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CHAPTER 13

Making Markets Work Ceaseless market vigilance — How cheap a future — The myth of free

markets — Skewed markets mean lost capital — Fiddling with the switches

— An ordered arrangement of wastebaskets — “Satisficing” — When

regulation fails — Golden carrots — Plain vanilla motors — Making a

market in nega-resources — Alternative annual report

CHURCHILL ONCE REMARKED THAT DEMOCRACY IS THE WORST SYSTEM OF

government — except for all the rest. The same might be said of the

market economy. Markets are extremely good at what they do,

harnessing such potent motives as greed and envy — indeed, Lewis

Mumford said, all the Seven Deadly Sins except sloth. Markets are so

successful that they are often the vehicle for runaway, indiscriminate

growth, including the growth that degrades natural capital.

A common response to the misuse,abuse,or misdirection of market

forces is to call for a retreat from capitalism and a return to

heavyhanded regulation. But in addressing these problems, natural

capitalism does not aim to discard market economics, nor reject its

valid and important principles or its powerful mechanisms. It does

suggest that we should vigorously employ markets for their proper

purpose as a tool for solving the problems we face, while better

understanding markets’ boundaries and limitations.

Democracies require ceaseless political vigilance and informed

citizenship to prevent them from being subverted or distorted by those

who wish to turn them to other ends. Markets, too, demand a

comparable degree of responsible citizenship to keep them functioning

properly despite those who would benefit more from having them work

improperly. But the success of markets when they do work well is

worth the effort.Their ingenuity,their rapid feedback,and their

diverse,dispersed, resourceful, highly motivated agents give markets

unrivaled effectiveness. Many of the excesses of markets can be

compensated for by steer-

MAKING MARKETS WORK 261

260

ing their immense forces in more creative and constructive directions.

What is required is diligence to understand when and where markets

are dysfunctional or misapplied, and to choose the correct targeted

actions to help them to operate better while retaining their vigor and

vitality.

This book has often argued that most of the earth’s capital, which

makes life and economic activity possible, has not been accounted for

by conventional economics. The goal of natural capitalism is to extend

the sound principles of the market to all sources of material value, not

just to those that by accidents of history were first appropriated into the

market system. It also seeks to guarantee that all forms of capital are as

prudently stewarded as money is by the trustees of financial capital.

The notion that much of the remedy for unsustainable market

activities is the adoption of sustainable market activities may offend

both those who deny that markets can be unsustainable and those who

deny that markets and profits can be moral. Yet worldwide experience

confirms an abundance of market-based tools whose outcomes can be

environmentally, economically, and ethically superior. These tools

include institutional innovations that can create new markets in avoided

resource depletion and abated pollution, maximize competition in

saving resources, and convert the cost of a sulfur tax or a carbon-trading

price into profits realized from the sale and use of efficient

technologies.

Ensuring that markets fulfill their promise also requires us to

remember their true purpose. They allocate scarce resources efficiently

over the short term. That is a critical task, especially as the logic of

natural capitalism changes the list of which resources are genuinely

scarce. But the continuity of the human experiment depends on more

than just success in the short term, and efficiently allocating scarce

resources does not embrace everything people want or need to do.

For all their power and vitality, markets are only tools. They make

a good servant but a bad master and a worse religion. They can be used

to accomplish many important tasks, but they can’t do everything, and

it’s a dangerous delusion to begin to believe that they can — especially

when they threaten to replace ethics or politics. America may now be

discovering this, and has begun its retreat from the recent flirtation with

economic fundamentalism. That theology treats living things as dead,

nature as a nuisance, several billion years’ design experience as

casually discardable, and the future as worthless. (At a 10 percent real

262 NATURAL CAPITALISM

discount rate, nothing is worth much for long, and nobody should have

children.) The 1980s extolled a selfish attitude that counted only what

was countable, not what really counted. It treated such values as life,

liberty, and the pursuit of happiness as if they could be bought, sold,

and banked at interest. Because neoclassical economics is concerned

only with efficiency, not with equity, it fostered an attitude that treated

social justice as a frill, fairness as passé, and the risks of creating a

permanent underclass as a market opportunity for security guards and

gated “communities.” Its obsession with satisfying nonmaterial needs

by material means revealed the basic differences, even contradictions,

between the creation of wealth, the accumulation of money, and the

improvement of human beings.

Economic efficiency is an admirable means only so long as one

remembers it is not an end in itself. Markets are meant to be efficient,

not sufficient; aggressively competitive, not fair. Markets were never

meant to achieve community or integrity, beauty or justice,

sustainability or sacredness — and, by themselves, they don’t. To

fulfill the wider purpose of being human, civilizations have invented

politics, ethics, and religion. Only they can reveal worthy goals for the

tools of the economic process.

Some market theologians promote a fashionable conceit that

governments should have no responsibility for overseeing markets —

for setting the basic rules by which market actors play. Their attitude

is, let’s cut budgets for meat inspection and get government off the

backs of abattoirs, and anyone who loses loved ones to toxic food can

simply sue the offenders. Let’s deregulate financial markets, and self-

interested firms will police themselves. Let straightforward telephone,

cable TV, and airline competition replace obsolete regulatory

commissions. Those seduced by the purity of such theories forget that

the austere brand of market economics taught by academic theorists is

only tenuously related to how markets actually work. The latest

illustrations of that principle include the Wild West wreck now

looming in Russia, mad-cow disease, savings and loan fraud, phone

scams, and crash-by night airlines. By the time textbook simplifications

get filtered into political slogans, their relationship to actual market

behavior becomes remote. A dose of empiricism is in order.

THE FREE MARKET AND OTHER FANTASIES

Remember the little section toward the beginning of your first-year

economics textbook where the authors listed the assumptions on which

MAKING MARKETS WORK 263

the theory of a perfect free market depends? Even as abstract theories

go, those conditions are pretty unreasonable. The main ones are:

1. All participants have perfect information about the future.1

2. There is perfect competition.

3. Prices are absolutely accurate and up-to-date.

4. Price signals completely reflect every cost to society: There are no externalities.

5. There is no monopoly (sole seller).

6. There is no monopsony (sole buyer).

7. No individual transaction can move the market, affecting wider price patterns.

8. No resource is unemployed or underemployed.

9. There’s absolutely nothing that can’t be readily bought and sold (no unmarketed assets) — not even, as science-fiction author Robert Heinlein

put it, “a Senator’s robes with the Senator inside.”

10. Any deal can be done without “friction” (no transaction costs).

11. All deals are instantaneous (no transaction lags).

12. No subsidies or other distortions exist.

13. No barriers to market entry or exit exist.

14. There is no regulation.

15. There is no taxation (or if there is, it does not distort resource allocations in any way).

16. All investments are completely divisible and fungible — they can be traded and exchanged in sufficiently uniform and standardized chunks.

17. At the appropriate risk-adjusted interest rate, unlimited capital is available to everyone.

18. Everyone is motivated solely by maximizing personal “utility,” often measured by wealth or income.

Obviously the theoretical market of the textbooks is not the sort of

market in which any of us does business. Actually, if there were such a

place, it would be pretty dull. No one could make more than routine

profits, because all the good ideas would already have been had, all the

conceivable opportunities exploited, and all the possible profits

extracted — or, as the economists put it, “arbitraged out.” It’s only

264 NATURAL CAPITALISM

because actual markets are so imperfect that there are exceptional

business opportunities left.

Just how imperfect are the markets in which we all actually live?

Let’s run a quick check on that list of eighteen theoretical requirements:

1. Perfect information about the future? If anyone had it, he or she’d be barred from elections and stock markets — and probably not given any

credence by the rest of us.

2. Competition is so imperfect that exceptional profits are commonly earned by exploiting either one’s own oligopolistic power or others’ oversights,

omissions, and mistakes.

3. Markets know everything about prices and nothing about costs.

4. Most harm to natural capital isn’t priced, and the best things in life are priceless.

5. No monopolies? Microsoft, airlines’ fortress hubs, and your managedhealth-care provider come close.

6. No monopsonies? Consider your utility, the Peanut Marketing Board, and the Federal Aviation Administration.

7. No market-movers? What about Warren Buffet and the Hunt Brothers?

8. Thirty percent of the world’s people have no work or too little work. (Economists justify this by calling them “unemployable” — at least at the

wages they seek.)

9. Most of the natural capital on which all life depends can be destroyed but neither bought nor sold; many drugs are bought and sold in a pretty

effective free market, but doing either can jail you for life.

10. The hassle factor is the main reason that many things worth doing don’t happen.

11. Does your insurance company always reimburse your medical bills promptly? Does your credit-card company credit your payments

immediately?

12. Worldwide subsidies exceed $1.5 trillion annually — for example, America’s 1872 Mining Act sells mineral-bearing public land for as little as $2.50 an

acre and charges no royalties.

13. It’s hard to start up the next Microsoft, Boeing, or GM — or to get out of the tobacco business.

14. The world’s regulations, put on a bookshelf, would extend for miles.

15. The Internal Revenue Code exists.

16. You can’t buy a single grape at the supermarket, nor an old-fashioned front porch in most housing developments.

17. Many people are redlined, must resort to loan sharks, or have no access to capital at any price.

18. So why does anyone fall in love, do good, or have kids, and why do threefifths of Americans attend weekly worship services?

MAKING MARKETS WORK 265

Actually, the market works even less perfectly than the above

counterexamples suggest, for two reasons. First, corporations that

benefit from subsidies, externalizing their costs, avoiding transparency,

and monopolizing markets tend to ignore market realities and lobby for

making new rules, or overlooking old ones, that will best achieve their

private benefits. Second, people are far too complex to be perfectly

rational benefit/cost maximizers. They are often irrational, sometimes

devious, and clearly influenced by many things besides price.

For example, suppose you put a group of individuals in hot, muggy

apartments with air conditioners and tell them that both the air

conditioners and the electricity are free. What would you expect them

to do? Won’t they just turn it on when they feel hot and set it at a

temperature at which they feel comfortable? That’s what economic

theory would predict; if cooling is a free good, people will use lots of

it whenever they want. But only about 25 to 35 percent of individuals

actually behave that way. Many others don’t turn on the air conditioner

at all. Most do run it occasionally, but in ways that are essentially

unrelated to comfort. Instead, their usage depends largely on six other

factors: household schedules; folk theories about how air conditioners

work (many people think the thermostat is a valve that makes the cold

come out faster); general strategies for dealing with machines; complex

belief systems about health and physiology; noise aversion; and

(conversely) wanting white noise to mask outside sounds that might

wake the baby. 2

Theoretical constructs are, after all, just models. The map is not the

territory. The economy that can be described in equations is not the real

economy. The world that conforms to eye-poppingly unreal

assumptions about how every economic transaction works is not the

real world. The sorts of economists who lie awake nights wondering

whether what works in practice can possibly work in theory are not the

sorts who should define your business opportunities.

Previous chapters have documented 100 to 200 percent annual

returns on investment in energy efficiency that haven’t yet been

captured, as market theory presumes they must already have been.

Previous chapters documented improvements in U.S. vehicles,

buildings, factories, and uses of materials, fiber, and water that could

probably save upward of a trillion dollars per year. These efficiency

gains are available and highly profitable but haven’t yet been captured.

Chapter 3 even suggested that waste, in a more broadly defined sense,

in the U.S. economy could amount to at least one-fourth of the GDP.

266 NATURAL CAPITALISM

Such prominent examples of market failure suggest that the standard

question of how to make markets more perfect should be turned around:

Are there ways to address the imperfections in the marketplace that

would enable people to capture the profit potential inherent in those

flaws? It’s time to identify the real-world obstacles to buying resource

efficiency, and determine how to turn each obstacle into a new business

opportunity. The attractive scope for doing this will be illustrated by

examples about energy and occasionally water, but most of the

implementation methods and opportunities described could be

extended to saving any kind of resource.

CAPITAL MISALLOCATION

The lifeblood of textbook capitalism is the flow of capital. 3

In theory,

capital flows to the best risk-adjusted returns just as automatically as

water flows downhill. In theory, theory and practice are the same, but

in practice they’re not. In practice, even the major global institutions

that handle most of the world’s large capital flows have significant

distortions and imperfections. 4

Realistically, most of us can’t attempt

to solve these problems on a global scale, but we can notice and address

similar ones at the level of the firm or community.

Without managerial attention, not much happens. Most managers

pay little attention to such seemingly small line-items as energy (one to

two percent of most industries’ costs). Similarly, most manufacturing

firms choose investments that increase output or market share in

preference to those that cut operating costs. 5

What both these habits

overlook is that saved overheads drop from the top to the bottom line,

where even small cost savings added back to profits can look a lot

bigger. When the CEO of a Fortune 100 company heard that one of his

sites had an outstanding energy manager who was saving $3.50 per

square foot per year, he remarked, “That’s nice — it’s a million-square-

foot facility, isn’t it? So he must be adding $3.5 million a year to our

bottom line.” In the next breath, he added: “I can’t really get excited

about energy, though — it’s only a few percent of my cost of doing

business.” He had to be shown the arithmetic to realize that achieving

similar results in his 90-odd million square feet of facilities worldwide

could boost that year’s net earnings by 56 percent. The energy manager

was promoted to spread his practice companywide.

Once managers do start paying attention, how do they determine

how much energy efficiency is worth buying? Many supposedly

sophisticated firms, it turns out, don’t decide very carefully: They make

MAKING MARKETS WORK 267

all routine “small” purchases based on initial cost alone. Thus 90

percent of the 1.5 million electric distribution transformers bought

every year, including the ones placed on utility poles, are bought on the

basis of lowest first cost. Buying the less expensive and less efficient

transformers passes up an opportunity to earn an after-tax return on

investment of at least 14 percent a year plus many operational

advantages. Nationwide, it also misallocates $1 billion a year.6 Every

first-year business student knows that the correct way to allocate capital

is to compare investments’ results over the long run, not choose the

option that requires the least initial investment regardless of future

return. Every computer spreadsheet contains net-present-value

functions that perform this calculation automatically. Yet most

companies don’t buy energy efficiency using these principles.

Typically, energy-saving devices are chosen by engineers at the

firm’s operating level, using a rule-of-thumb procedure called “simple

payback,” which calculates how many years of savings it takes to repay

the investment in better efficiency and start earning clear profits. Four-

fifths of the American firms that even think about future savings

(instead of just initial capital cost) use this method. Moreover, they do

so with the expectation of extremely quick paybacks — a median of

1.9 years.7 Most corporate officers are so immersed in discounted-cash

flow measures of profitability that they don’t know how to translate

between their own financial language and the engineers’ language of

simple payback. 8 They therefore may not realize that a 1.9-year simple

payback is equivalent to a 71 percent real after-tax rate of return per

year, or around six times the cost of additional capital.

Most firms are therefore not purchasing nearly enough efficiency.

They invest every day in ways to increase production or sales that don’t

return anywhere near 71 percent a year after tax; yet they continue to

insist, often unknowingly, that energy efficiency leap this lofty hurdle.

One remedy is to teach the energy engineers how to speak financial

language. When the engineer goes to the comptroller and says, “Wow,

have I got a deal for you — a risk-free return of 27 percent after tax!,”

he or she’ll almost certainly get the capital that wouldn’t have been

obtained had the savings been expressed as a 3.4-year payback.

Many capital-constrained industries use hurdle rates even more

absurd than two years: In some, the energy managers can’t buy

equipment that yields anything beyond a six-month payback. Yet at

least in buildings, it’s now possible to obtain capital for energy- or

water-saving investments entirely from outside sources without

268 NATURAL CAPITALISM

committing any capital of one’s own. In 1997, top finance firms joined

the U.S. Department of Energy to create the International Performance

Measurement and Verification Protocol, 9 which has since been adopted

in more than 20 other countries, including Brazil, China, India, Mexico,

Russia, and Ukraine. This voluntary industry-consensus approach

standardizes streams of energy- and water-cost savings (in buildings

and in most industrial processes) so they can be aggregated and

securitized, just as FHA rules standardize home mortgages. The

protocol is creating a market where loans to finance energy and water

savings can be originated as quickly as they can be sold into the new

secondary market. For an individual company, achieving energy

savings can therefore be affordably financed and needn’t compete with

other internal investment needs. The protocol’s metering and

monitoring procedures will also help maximize savings and guarantee

their longevity by providing more accurate feedback to building and

factory operators.

But the misallocation of capital away from very attractive returns in

energy efficiency has an even larger implication. While most business

owners, just like most Americans in their own homes, typically want to

get their money back from energy-saving investments within a few

years, utilities and other large energy companies have traditionally

been content to recover power-plant investments over the course of

twenty to thirty years — about ten times as long. Our society, therefore,

typically requires roughly tenfold higher returns for saving energy than

for producing it. 10

Equivalent to a tenfold price distortion, this practice

skews the economy by making us buy far too much energy and too little

efficiency. Until the late eighties, the United States wasted on

uneconomic power plants and their subsidies roughly $60 billion a year

worth of capital investment, or about twice as much as it invested

annually in all durable-goods manufacturing industries, thus badly

crimping the nation’s competitiveness.

However, in that distortion lurks another business opportunity.

Arbitrageurs make fortunes from spreads of a tenth of a percentage

point. The spread between the discount rates used in buying energy

savings and supply are often hundreds of times larger than that —

enough to overcome the transaction costs of marketing and delivering

large numbers of individually small savings. Scores of utilities proved

this in well-designed eighties and early-nineties programs that

delivered efficiency improvements at a total cost less than the

operating costs of existing thermal power stations. 11

The spread in

MAKING MARKETS WORK 269

discount rate is also the basis of the Energy Service Company (ESCO)

concept, where entrepreneurs are paid to cut energy bills. They charge

nothing up front for their services but are paid by sharing the measured

savings they achieve. Like the shared-savings landscape-retrofit and

water-efficiency firms mentioned in chapter 11, skilled ESCOs are

flourishing worldwide, although America’s ESCO industry is still in its

shakeout phase. Many federal agencies, though authorized to hire

ESCOs, don’t yet do so because of rigid procurement habits and

procedures. This may change under President Clinton’s July 25, 1998,

order to remove those blockages, maximize ESCO deals, and — a

major incentive — let agencies keep half of their resulting savings.

Individuals have an even harder time allocating capital to energy

efficiency investments than firms do. Few people will pay fifteen to

twenty dollars for an efficient lightbulb when an ordinary one sells for

fifty cents, even though the efficient model, over its thirteenfold-longer

lifetime, will save tens of dollars more in energy bills than its cost and

will keep a ton of CO2 out of the air. But there are ways to jump over

that hurdle. Southern California Edison Company gave away more than

a million compact fluorescent lamps, a measure that saved energy more

cheaply than existing power stations could produce it. To broaden the

market even further, SCE then cut the lamps’ retail price via a

temporary subsidy paid not to buyers but to lamp manufacturers, thus

leveraging all the markups and lowering the retail price by more than

threefold. 12

Some other utilities lease the lamps for, say, twenty cents

per lamp per month, with free replacements; customers can thus pay

for efficiency over time — just as they now pay for power stations —

but the lamps are cheaper.

Similar workarounds are needed for larger investments. Few

families can afford to buy photovoltaics, which are the equivalent of

buying twenty-plus years’ worth of electricity up front, any more than

they could buy twenty years’ worth of food in advance. Only percent

of American car buyers pay cash; all the rest finance or lease. When

financing or leasing solar power becomes as cheap and easy a process

as leasing a car, it will become as common and viable a commodity —

as is happening in Sacramento, where the municipal utility not only

finances photovoltaics but even rolls them into the mortgage. 13

Everything from vending machines to photocopiers, trucks to

airplanes, office space to its furniture and equipment is now commonly

leased. With more money chasing deals than good deals to chase, the

almost riskless opportunities in financing energy and resource

270 NATURAL CAPITALISM

efficiency will inevitably become more attractive to investors,

especially when offered as a kind of evolving service. Rapidly growing

new investment funds, partly funded by the insurance industry to avert

the possibility of climate change, are now investing directly in

“leapfrog” efficiency-plussolar power systems in developing countries.

Those systems often cost less than villagers are already paying for

lighting kerosene and radio batteries, 14

and represent a new market of 2

billion people.

Some of the biggest capital flows in the world — investments in

energy supply and other primary resource acquisition or provision —

beg for review. Those capital flows are largely misallocated today

because most international opportunities to invest in, say, national or

utility level electric power systems consider only supply-side, not

demand-side, options and have no meaningful way to compare the

two. 15

The resulting misallocation sends far too much money to the

supply side. It’s a bit like the recipe for Elephant and Rabbit Stew —

one elephant, one rabbit. The remedy, as explained below, is simply to

reward the best buys, not the worst. 16

ORGANIZATIONAL FAILURES

A famous company that hasn’t needed steam for years still runs a big

boiler plant, with round-the-clock licensed operators, simply to heat

distribution pipes (many uninsulated and leaking) lest they fail from

the stresses of heating up and cooling off; nobody has gotten around to

shutting down the system. Why should one manager stick his neck out

when the status quo seems to work and nobody’s squawking? The

litany of excuses for not attending to problems like these in a large

organization is all too familiar and unproductive.

Billion-dollar fabrication plants (“fabs”) speed the latest microchips

to market by cramming design and construction into twelve to eighteen

months — too fast for actual design. The chief engineer of a huge chip

plant design firm was once told by phone about such proven

technologies as a cleanroom that uses manyfold less energy yet

performs better, costs less, and builds faster. His rapid-fire reply:

“Sounds great, but I pay a $100,000-an-hour penalty if I don’t have the

drawings for our next plant done by Wednesday noon, so I can’t talk to

you. Sorry. Bye.” The sad and ubiquitous result is “infectious repetitis”

— the copying of old drawings — which leaves huge savings

untapped. 17

The most painful but effective discipline for such

sloppiness is bankruptcy: Once major improvements enter a cozily

MAKING MARKETS WORK 271

complacent market, laggards must improve or perish. In autumn 1997,

an East Asian hard-disk-drive factory was using $7 worth of electricity

per drive while a similar plant nearby used only 13.5 cents’ worth.18

Such a 54-fold energy cost disparity couldn’t be sustained. The

inefficient plant went broke two months later.

A safer remedy is to move early to substitute leadership for

management. Leaders can arise at any level in an organization.

Columbia University had its own entrenched practices until a tough

new energy director, Lindsay Audin, was told to cut 10 percent off its

$10 million-a-year energy bill, with uncompromised service and no

capital budget. Authorizations were painfully slow until Audin showed

that the delays were costing $3,000 a day in lost savings, more than the

delayers’ monthly paychecks. Five years later he was saving $2.8

million a year, 60 percent of it in lighting alone; had won 9 awards and

$3 million in grants and rebates; and had brought 16 new efficiency

products to market. 19

The late economist Kenneth Boulding defined a hierarchy as “an

ordered arrangement of wastebaskets, designed to prevent information

from reaching the executive.” But letting information flow to those

who can best act upon it stimulates intelligence and curiosity — as in

the factory where merely labeling the light switches, so that everyone

could see which switches controlled which lights, saved $30,000 in the

first year. No one had wanted to fiddle with the switches, lest they

inadvertently cause interruptions, but labels proved to be both cheap

and effective.

Another part of the reform package in any organization should be to

encourage individual risk-taking. In 1994, Mitsubishi Electric tackled

this problem head-on by changing how it evaluates employees’

performance. Mistakes were explicitly offset by successes, so risk-

takers whose boldness paid off would be rewarded. The resulting

speed-up in organizational learning enabled the firm to achieve its five-

year strategic goals a year early. 20

Rewards can also be institutional:

Washington State routinely shares savings among their achievers, the

General Fund, and an account reserved for reinvestment in more

savings. This allows innovators to save even more without having to

go back to the capital budgeting process.

The ultimate form of risk-taking is research: As Einstein remarked,

“If we knew what it was we were doing, it wouldn’t be called

‘research,’ would it?” A peculiar blind spot in many organizations leads

272 NATURAL CAPITALISM

to abysmally low R&D investments that lock in stagnation. The U.S.

building and construction-materials industries, for example, reinvest

only about one percent of their revenue in R&D, compared with ten to

twenty times that for cutting-edge industries like electronics and

pharmaceuticals. No wonder their techniques and materials are so

antediluvian. Recent U.S. Congresses share this shortcoming, regularly

slashing energy-efficiency R&D budgets that have historically yielded

taxpayer returns of thousands of percent per year: Just a handful of the

technologies developed at the Center for Building Science at Lawrence

Berkeley National Laboratory have already ensured energy savings

worth hundreds of times the center’s total cost. 21

A common problem in introducing innovation is determining who’s

actually going to do the work. How many economists does it take to

screw in a compact fluorescent lamp? None, goes the joke — the free

market will do it. But we all know that somebody actually has to get

the lamp from shelf to socket; otherwise the wealth isn’t created. In the

1990s many firms, assuming they’d already carried out all their

worthwhile energy savings and noticing that energy prices were

continuing to fall, downsized their energy managers right out of their

jobs. Their responsibilities were shifted onto other overloaded agendas,

and predictably ceased to be a priority. Often the loss isn’t simply of a

warm body; it’s of a devoted champion of efficiency without whom

little will happen.

Individual initiative can still be defeated by bureaucracies. Many

who propose changes discover that, because resource-saving

equipment must be purchased from one budget, while its savings will

benefit another budget, they can’t get approval. Federal buildings

similarly separate their construction from their operating budgets, and

managers may be forbidden to share investments that reduce taxpayers’

total costs. More generally, large organizations often behave in ways

individuals would never dream of. A multinational company

benchmarked its plants worldwide, for example, and discovered that

one of them was five times as efficient as most others. It soon found

itself under internal pressure to “dumb down” its planned new plants

toward the poorer ones’ levels of performance so that their managers

wouldn’t look as bad.

Organizational economists have classified and explained such

seemingly bizarre behaviors. 22

As Nobel economist Herbert Simon

learned, many firms do not fully maximize earnings but rather resort to

“satisficing” — doing just well enough to get by and to satisfy all the

MAKING MARKETS WORK 273

parties they need to. The inherent complexities of their environment

and the limits of their authority to make and execute decisions make

this timidity inevitable. Shareholders, for example, hold diversified

asset portfolios, but managers whose careers ride on the success of

specific projects are far more risk-averse, so they select only extremely

high-return investments — and so on down the hierarchical chain of

control. Subordinates bear the personal risks of failure, while superiors

see just the results and know which projects were chosen but not why.

This sort of hierarchy leads to systematic sub-optimization — to

second-best solutions that are less profitable overall than they should

be but are also less risky individually. Rewarding individuals’ net

success, as Mitsubishi Electric did, is one answer. Another is to create

a broader alignment between corporate and personal objectives. One

utility that started paying its efficiency marketing staff a dollar for

every measured kilowatt saved quickly found that verified savings got

bigger and cheaper — both by an order of magnitude.

REGULATORY FAILURES

Another portion of the seemingly irrational behavior that takes place in

the business world occurs because companies are forced to obey not

just the invisible hand of the market but also the all-too-visible hand of

the regulator, and some regulation inadvertently produces the opposite

of the intended results.

All but a handful of states and nations, for example, reward

regulated energy utilities for selling more energy 23

and penalize them

for cutting bills. This gives shareholders and customers the opposite

goals, with predictable results. Many proposed utility restructuring

efforts (often misnamed “deregulation” or “competition,” though most

would actually inhibit those goals) 24

are missing a unique opportunity

to mend this flaw. Instead they would enshrine the same perverse

incentive in commodity-based market rules, rewarding the sale of as

many kilowatt-hours as possible at the lowest possible price, rather

than rewarding better service at lower cost. 25

But a straightforward and

proven remedy does exist. Where retail price remains regulated, simple

accounting innovations in a few states have decoupled retail electricity

distributors’ earnings from their sales volumes, so those utilities are no

longer rewarded for selling more energy or penalized for selling less.

The utilities keep part of whatever they save off their customers’ bills.

Through this plan, the nation’s largest investor-owned utility, Pacific

Gas and Electric Company, added over $40 million of riskless return

274 NATURAL CAPITALISM

to its 1992 bottom line while saving customers nine times that much.

In California alone, the Public Utilities Commission found that, during

the period 1990-93, efficiency investments rewarded and motivated by

this incentive system’s emulation of efficient market outcomes had

saved customers a net present value of nearly $2 billion. Thoughtful

utility restructuring can accomplish the same everywhere. Even

without retail price regulation, it can create truly competitive

conditions of diverse sellers, easy entry and exit, fair access to

monopoly bottleneck facilities and to market information, effective

antitrust enforcement, and continuing scrutiny to prevent abuses of

market and political power. 26

Another problem with regulations is that they are often obsolete 27

and even more often misinterpreted. Standards meant to establish a

“floor” have with time come to be interpreted as a ceiling or as an

economic optimum. For example, almost all U.S. buildings use wire

sizes that conform to National Electrical Code (NEC) minimum

requirements, because the wire size is selected and its cost passed

through by the low-bid electrician. But the NEC minimum standard

was chosen to prevent fires; to save money over time, wire one or two

sizes fatter should be selected to reduce electrical resistance. The fatter

wire costs more to buy but less to operate. In a typical office lighting

circuit, the next larger wire size yields about a 193 percent-per-year

after-tax return on its additional cost. 28

Few electricians know this and

fewer care, since their reward for proposing higher-efficiency wires is

typically a lost engagement: General contractors hire the low bidder.

This situation is just another example of ubiquitous “split incentives,”

where people who choose technologies often aren’t the same people

who will pay the bills.

This problem can be solved by better regulation, such as rewriting

the NEC — a slow and difficult process — or by introducing the fee-

bates described in chapter 5, which focus the developer’s attention up

front on designing the building for maximum efficiency. A solution

could also be found without regulation, in at least two ways. The

project’s manager could instruct the general contractor to calculate bids

on minimum life-cycle cost, so more copper up front gets offset by

electrical savings later — or, better still, could include properly sized

wire in the specifications to which all bidders must adhere. There are

also intermediate levels of solutions: Financiers or their lawyers could

put optimally sized wire on their due-diligence checklist, or the local

utility could provide attractive energy-efficiency incentives only for

MAKING MARKETS WORK 275

projects that are wired using a socially optimized wire-size table

instead of the NEC table. Where can the developer or contractor get

such a revised wire-size table? From the organization with a direct

interest in turning optimal wire size into its member companies’ profits

— the Copper Development Association. 29

Minimum acceptable conditions, like “meets code”(euphemism for

“the worst building you can put up without being sent to jail”), or the

British expression “CATNAP” (Cheapest Available Technology

Narrowly Avoiding Prosecution), should have provisions to reward

even better performance. Regulators often have indirect ways to

address such minimal-compliance issues. To encourage developers to

exceed the minimal energy-saving requirements of building codes,

Santa Barbara County entitled those overcomplying by 15–45-plus

percent to jump ahead in the queue for approvals, saving them a lot of

time. This is a valuable reward for the builders, but it cost the county

nothing.

INFORMATIONAL FAILURES

Another reason for the reluctance of business to invest in resource

efficiency may be a lack of accurate and up-to-date information. Do

you know where to get everything you would need to optimize your

own energy use, how to shop for it, how to get it properly installed,

who would stand behind it? If any of this book’s examples of large,

inexpensive savings surprised you, you’ve just witnessed a

considerable market barrier: If you don’t know something is possible,

you can’t choose to do it.

Labeling helps to address the information problem by telling buyers

how competing models compare. In the United States, major

appliances carry mandatory efficiency labels (though often with

outdated information). A number of voluntary labeling systems, such

as were used for measuring the efficiency of a quarter million San

Francisco houses in 1978-80, have also found their way to the market

as buyers started questioning the value of any houses that weren’t

labeled. EPA’s voluntary Energy Star standard for office equipment is

now embraced by over 2,000 products from more than 400

manufacturers. The efficient machines work better, yet cost the same

or less, and are therefore mandated for federal purchasing. They’re

saving a half billion dollars a year, could nearly double that amount by

2000, and promise a ten-million-ton-a-year carbon savings by 2005.

276 NATURAL CAPITALISM

Other voluntary programs that provide a more comprehensive

system of informational, technical, and trade-ally support, like EPA’s

Green Lights, 30

are succeeding because they create competitive

advantage. Involving more than 2,300 organizations and 7 percent of

U.S. buildings, Green Lights’ retrofits typically save over half of a

company’s lighting energy with 30 percent ROI and unchanged or

improved lighting quality. Green Lights firms also show stronger

earnings growth than nonparticipants. 31

The national potential for this

effort is a $16 billion annual savings, plus a 12 percent reduction in

utilities’ carbon and other emissions. 32

In 1998 alone, Green Lights and

Energy Star Buildings participants were expected to cut their energy

cost by more than $280 million, and reduce air-polluting emissions by

over 5 billion pounds.33

How much do you pay at home for a kilowatt-hour of electricity,

and how many kilowatt-hours does your refrigerator — typically the

biggest single user in the household — consume each year? If you don’t

know, because you’re too busy living to delve into such minutiae, then

you’re part of another market barrier. To make such decisions more

efficient — and because most appliances are bought not by billpayers

but by landlords, homebuilders, and public housing authorities —

Congress, by a near-unanimous vote, approved mandatory efficiency

standards for household appliances. For the same reason, these are

starting to be extended to some commercial and industrial devices, too.

Utilities can also reinforce standards by rewarding customers for

beating them.

VALUE-CHAIN RISKS

Manufacturers often hesitate to take the risk of developing and

producing new energy-saving products because of their uncertainty that

customers will buy them in the face of many of the obstacles listed in

this chapter. To overcome this reluctance, Hans Nilsson, then an

official of the Swedish energy-efficiency agency NUTEK, pioneered

contests for bringing efficient devices into the mass market. Under his

terms, a major public-sector purchasing office, Statskontoret, would

issue a request for proposal, which committed to buy a large number of

devices, bid at certain prices, if they met certain technical

specifications, including energy savings that would be highly cost-

effective to the user. This explicit expression of market demand elicited

many innovations, giving a strong advantage to Swedish industry in

both home and export markets. Following the Swedish example, the

MAKING MARKETS WORK 277

“golden carrot” program, devised by Dr. David Goldstein of the

Natural Resources Defense Council, improved U.S. refrigerator

design. 34

Another way to encourage cities to try pioneering technologies

could be an analogue of a public-guarantee system the EPA has used.

This assured the first adopters of an innovative wastewater treatment

system that they would receive a free replacement with a conventional

alternative if the novel one didn’t work. Such risk management is often

the key stimulus needed to start a rising spiral of demand and

production.

Efficient equipment often isn’t available when and where customers

need it — as anyone knows who’s tried to get an efficient replacement

for a burned-out water heater, furnace, air conditioner, or refrigerator

on short notice. Distributors frequently reject the risk of carrying non–

“plain vanilla” inventory that may sell slowly or not at all. Thus British

Columbia Hydro found that the huge motors in that province’ s mining

and pulp-and-paper mills were virtually all inefficient, simply because

they were the only product that local vendors stocked. More efficient

motors had to be special-ordered, which took much longer than the

mills could afford to wait. In 1998, though, B.C. Hydro started paying

distributors a small, temporary subsidy to stock only efficient models,

covering their extra carrying cost. In three years, premium efficiency

motors’ market share soared from 3 percent to 60 percent. The subsidy

was then phased out, supported by a modest backup standard.

Similarly, PG&E found in the eighties that rather than paying

customers a rebate for buying efficient refrigerators, it could improve

the rate of adoption of efficient refrigerators, at less than a third the

cost, by paying retailers a fifty-dollar bonus for each efficient model

stocked but nothing for stocking inefficient ones.

FALSE OR ABSENT PRICE SIGNALS

One of the best methods to start reducing the self-deception that

accompanies subsidies and other distortions is to account scrupulously

for the factors that economists call externalities. Nobody knows exactly

how much value to place, say, on the effects of air pollution on human

health or on ecosystems. But recognizing that zero is not the right

number, utility regulators in about 30 states now take some externalities

into consideration in assessing utilities’ proposed resource acquisitions,

since most utilities don’t. Until the “polluter pays” principle, accepted

in principle by all industrialized countries since the 1970s, is actually

278 NATURAL CAPITALISM

implemented in energy pricing, however, prices will continue to reflect

the tacit assumption that, as local energy official Randy Udall puts it,

“the future is worthless and the environment doesn’t matter.”

Calculations of cost-effectiveness based solely on private internal cost

will continue to be “a value system masquerading as mathematics.” 35

Price signals are inadequate in many more immediately practical

ways, too. Utility bills are seldom itemized: You can no more

determine the running cost of each piece of equipment, in total or at

different times of day, than you could shop sensibly if your

supermarket bill showed only a grand total but no details of what you’d

bought. Few firms track energy costs as a line item for which profit

centers are held accountable. Firms in rented space may have energy

bills prorated rather than submetered. Many companies, especially

chains and franchises, never see their energy bills, which are sent

directly to a remote accounting department for automatic payment.

Some large firms even assume that utility bills are a fixed cost, not

worth examining. But new bill-paying and bill-minimizing service

companies have recently been springing up, many of which provide

submetering of specific machines, times, and sites, and two-way, real-

time communications to help managers pinpoint opportunities for

improvement. Just ensuring that each meter generating a bill is actually

in use and on the customer’s premises often yields substantial savings.

Price levels make a difference, but so do price structures. Utilities

often manipulate tariff structures to discount higher use or to penalize

efficiency. Many did so for decades, even when their own costs

increased with greater sales, believing this strategy would increase their

profits, which traditional rate-of-return regulation tied to greater energy

sales. Getting the incentives right so that rewards are granted for what

we want — lower bills — and not the opposite — higher sales — will

make such distortions counterproductive and rare.

One final class of distortions to energy choices comes from lopsided

tax policy. For example, energy purchases are treated as deductible

business expenses, while investments to save energy get capitalized.

However, such rules, with some effort, can be changed. When the

Japanese government wanted to clean up sulfur emissions from power

plants, it reportedly allowed scrubbers to be expensed in a single year.

Analogous U.S. initiatives to speed the installation of efficient and

environmentally sound devices and the retirement of inefficient or

polluting ones are already under consideration. 36

MAKING MARKETS WORK 279

INCOMPLETE MARKETS AND PROPERTY RIGHTS

Even perfectly accurate prices are useless without markets in which

buyers and sellers of resource efficiency can meet and do business —

markets that offer a level playing field where all options can contend

fairly at honest prices. As of now, such arenas don’t exist. There’s not

yet any significant market in saved energy: “Negawatts” — electricity

saved by reducing inefficiencies in its use — aren’t yet a fungible

commodity subject to competitive bidding, arbitrage, secondary

markets, derivatives, and all the other mechanisms that make for

relatively efficient markets in copper, wheat, and sowbellies. Although

tradable emission rights and credits are starting to emerge, as noted in

the previous chapter, you can’t yet go bounty-hunting for wasted

energy, nor bid negawatts (or their futures and options) against

expansions of energy supply.

The existence of such markets could be a business bonanza, if the

parties whose joint transactions could create the savings were

introduced to each other. Thus when Morro Bay, California, ran short

of water in the late 1980s, it simply required any developer wanting a

building permit to save, at some other site in town, twice as much water

as the new building would use. Developers then discovered what saved

water is worth, because the town had established a market in it. One-

third of the houses in Morro Bay got retrofitted with efficient plumbing

fixtures in the first two years and two-fifths in the first four years. This

plan could as well have been implemented in a larger area, via water

savings brokers. Fantasy? It’s already happening. A few states —

notably California, Oregon, and Montana — have reformed their “use-

it-or lose-it” water laws to allow saved water to be sold or leased

without penalty. Brokers are now emerging to handle those save-and-

resell deals.

Instead of just marketing negawatts (saved electricity) — a business

now worth some $5 billion per year in the United States — utilities

should begin to make markets in negawatts. This would not only

maximize the number of customers saving but would also maximize

competition in who saves and how, driving cost down and quality up.

In the 1980s, Central Maine Power Company started the trend by

offering cash grants to those industrial customers that pledged to save

the most electricity per dollar of grant. This auction grew into one

featuring “all-source bidding,” later practiced in some eight states,

where all ways to make or save electricity could compete. A utility that

wanted more power would ask, “Who out there wants to make or save

280 NATURAL CAPITALISM

electricity at what price?” — and take the low bids until its needs were

met. Around 30 states also ran auctions just for supply. They were

typically offered, at attractive prices, many times as much as they

wanted. Where efficiency was allowed to bid against new supply, it

almost always won, permitting valuable “decongestion” of crowded

grid capacity. 37

Every form of avoided resource depletion and prevented pollution

is a potential candidate for an entrepreneur to find and exploit

inefficiencies. Establishing markets in saved oil could induce

arbitrageurs to exploit the spread between the cost of lifted barrels and

saved barrels. Dams could bid against showerheads, clear-cuts against

duplex copiers. Carbon and cobalt, tungsten and trees, reefs and

rainforests, are all ripe for trading savings. Just as with subatomic

particles, for every resource there is an equal and opposite

“antiresource”: For every activity there is an abatement, arguably

meriting a value and a market in which to express it. Few of those

markets yet exist, but creating them can make traders prosper and all

of us better off. Making markets in saved resources and avoided

pollution can support powerful entrepreneurial innovations that turn

each obstacle to resource productivity and loop-closing into an

opportunity. 38

The bigger the problem, the bigger the potential gain,

whether in energy and water, fibers and minerals, or land and mobility.

CREATIVE POLICY FRAMEWORKS

In 1991, President Bush signed into law the Intermodal Surface

Transportation Efficiency Act, which mandates least-cost choices for

solving local transportation needs, thus allowing federal transport

dollars to flow to the best buys, not only to highways. In about thirty

states, this legislation is effectively not in force because the federal

funds must usually match state funds that are legally restricted to road

building. It may take decades of bruising fights with highway lobbies

to bring about compliance in every state.

Even better than such specific, necessary, but tedious state-by-state

reforms are initiatives that can solve many other problems

simultaneously. For example, resource policy consultant Dr. Mohamed

El-Gasseir has devised, and financial adviser Andrew Tobias has

promoted in California, an innovative way to signal American

gasoline’s true social cost while reducing everyone’s bills. 39

Their

proposal is called “pay-at-the-pump” car insurance. Most Americans

currently pay more per mile for car insurance than for gasoline, and

MAKING MARKETS WORK 281

most of that insurance is related to collisions, whose risk increases with

miles driven. In Dr. El-Gasseir’s plan, states can distinguish between

two parts of the insurance premium. The collision-related part is

charged at the gas pump, then forwarded to the private insurance

companies in proportion to their market share. The remaining

premium, for theft and casualty risks, would be paid through the mail

to each consumer’s chosen company in the usual way. A truing-up term

on each bill would reflect differences in what coverage a customer

wanted, how competitive the issuing insurance company’s pricing was,

and how good a driving record the insured had. Such insurance could

also be made no-fault, paying the injured rather than the lawyers. Under

the proposal, the apparent price of gasoline would rise by perhaps thirty

to eighty cents a gallon — to a level still about the lowest in the

industrial world but a more accurate price signal than now. Yet the

increase is not a gasoline tax; on the contrary, the total cost of driving

would go down, because there would no longer be any need to socialize

the cost of accidents by uninsured motorists, who now constitute

perhaps a fourth to a third of all U.S. drivers. Under pay-at-the-pump,

everyone who buys fuel automatically buys collision and liability

insurance. This is simply a smarter way to pay for automobile insurance

— and it reminds us, whenever we fill up, that insurance is a part of the

cost of driving.

By creating markets in negamiles and negatrips, society could

discover what it’s worth to pay people to stay off the roads so we

needn’t build and mend them so much. For that matter, as suggested by

Douglas Foy, who directs the Conservation Law Foundation of New

England, why not privatize each transit mode into one or more

regulated public utilities that are rewarded, like Oregon’s electric

utilities, not for providing a bigger volume of service but for

minimizing social cost? Automatic electronic billing could easily

charge drivers for these social costs. This system could eliminate all

transport-related subsidies and make each mode pay its own way. It

contains the further possibility of converting all modes of mechanized

travel from a burden on taxpayers into a stream of payments or royalties

from the privatized utilities back to the public sector that built the

infrastructure.

FAIR RULES MAKE MARKETS WORK

As the mafia-and-robber-barons era being reenacted in contemporary

Russia should remind anyone who has forgotten a similar period of

282 NATURAL CAPITALISM

American history, market competition, like any sport, works only if

there is a rulebook adhered to by all the players and enforced by honest

umpires. Flagrant American abuses of market power in the early part

of the century — Rockefeller in oil and Insull in electricity, among

many others — led the United States to enact a series of antitrust rules

and utility regulations. Devastating frauds and deceptions that fleeced

millions of their life’s savings led to the establishment of the Securities

and Exchange Commission, the Federal Trade Commission, and other

watchdogs of the public interest. Tragedies in public health and safety

regularly confirm the need for a Food and Drug Administration and a

Federal Aviation Administration. The market relies on these and other

regulatory institutions for overseeing fair dealing, providing

trustworthy information, and dedication to issues of the public good

that private markets were never designed to protect. Otherwise, in a

worst-case scenario, unchecked avarice can all too easily exploit and

destroy a people’s willingness to let markets work. Without care, this

could be the fate of the Russian experiment with capitalism.

Of course, these institutions, like all others, need constant renewal.

Recent trends toward forming rules and regulatory bodies that are

supranational, secretive, and unaccountable threaten the basic

principles of open markets that they are supposed to support. When the

world’s traders make rules for their own conduct in closed hearings

before the World Trade Organization, the rule of law suffers. When the

financiers prohibit any government interference with capital flows on

grounds of mere national social interest (as the proposed Multilateral

Investment Agreement would mandate), they are creating conditions

that will allow them to go about their business more conveniently. But

these are, in fact, the very practices — opacity and elimination of public

scrutiny — that will destroy their own legitimacy, and even their ability

to harness the marketplace of ideas to devise sound and farsighted

decisions. Elevating the objectives of trade above the transparency and

accountability that democracy requires will ultimately destroy at least

one of these institutions, if not both.

Markets are, in the most basic sense, little more than a way of

exchanging information about what people have and what they want.

Markets are a system of rules and mechanisms for comparing

preferences and opportunities to see if they can be rearranged in a better

way that makes somebody better off and nobody worse off — a

condition that economists call a “Pareto improvement.” But there are

also other means to achieve improvements without fancy arrangements

MAKING MARKETS WORK 283

using price signals: The objective can instead be signaled more directly,

without the mediation of prices.

Systems without feedback are, by definition, stupid. But systems

with feedback of even the most rudimentary sort can grow smarter in a

hurry. How clean a car would you buy if its exhaust pipe, instead of

being aimed at pedestrians, fed directly into the passenger

compartment?

A factory that discharges pollution into a river is more likely to clean

up if its water intake is downstream of its outfall. In fact, why not just

hook the two pipes together? If it’s clean enough for the public to use,

why isn’t it also clean enough for the factory to use? Some major

chemical firms have even considered requiring their plant managers to

reside at the downwind site boundary, exposing them to the same risks

to which the plant exposes the public — much as Mr. DuPont built his

house near his original explosives factories. This way lies the logic of

the second principle of natural capitalism — eliminating the concept of

waste and toxicity. Simple ways to use feedback to minimize risk and

cost are almost unlimited. The U.S. Navy’s early nuclear submarines

had problems with the quality of their hull welds — until Admiral

Rickover announced that the welders would be aboard the maiden

dives. Swedish publisher Mariefriske’s office workers avoid

occupational maladies because the same department budget that

includes ergonomic investments also includes workplace health

services. 40

Another effective example of creating informative feedback loops

was the work of Greenpeace International scientist Dr. Jeremy Leggett,

who introduced senior climate scientists to leaders of the European

insurance and reinsurance industry. The information given them helped

insurers to understand the connection between two things: their rapidly

rising casualty claims from major storms, floods, and other instances

of climatic volatility, and the prediction of all reputable climate

simulation models of the effects of adding more greenhouse gases to

the atmosphere. Those European reinsurers have become among the

strongest private-sector forces lobbying for strong climate-protection

policies. The insurance and reinsurance industry worldwide is larger

financially than the oil and coal industries put together. Now it is

starting to make a third linkage: investing some of its huge financial

flows in the advancement of climate protection 41

— including the

developing country solar-power initiatives mentioned earlier, energy

efficiency (not least for the industry’s vast portfolio of commercial

284 NATURAL CAPITALISM

properties), and renewable energy. As such green investment expands

because of its double dividend — high returns and reduced insurance

risks — those who lose in capital competition will be compelled to take

notice.

Cybernetics — the science of communications and control in

machines and living things — studies not only feedback but also goals.

A feedback system defines a “reference state” to which an operation is

to aspire, and measures the difference between what is and what should

be. It then generates from that difference an “error signal” that, fed

back, tells the system how to change in order to get closer to the goal.

People function this way. Companies do also; that’s why they prepare

strategic and business plans. There are ways to help them do it better. 42

Suppose, for example, that a business were to prepare — initially for

internal use, since it would contain proprietary material — an

Alternative Annual Report. The traditional annual report describes, in

a widely accepted narrative and financial format, what the firm

accomplished during the previous year. The alternative version would

describe, in the same format, what the company would like to have been

able to report it had accomplished, had all the internal and external

obstacles been removed that make what’s good for the shareholders in

the short run diverge from what’s good for future generations

worldwide. If that gulf between reality and intention could be bridged,

if the company could be run entirely with heart and without

compromise, what outcomes would emerge? Since the Alternative

Annual Report covers the past, it doesn’t require any wild projections

about future developments; it’s just an as-if look back at what could

have been done differently and better. It focuses attention on what’s

getting in the way of making dreams come true. Leaders may discover,

for example, that they would have been able to run the company much

more sustainably and honorably under different rules, such as

ecological accounting and tax-shifting. If a number of companies tried

this exercise, such common experiences and observations could

emerge — and perhaps even the nucleus of a constituency for mending

what’s broken.

If we don’t change where we’re going, we may get there. If we want

to go somewhere else, we need stars to steer by. Perhaps the first step

is to describe the sort of destination we want to reach.