are catching on to this? Where do you see progress being made?

Paul: In many cases, the leaders are companies that would bore or shock you, either because most people have never heard of them or because they’ve been some of the worst despoilers of natural systems in their products and processes. Some of these companies are now becoming quite taken by factor four efficiencies because they have huge problems, both from the past and in the present, and thus they have the most to gain from a wholesale revision of what business they’re in, how they conduct themselves, and how they design their processes. It is not for me to say who they are because they are in mid-transition and have not made their intentions known publicly or to their shareholders. And there is always the chance that a new CEO could kill those initiatives.

Sarah: What is the motivation for these large companies to change?

Paul: It varies. In some cases the CEO got religion. In some cases it’s because they’ve been badly burned and chastised, and they’ll try anything. They’re open and they’ve been made open by failure.

Sarah: One of the things that seems to be getting in the way of a real transformation is the amount of investment that is already sunk into our current way of doing things.

Paul: Yes, and that’s why any systems change has to refrain from punishing current investment within a 15-20 year time line. So often, well-intended regulation has punished capital investments that were made in good faith – maybe not good science, but good faith. Any company whose capital investments are affected by such regulations will be tigers in opposing new standards or laws that basically create write offs. An intelligent strategy of moving towards a least-cost, carbohydrates-based, cyclical economy that rewards resource efficiency rather than only financial efficiency, has to be as imaginative as the very processes it seeks to replicate. Intelligent policies will be largely self-regulating in the sense that the system of incentives and standards makes it absolutely ludicrous to not move towards clean, internalized systems of cost and production.

Sarah: Tell me more about what form those incentives would take.

Paul: Well ecological tax reform is the primary one. Over a 20-year period, in consistent and predictable increments, you shift the tax system away from personal incomes towards primary resources, energy, and waste. You approximate full-cost accounting, albeit in a somewhat simplistic way, but better than not doing it at all. In so doing, the system gives companies a long and predictable horizon within which they can invest in new technologies and new systems of natural capital productivity. And if they can make money by using less stuff, more efficiently through closed loops that do not cause harm to the environment, they will.

Sarah: That brings to mind what’s going on in Holland with their Green Plans. But when I try to imagine that happening in the US, it seems like the political situation here is heading in the opposite direction.

Paul: Yes, I suppose we are. That’s what I was mentioning earlier – the forces that are most threatened are the ones that are most coherent.

But ecological tax reform (ETR) in Europe will happen. There’s no question about it. The United States can try to go on its merry way, but the Swedes and the Germans and others who are talking about ETR are willing to pursue this because they are interested in two other important aspects besides the reduction in use of resources and production of waste. The first is that a tax shift lowers labor costs while at the same time it doesn’t lower real income. This makes the workers and their work more competitive in comparison to workers in other countries where no such tax shift has occurred.

The second is that it gives businesses incentives to become leaders in technologies and processes that accomplish these factor ten efficiencies ahead of other countries that don’t do ETR. CEOs in Sweden have already asked the Prime Minister to implement some form of ecological tax reform to gain an advantage over American and Japanese companies.

So if the Europeans adopt ETR and the US ignores it, American workers would become the highest paid in the world. They’re already having trouble competing with Germans, and if German wages go down 40 percent and there’s no change in real income for the German workers, then that’s going to be a real interesting situation for Americans.

With ETR, it’s really a race to see who does it first and best, and the others will have to follow. The country who does it first is going to have an advantage.

Sarah: Where is the energy going to come from to make the kind of system-wide transformation you describe?

Paul: I think it’s coming up and not down. I think we’re so used to hierarchical implementation of power that it’s hard to imagine that something reformative if not transformative, can come up and be more powerful. But I think that’s exactly what we’re seeing. We’ve seen it in Eastern Europe, we’ve seen it in South Africa, we’re seeing it right now in Belfast, between the Protestants and Catholics.

I believe this kind of reformation will be remarkably free of charismatic leadership. It’s based on distributive and adaptive intelligence – which is where the third wavers chime in for sure – and so by its very nature, there will be no person who will, can, shall, or could stand up and say, "This is the reformation. Let me tell you about it. I’m here." Because that won’t be it.

What I see is individuals, groups, families, communities, regions, companies, institutions, classes, churches, and other groups comprehending the shift, each in their own way. These groups are acting locally and regionally and are not aware of how often and repeated their initiatives are. These efforts don’t connect yet, but they are going to.

I think of this era as being like the second age of reformation. At the start of the Protestant reformation, Martin Luther was angered by the Catholic church’s sale of indulgences. Today, we are all angered and disturbed to see the sale of indulgences, only in this case it is by corporations and the indulgences are the profligate use of our forests, soils, water, air, and species. When Luther nailed his 95 theses to the door of the cathedral at Wittenburg, the resulting tectonic shifts in the social fabric led to the scientific revolution, the age of enlightenment, and the shift to the industrial age.

I believe we’re in the midst of the next reformation, which will be a shift from a secular to a biological age. There is no Martin Luther, and there will be no cathedral door, but like the first reformation, this shift is being precipitated by enormous corruption on the part of those people who hold the public trust, both politically and commercially. It’s feeding off the collapse of industrialism. The reformation has started and is as unstoppable as the last time.

Over the next 20 to 40 years we will witness the continued breakdown of industrialism. At the same time, we will experience the connecting of the dots if you will, a connecting of the different points of perception and initiative.

So you can see two signals; one of hope, renewal, and transcendence, and the other of decay and degradation. I suspect that the media will pay attention mostly to the latter, but both are going to happen very powerfully at the same time.


Readings that Put "Eco"
Back Into Economics

Paul Hawken
, The Ecology of Commerce, Harper Collins: 1993 – already a classic, this compelling book explores with remarkable clarity the changes needed to make doing business sustainably "as easy as falling off a log."

Herman E. Daly and John B. Cobb, Jr., For the Common Good: Redirecting the Economy toward Community, the Environment, and a Sustainable Future, Boston: Beacon Press, 1989. A solid, thought-provoking theoretical basis for a new economy – co-authored by a former World Bank economist and a theologian.

Fritjof Capra and Gunter Pauli (editors), Steering Business Towards Sustainability, Tokyo: UN University Press, 1995. A collection of essays on the education, incentives, and implementation of a more sustainable business world.

Hazel Henderson, Paradigms in Progress, new printing: San Francisco: Berrett-Koehler Publishers, 1995. A leading futurist and systems thinker on the transition to a sustainable economy.

Barbara Brandt, Whole Life Economics: Revaluing Daily Life, Philadelphia, New Society Publishers, 1995. Describes an economy that values and nurtures all aspects of life, from caring for children to supporting community.

Huey D. Johnson, Green Plans: Greenprint for Sustainability, Lincoln: University of Nebraska Press, 1995. The lessons to be learned from Dutch, New Zealand, and Canadian green plans, which are highly integrated, long-term planning for sustainability.

John Gowdy, Coevolutionary Economics: The Economy, Society, and the Environment, Norwell, MA: Kluwer Academic Publishers, 1994. Applying evolutionary thinking to economic change, from the time of hunter-gatherers to the anticipation of sustainability.

James Robertson, Future Wealth: A New Economics for the 21st Centruy, A TOES Book, NY: Bootstrap Press, 1990. A new economics based on "enabling" people and "conserving" the Earth – with a focus on reform of the tax and money systems to achieve sustainability goals.

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