The late twentieth century witnessed two great intellectual shifts. The first is the fall of communism and the apparent triumph around the world of market economics. The second, now emergent in a rapidly growing number of businesses, is the end of the war against the earth, accompanied, we believe, by the eventual competitive victory of a new form of economics we call "natural capitalism."

We use the term to emphasize that capitalism in its current manifestation is an aberration. Not because it's capitalistic-certainly the greatest known form of wealth creation-but rather because it is liquidating the most important forms of capital: the natural capital whose resources and ecosystem services make possible all life.

These ecosystem services give us each year at least tens of trillions of dollars in eminently measurable economic services that are comparable in value to the entire human global economy. Because none of this shows up on anybody's balance sheet, it's not entirely surprising that it's being liquidated. Yet you can't correct deficient logic of this sort simply by monetizing the capital. The folks at Biosphere II in Arizona spent $200 million to prove that they couldn't keep eight people in oxygen, while our home, Biosphere I, performs this service for six billion of us every day for free.

The best technologies can't substitute for water and nutrient cycling, nor for atmospheric and ecological stability. Imagine hand-pollinating all of agriculture. Our best technologies can't substitute for natural processes of assimilating and detoxifying all of society's waste. With 10,000 more of us humans arriving every hour, what's in short supply these days isn't people. It's nature.

Natural capitalism, the alternative we propose, uses four principles that can offer business increased profits; in many cases, dramatically increased profits. At the same time, this system addresses many of environmental problems facing us. For instance, global warming is an artifact of an economically inefficient energy policy. Just doing what's cost-effective in energy would largely abate the problem of climate change.

The four principles are:

• Harnessing advanced resource efficiency to create profits by eliminating the need to pay for extraction at one end and pollution at the other.

• Eliminating the concept of waste by redesigning industry along biological lines, closing loops in the flow of materials, and not producing persistent toxins.

• Changing the business model to encourage these two shifts by rewarding both the provider and the customer for doing more and better with less for longer.

• Reversing planetary destruction by restoring natural capital. Any good capitalist reinvests in the capital that's in short supply.

Together these principles enable companies to behave as if ecosystem services, the natural capital, were properly valued. Of course, where the rubber meets the road is in real-world case studies of successful projects actually implemented by companies, many of which we have worked with to achieve their goals.

Automotive: The Hypercar

The Hypercar vehicles we developed at the Rocky Mountain Institute represent a design synthesis for cars and other light and medium vehicles that will use 85 percent less energy and materials to deliver superior safety and performance. It is now possible to make SUVs that emit nothing but hot water, get a hundred miles a gallon equivalent, and perform like a sports car. Over $5 billion has been committed by automakers to this line of development. That figure has been doubling every year and a half because, back in 1993, not wanting to risk the vehicle's chance of getting to market by patenting and selling the intellectual property, we put it in the public domain where nobody can patent it. Now everyone is competing over it. It's a lot more fun that way.

Real Estate: Village Homes

Consider real estate development. A typical tract-home development drains storm water away in big concrete pipes, treating it as a nuisance rather than as part of the habitat. Village Homes, an early green development in Davis, California, instead created a little natural drainage swale (a long grassy groove in the ground). After a storm it fills up with rainwater, which then soaks in or drains away one day faster than mosquito larvae can hatch. This innovation saved $800 of pipe investment per house and provided more green space.

The developers then leveraged that savings by reinvesting it in extensive edible landscaping, providing shade, nutrition, beauty, community focus, and crop revenues to support more amenities-daycare, parks maintenance, and so on. The landscaping, plus the people-centered site planning, with pedestrian and bike greenways in between the fronts of the houses, saved more land and money, and it cooled off the microclimate, producing greater comfort at lower cost. It created safe and child-friendly neighborhoods that have 90 percent less crime than nearby subdivisions. Real-estate brokers once described this development as too weird to show, but it's now the most desirable real estate in town.

Manufacturing: The Cleanest Carpet

An attempt to implement the "solutions economy" that Jim Womack and Dan Jones describe in Lean Thinking is emerging at Atlanta carpet maker Interface. Lots of broadloom carpet is replaced every decade or so because it develops worn spots. Millions of tons of it every year go to landfills and sit there for ten or twenty thousand years. To replace the carpet, you must clear out your office, shut down your operations, roll up the partly worn carpet, send it to the landfill, lay down a new carpet, move back in, resume operations and perhaps get sick from fumes in the carpet glue.

This part of the cycle is particularly dumb because you never wanted to own the carpet in the first place. Interface's visionary chairman, Ray Anderson realized this and said, "Well, why don't I own the carpet, keep it on my balance sheet, just lease to customers as a tax deductible net operating lease of a floor-covering service? Every month, my little elves will come in the night and replace worn carpet tiles with fresh ones. You'll always have a fresh-looking carpet, and this new business model will reduce by 80 percent or so the amount of resources flowing across your floor, because carpet consists mainly of nylon made of oil-very energy-intensive material. I may be making less carpet at the factory, because I'm only replacing the worn parts, yet I'll create more jobs in the service end of the business." Interface is moving in the right direction: substituting abundant people for scarce nature.

Interface redesigned the product to go with this business model. In doing so, the company has created a better product. It's essentially impervious to stains and mildew. You can wash it with a garden hose. It contains no chlorine or other toxic stuff. It lasts at least four times as long as conventional carpet. It uses a third less material. In total, there's a 97 percent reduction in total raw materials required when the more frugal use of nylon is combined with a service lease: a 35-fold reduction in the amount of material needed to be kept in circulation in order to maintain a superior floor-covering service. All that waste gets turned into profit. And once the returned carpet tiles get remanufactured, the new materials savings will rise to 99.9 percent.

Even before this new product was created, the first four years of a systemic quest to reduce waste throughout Interface had roughly doubled revenues and tripled operating profit, and had nearly doubled employment. Its latest quarter-billion dollars of revenue were produced with no increase in energy or materials input-basically by mining waste.

Agriculture: Rice Twice

The California Rice Industry Association had a problem to solve. Rice farmers were burning rice straw, the "waste" left in the fields after harvest. It's high in silica, and there were concerns about people downwind developing silicosis. Under pressure from environmentalists, the farmers invited them to help them solve the problem. Together they came up with the idea of flooding the rice fields after harvest rather than burning them, thus inviting in nature. Millions of waterfowl now flock to the fields. The birds themselves also constitute a valuable crop (the farmers sell hunting licenses) and provide free fertilizer and cultivation. The straw, formerly burned or wasted, is now harvested as a valuable building material. Rice is a profitable co-product of this whole network of value creation that's now produced on a third of the state's rice acreage.

The Future

Implementing the elements of natural capitalism tends to create an extraordinary outpouring of energy, initiative, and enthusiasm at all levels of an enterprise because it removes the actual and perceived contradictions between what people do on the job and what they want for their kids when they go home. This makes natural capitalist firms the most exciting places in the world to work and the hardest to keep up with.

Civilization in the twenty-first century is imperiled by three main problems: the dissolution of civil society, weakened life-support systems, and a dwindling public purse necessary to address these problems and relieve human suffering. But all three share a common cause: waste. Problems like shortages of work, hope, security, and satisfaction are not isolated pathologies. They all flow from the interlinked wasting of resources, money, and people. The systematic correction of that waste creates a common solution that's not widely acknowledged but is increasingly obvious.

We believe the leaders in waste reduction are going to be in the private sector, but there remains a vital role for governments and for civil society. It's important to remember the purposes and limitations of markets. Markets make a great servant but a bad master and a worse religion. Markets produce value, but only communities and families produce values. And a society that tries to substitute markets for politics, ethics or faith is seriously adrift.

Firms that conscientiously pursue the four principles of natural capitalism will gain a commanding competitive advantage because they'll be behaving as if nature and people were properly valued. They'll be making more profit even today when those values are still set essentially at zero.

Perhaps the real problem with capitalism-a system of wealth creation based on the productive use of and reinvestment in all four forms of capital, is that it's only just now starting to be tried.

Excerpted from Nature’s Operating Instructions: The True Biotechnologies, edited by Kenny Ausubel and J.P. Harpignies. Hunter and Amory Lovins co-founded the Rocky Mountain Institute and with Paul Hawken co-authored the seminal Natural Capitalism: Creating The Next Industrial Revolution. Together and separately, they have consulted for scores of industries and governments worldwide on advanced resource productivity. Hunter Lovins is president and founder of Natural Capital Solutions, Inc. Amory Lovins is CEO of RMI. His latest book is Winning the Oil Endgame: Innovations for Profits, Jobs, and Security.