The Management Interview: Amory Lovins — Why he thinks the world needs “human capital”

Sitting in cafe in the heart of America’s Cup land on Auckland’s Princes Wharf, Amory Lovins contemplates our high-tech marine industry and sees the basis for whole new economic development – advanced composite-bodied “hypercars”.

It’s not an idle fantasy. This United States-based physicist, author, and global adviser to business and governments not only sees what is possible, he’s renowned for charting the path to its achievement.

He’s shortish, balding, American and sports distinctive Groucho Marx moustache. But Lovins personifies the energy efficiency principles he espouses as he bounces between briefings and interviews and from one continent to the next. He delivers information in fast-paced, fact-packed sentences reinforced with formidable intellectual reasoning.

He’s been tirelessly touting his message, the need for major re-think of how companies and countries utilise natural resources. Current practices, he argues, are woefully inefficient. Lovins’ forte then, is working with business to find innovative and profitable solutions. His hypercar is one of them. An ultra-light, ultra-low-drag, hybrid-electric vehicle, modular constructed, digitally networked – it is more computer on wheels than car with chips.

The prototype was made couple of years ago. The research that went into it is an example of work emerging from the Rocky Mountain Institute – Colorado-based applied research centre Lovins and his brother Hunter established in 1982.

The designs have been placed (like Freeware) in the public domain and deliberately shared with major car companies and new market entrants to make sure these new babies reach the market at an accessible price point. No reason why New Zealand couldn’t lead the way, says Lovins. “You’ve largely been taker in the car market but it turns out you have all the skills to set up your own hypercar industry – and not having an iron-age car market is definite advantage. You have world-class competence in advanced composites and marine engineering. Also the hypercars are hydrogen [fuelcell] ready and can help unlock the whole hydrogen transition to make the best use of your hydro power.”

Promoting hydrogen-based economies and hypercars – you get the impression Lovins inhabits some time capsule set on permanent fast forward. Not so. His realisation of the future is, he says, hindered only by lack of imagination, political will and the dead weight of today’s sunk investments. To support his contention Lovins quotes inventor Edward Land: “People who seem to have had new idea have often simply stopped having an old one.”

Lovins started publicly challenging old ideas back in the mid-’70s when (still in his 20s) he wrote book questioning conventional supply-side dogma and urging the United States to follow “soft energy path” to reduce its dependence on oil imports. The message has gained momentum as the dangers of fossil-fuel dependency become increasingly apparent. “There was more at stake in the Gulf War than just oil; but we’d hardly have sent half million troops there if Kuwait just grew broccoli,” he muses.

He thinks his message is now falling on more receptive ears, which probably accounts for his refusal to get too disheartened by endlessly reiterating the case for practices whose benefits seem to him to be self evident. Electricity, for instance, can and should be used more productively – his own household runs on $10/month but large-scale users can make much larger savings. Transport design efficiency would dramatically reduce oil needs. And learning from and working with nature enables business to be more efficient, more productive and more profitable, Lovins argues.

Essentially he advocates new brand of “natural capitalism”, one that factors in the value of every resource used. And that doesn’t mean just whacking some kind of price on natural assets. “There’s widespread assumption made by people steeped in conventional economics that the environment is minor external factor of production. If you properly reflect its value on the balance sheet then people will do all the right things,” says Lovins.

“But that notion is seriously incomplete. I prefer the notion of ecological economics which holds that the environment is the envelope that sustains and provisions the economy. In other words, the economy is the wholly owned subsidiary of the environment, not the other way round.”

Which would survive without the other – the economy or the environment? he asks rhetorically. Capitalism, says Lovins, should not be limited to dealing in money and goods – financial and physical capital. People and nature are more important forms of capital because without them there is no economy. “Natural capitalism is way of doing business in which nature and people are properly valued, without needing to know or signal that value.”

The incentive for adopting this approach is that natural capitalism makes better business sense. “It’s possible to make more money at less risk and provide better service at lower cost because you’re not wasting capital inputs any more,” reasons Lovins. The four principles on which natural capitalism rest are:
• radically increasing resource productivity;
• redesigning industry on biological models with closed loops and zero waste;
• shifting from the sale of goods (eg light bulbs) to the provision of services (illumination); and
• reinvesting in the natural and human capital that is the basis of future prosperity.

The detail to explain how all this works is contained in the book he co-authored in 1999 with Paul Hawken and Hunter Lovins, Natural Capitalism: Creating the Next Industrial Revolution.

Companies travelling the natural capitalist path have proved its efficacy, according to Lovins. In its first four years, for instance, flooring company Interface more than doubled its revenues, more than tripled its profits and nearly doubled its number of employees, says Lovins.

“Last year, 28 percent of the company’s operating profit came from eliminated waste which is what got them through the toughest downturn the industry has faced since the great depression. They came out with the strongest cost structure in the industry. Many of their competitors didn’t make it,” he adds.

Companies that aren’t yet stampeding down this profitable path are hobbled by old ideas. “We are blinded by notions from conventional economic theory that are based on diminishing returns and the need for undifferentiated GDP growth which is not an accurate way to keep score of what we’re doing.”

Accounting properly for depletion – an index of real progress – is project several countries are now working on, says Lovins. “If you do that calculation, you’ll discover that the sort of marginal growth Americans or New Zealanders have been getting from the current system is not actually enriching the country. We’re either worse off or running harder to stay in the same place. I think most people have an intuitive sense of that.”

His arguments are compelling and delivered with an intellectual rigour that encouraged Harvard to admit him at age 16 and Oxford to award him don (in physics) status at 21. Since then, he has gathered bundle of honorary doctorates, authored or co-authored 28 books and hundreds of papers, briefed 16 heads of state, and advised countless business leaders on the efficient use of resources.

Time magazine dubbed him “hero of the planet” for doing more than most to foster the “greening” of business. He un-ashamedly works with industry, applying market logic rather than ethical or social sensibilities to the process, and re-frames the issue of environmental pollution as one of business efficiency.

Businesses that pollute aren’t (generally) bad, just sadly inefficient, he argues. It makes no economic sense to squander capital inputs by sending them up smokestacks or out to the landfill.

Although Lovins’ visions for hyper-efficient ecological economy have been described

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