Fast Company

Business 3.0

The oblivious capitalist's days are numbered.

On September 13, 1970, in a now-classic essay in The New York Times Magazine, Milton Friedman, the lion defender of laissez-faire economics, put forth a defense of self-interested capitalism as forceful as it was plainspoken. "There is one and only one social responsibility of business," Friedman wrote, with characteristic acerbity: "to engage in activities designed to increase its profits." To burden business with wider goals, he argued, was "pure and unadulterated socialism."

Friedman's free-market manifesto tidily summarizes one side of a debate that has raged in the halls of corporations, business schools, and think tanks ever since. In one camp are those corporate leaders and intellectuals who believe that wealth creation is a sufficient social good in its own right (not to mention capitalism's first commandment) and that markets should not be burdened with responsibilities outside their core purpose. Pitted against these purists are those who believe that corporations have pressing obligations to civil society and the planet as a whole that go well beyond the economic sphere.

Seeking to accommodate both camps, many of today's large corporations have tried to adopt both positions simultaneously, resulting in an atrophied détente, with corporate foundations and social responsibility "departments" organizationally walled off from their P&L-driven brethren and sisteren. Rarely working together, the philanthropic "check writers" and the business-unit "check seekers" have developed their own lingo, cultures, rhythms, conferences, gurus, and sensibilities.

As if on cue, however, a suite of new global forces is emerging that will remake the operating environment for global capitalism, obliterate the walls--and the distinctions--between the Friedmanesque Hatfields and the Naderesque McCoys, and inject a "greed is good" mentality into our approach to grand social problems. The clinical, value-neutral capitalism of old is about to follow the recently departed Friedman to the grave.

There are several reasons why this is so, but the first should be obvious to any but the most hardened anti-environmental skeptic: If we don't do something soon, we're screwed. A quick (and necessarily depressing) look at the numbers suggests that supplies of our most basic commodities--potable water, fossil fuels, arable land, clean air--as well as critical industrial commodities such as aluminum, steel, and even silicon, are all under stress.

Water provides a typical example: By 2030, more than one in three human beings will not have enough to drink, or will run the risk of dying by drinking what they've got. Today, the prospect of such scarcity is causing countries to mine so-called fossil water from deep aquifers that were formed millions of years ago. Parts of India are pumping water at twice the recharge rate, causing water tables to fall between one and three meters per year. But there's not much of an alternative: If India gave up groundwater mining, its grain production would likely fall by 25%, leaving it incapable of feeding itself. Nobody knows precisely how long this can continue, but the answer will be measured in decades, not centuries. It's little wonder that the World Bank says freshwater scarcity may well become one of the major factors limiting development in the years ahead.

Resource scarcity is going to be a front-page business issue as well, affecting industries from transportation to electronics. According to estimates by the International Institute for Environment and Development, at today's levels of production, there may be only another 28 years' worth of copper in the ground, another 21 years' worth of lead, a 17-year supply of silver, and 37 years' worth of tin. We will certainly get better at extracting, recycling, efficiently using, and finding replacements for these materials, but it's likely that basic industrial inputs will come under increasing pressure in the decades to come. A shortage of industrial-grade silicon, for instance, has recently spooked both the solar-cell industry and Silicon Valley. Moore's Law never assumed we'd run out of sand.

Worse, the most worrisome trends are interrelated and self-compounding. Consider population growth and energy use: Over the past half-century, the consumption of energy worldwide has grown more than 400%, far outstripping overall population growth. The reason is simple: As people move up the economic ladder, they use more "discretionary energy" on everything from heated floors to trips to Vegas. Improving energy efficiency doesn't begin to address this gap--lighting your home with compact fluorescent bulbs won't make much of a difference if you (or your neighbors) move into a higher-wattage McMansion every year.

Apply this insight at a global scale, and things quickly become alarming. As enormous, rapidly growing and developing countries such as China and India seek to swell their middle classes in the coming decades, their energy demands will increase geometrically, not linearly. China intends to add at least 250 million citizens to its middle class, and create a well-to-do society by 2020, with a per capita income for the whole country that's five times the present one. In the meantime, China continues to burn almost one-third of all the coal mined from planet Earth to meet its annual needs, making Chinese cities among the most polluted and China the world's second-largest source of CO2 emissions. And that's today: What happens when all those new Chinese middle-class consumers decide to drive to work? Are they any less entitled to the lifestyle model we've exported around the globe?

We can't continue indefinitely to cannibalize our life-support systems for spare parts. Environmental researchers like Paul Hawken and Amory and Hunter Lovins estimate that the total "services" that the earth provides to the global economy annually are worth at least $36 trillion, nearly as much as the $39 trillion annual product of civilization itself. The National Academy of Sciences has calculated that human consumption surpassed the regenerative capacity of the planet around 1980, and we are now pushing its systems well beyond their ability to heal. We've got our hands around the golden goose's throat, and we're squeezing.

Yet despite our precarious position, global catastrophe is by no means a foregone conclusion. Well ahead of slower-moving governments, companies of every size and in every part of the world are now waking up to humanity's impending and interlocking crises, and the vastly lucrative rewards that solving them might bring. If humanity has a future, it will rest significantly on these companies and entrepreneurs' ability to create and globally distribute civilization-saving innovations.

As with the Industrial and Information Revolutions before them, the protagonists in the "Eco-Innovation" Revolution will take the field with new approaches, ideas, and technologies that will upend our notions of production, consumption, wealth, and invention. Our current economic system was devised in an era in which labor was scarce and natural resources were abundant. We're moving into an era in which the opposite is true, and that's going to change capitalism's playbook for good.

Here are just a few of the big themes to come.

Solutions for Cities

For the first time in history, more human beings now live in cities than not. Ours is becoming a permanently urban species, and the interwoven challenges of renewable energy, water, poverty, health, greenhouse-gas emissions, and economic and social development will increasingly be addressed at the municipal level.

Virtually all urban growth in the next half-century is going to occur in the developing world, where urban infrastructure is often weak, antiquated, or insufficient--if it exists at all. China is planning to build 20 new major cities each year for the next 14 years, and the ones it already has are growing by 13 million to 15 million people annually. Up to 300 million farmers will move from the countryside in just the next 20 years. How will those cities accommodate this tidal wave of humanity?

Vast wealth is going to be generated by companies that can help answer that question. At the top end, giant industrials like General Electric and Siemens are bulking up their ability to design, finance, build, and run integrated water, clean energy, and security infrastructure projects for these developing metropolises. They're hoping to provide turnkey solutions to expanding cities in the same way ISPs provide infrastructure to rapidly growing Internet startups. And this is the just the tip of the global urban opportunity: GE has already indicated that it plans to get as much as 60% of its future revenue from offerings aimed at the developing world.

At the other end of the spectrum will be new "bottom up" products and services designed for urban contexts with limited or unreliable infrastructure. An early example is StarSight's stand-alone solar-powered lampposts that also offer WiMax wireless mesh networking, and even charging hookups for small devices like cell phones. The StarSight, which is being beta-tested first in Cameroon, is the anchor of a "virtual utility" that simultaneously solves lighting, security, and connectivity problems in environments without a reliable power grid. And StarSight provides a template for bottom-up solutions to come: It is highly decentralized, easily distributed, renewables-based, and solves more than one problem at a time.

Treasure From Trash

Markets value what they measure, and practicing ecologically innovative capitalism will require us to measure our waste streams much more effectively. If we are to clear the Darwinian hurdle looming before us, we simply must make ourselves accountable for our waste, and make markets for it. This realization is precisely what has made the nascent trade in carbon credits such a success, but even that only hints at the innovations yet to come.

Making markets "tell the ecological truth," to use environmentalist Lester Brown's elegant phrase, will require a complex blend of policy change and entrepreneurial activity. A good start would be reducing the income tax and augmenting it with graduated taxes on ecologically harmful activities, along with federally consistent mandates requiring companies to take greater responsibility for their own waste streams and for their products at end-of-life. These reforms would align both consumers' and businesses' understanding of a given product's total cost to the planet, and allow both to make more informed decisions.

Practicing such "true cost" economics will unlock a powerful wave of product redesign, much of it hidden from the consumer's eyes, as companies seek to lighten their own burden when they get a product back at the end of its useful life. A focus on the total life cycle will amplify an entire nascent branch of creative engineering: Design for low-cost disassembly will become as important as design for low-cost assembly, with elements such as lead-free solders, modular construction, snap-fit rather than epoxy-based joints, and biodegradable plastics becoming the norm. Consumers would benefit from products that last longer, are easier to fix when they break, and become the basic inputs to other industrial processes when they're taken out of commission.

By attaching economic value to the elimination of waste, we also increase the likelihood that innovators will seek out and discover that rarest of capitalist prizes: the twofer. Enterprising 21st-century capitalists will make a name and a fortune for themselves by getting paid twice--once for eliminating some bit of a harmful waste stream, and a second time for spinning that waste into industrially useful gold.

The need--and opportunity--is most acute in today's consumer electronics industry. Americans currently dispose of 128 million cell phones a year, only 1% of which are diverted from landfills. This appalling number isn't even counted in the 2 million tons of used electronics we also discard annually. The waste from such devices contains, according to the EPA, substances that are toxic when burned. Worse, in landfills, they seep into the groundwater and never break down. Somewhere out there, the lead, cadmium, beryllium, mercury, and a dozen other unpronounceable biohazards from your first home computer and your first Miami Vice-era 3-pound cell phone are still sloshing around.

Village-to-Village Networks

One of the greatest challenges in providing consumer services to the world's poorer citizens hasn't been lack of intent or even lack of resources, but the lack of efficient markets--an effective way to connect, aggregate, and deliver services to enough people to create the scale that attracts significant investment.

Now, however, our painfully slow but inexorable progress toward closing the global digital divide is finally paying dividends that, along with new thinking about social networks, will transform the way we think about providing services to consumers at the bottom of the global socioeconomic pyramid.

Consider the case of Internet-based microfinance. In 2006, the Nobel Peace Prize was awarded to Muhammad Yunus, founder of Grameen Bank and a pioneer in microlending--tiny business startup loans made mostly, in Yunus's case, to poor Bangladeshi women. Over the course of 30-plus years, Grameen has helped more than 4 million customers a year escape absolute poverty by treating them like partners and customers instead of mere handout recipients.

The next step in the evolution of such approaches involves digitizing and globalizing them. For example, a U.S. organization called Kiva is combining microfinance with a peer-to-peer Internet platform that allows individuals here in the West (or anywhere) to make direct microloans to qualified individual entrepreneurs on the other side of the world. When the loan is repaid, the money may be reinvested or withdrawn. Run by alumni of TiVo, Google, and PayPal, among others, Kiva (which means "unity" in Swahili) is bringing market efficiency, intimacy, and global reach to the microlending phenomenon. It's also creating new global networks of entrepreneurial and financial expertise and, most important, creating the kind of social connectivity through which other services will be delivered.

Eventually, on networks such as Kiva's (and its successors'), other forms of exchange will flourish--in both directions. Instead of simply being one-way conduits for financing, they will become two-way platforms for freshly minted businesses to resell their knowledge and services to other nascent entrepreneurs. Expect to see the emergence of greater "economic lateralism"--connectivity, knowledge, and financial exchange not just between rich and poor, but among individuals of all socioeconomic strata, even those who are poor and oceans apart. These village-to-village (or "V2V") pathways will become a significant new means for the spread of innovation across the developing world, even as they become the conduits for first-world businesses to deliver low-cost services everywhere.

The Conscious Consumer

Thanks to supportive demographic and psychographic trends, companies hoping to practice ecologically innovative capitalism will find a rapidly growing base of highly desirable, cash-rich, values-driven customers right here at home. Known as the LOHAS market segment (for "lifestyles of health and sustainability"), it is today a $227 billion domestic market for goods and services focused on sustainable living, social justice, and alternative health care. These are the consumers, in other words, who are eating organics, driving hybrids, and buying fair-trade morning lattes. And there are 63 million of them out there, making up 30% of the American market. They are not necessarily wealthier than other Americans, but they have proven themselves willing to spend up to an astounding 20% premium on clean, green products over the non-sustainable alternatives.

Over the next 20 years, this group is going to grow explosively as American society becomes a demographic "hourglass," with the largest populations of old and young people in its history living together. The psychographic principle at play is that the older you get, the more you think about the planet you're leaving behind, and conversely, the younger you are, the more you cling to your idealism.

With two huge generations dominating American society--the baby boomers, who created the first draft of contemporary environmentalism, and the millennials, the most globally connected cohort in history--principles of conscious consumption will come to dominate the brandscape. That ethos will carry with it a direct penalty for companies reluctant to sign on. These consumers are nearly twice as likely to associate their own personal values with companies and their brands, and research we conducted at Z + Partners shows that perceptions of environmental, ethical, and social stewardship are the fastest-growing contributors to consumer brand value.

Mother Knows Best

For all kinds of problems--from how to build durable structures with locally available materials, to how to filter waste out of a complex system--the natural world has a multibillion-year engineering head start on us. That's a lot of trial and error. Now, thanks to interconnected revolutions in systems ecology, materials science, nanotechnology, and biology, we're finally developing the scientific and engineering tools to understand and emulate nature's ability to devise elegant solutions to real-world problems. Business is about to reap the rewards.

Consider a typical industrial activity, such as purifying silicon to make computer chips. Humans accomplish this, as we so often do, by using extremely high levels of energy and toxic chemical solvents, which in turn creates unwanted by-products (chemical waste, pollution, excess heat, etc.) which must be further processed, contained, or otherwise dealt with. The process is terribly energy-inefficient, hugely capital-intensive, dangerous, complicated to manage, and produces frightening amounts of hazardous waste. Sounds like fun.

By comparison, researchers at UC Santa Barbara recently discovered the means by which the simple and ubiquitous marine sponge chemically synthesizes a skeleton of silica molecules with nanoscale precision--in ordinary seawater at ambient temperature using nothing but organic chemistry and the light of the sun. This completely natural process is carried out with a molecular exactitude and energy efficiency that cannot be duplicated by our best semiconductor technology. The researchers at UCSB believe that a biomimetic manufacturing approach, based on the sponge's chemistry, will inevitably make its way into the semiconductor industry. How much do you think it might be worth to Intel, AMD, or Freescale?

You don't actually have to wait for biomimetic technologies to make it to market, though--they're already here. Early examples range from the "self-cleaning" Lotusan Paint, which is modeled on the surface properties of a lotus leaf that cause dirt and water to bead and roll off, to BAE Systems' recently invented Synthetic Gecko, inspired by the material on a gecko's foot. One square meter of this glueless material can easily suspend thousands of pounds.

Countless equally ingenious materials, products, and processes are in the pipeline. Researchers are exploring everything from a biomimetic approach to hydrogen production to coatings that neutralize noxious chemicals using sunlight, to an ultralight metallic material based on the abalone shell that's as strong as steel and only half as dense. In the future, such a material could "demassify" our planes, trains, and automobiles and deliver huge fuel savings.

These products share one trait: They will win in the marketplace. Not because they're eco-friendly or warm and fuzzy or have a Ben & Jerry's seal of approval. They'll win because they deliver better, cheaper, and more profitable results.

Massively Decentralized Production

Over the horizon are new approaches to solving planetary problems based on technologies that are still on the drawing boards. One of the most promising is desktop manufacturing: using a 3-D object fabricator about the size of a large copy machine that lays down and laser-cuts layers of successive materials to instantly produce--à la the Star Trek replicator--products and parts in precisely the configurations, quantities, and places that they're needed. In such a world, much of the physical supply chain, and all of the energy required to power it, would simply disappear. Products would be kept as digital blueprints, downloaded and transformed to atoms only when needed--the logical extension of the "buy it, then build it" manufacturing pioneered by companies like Dell. As with many technologies, though, it's not downloading but uploading that will produce the real revolution: Fabricators will allow people to produce hypercustomized variants of products and objects that are specific to their needs, and the network will allow them to share these innovations with the world.

Early versions of this technology--used in rapid prototyping for industrial design--already exist; products made with it, jewelry and furniture, to name two, are being sold to consumers today. Prices have already dropped to under $25,000 from as much as $500,000 in the late '80s. Look for the first consumer trials of fabricator technology to arrive within a decade.

These are just a few of the conceptual tools and approaches that will be a part of the Eco-Innovation Revolution. As in all revolutions, the best stuff will surprise us with its power and, in hindsight, obviousness. Many encouraging examples are already in the pipeline, as the following pages make amply clear. What's needed to catalyze the revolution now is not just more innovative ideas--we humans have a seemingly endless supply of those--but more time, better leadership and policymaking, and a little luck. If we get all three, this century will see someone win a Nobel Prize for solving a grand social problem that made her a trillionaire along the way.

Futurist Andrew Zolli, founder of Z + Partners, a foresight and strategy firm, is curator of the annual Pop!Tech conference.

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