Three Steps to a Sustainable Economy


Foundation Coal
The author proposes that we reverse our current tax structure by taxing raw materials while reducing labor-related taxes. Thus, the more raw materials (like coal from this coal mine in Illinois) a company uses, the more tax it pays.

A cynic is a man who knows the price of everything and the value of nothing.
Oscar Wilde

Simply put, there are currently two pressing problems in the developed and in the developing worlds: unemployment and the depletion of the planet’s resources. In my opinion, Western fiscal systems are the fundamental cause of both.

Our culture has devised systems of taxation in which the vast majority of government income from business (80 percent) is personnel-related, while raw materials are rarely taxed, if at all.

In other words, the more people you employ, the more tax you pay. Companies therefore have a strong tendency to optimize their operations by reducing personnel to a minimum, even if this means using more energy and raw materials. The reason that our systems have been organized in this way is that, in the past, our rate of consumption has been marginal compared to our stockpile of natural resources. But as our population and technological sophistication have increased, our consumption patterns have skyrocketed. We’re only just now beginning to glimpse the consequences of our profligacy.

Since the fiscal system is the source of these problems, the obvious solution is to change the fiscal system. I therefore propose reversing the current tax structure by levying a tax on raw materials while at the same time reducing labor-related taxes. In other words, the more raw materials you use, the more tax you pay. Under this system, companies will be encouraged to optimize their operations by manufacturing fewer or more durable products (thereby consuming fewer raw materials) and enhancing their software or service-orientation (thereby requiring more personnel). Increased employment will be a direct side effect of this approach, and the end result will be a truly service-oriented economy in which businesses distinguish themselves by the degree of net value added to their products or services.

The planet’s natural resources are our collective inheritance, and we should be striving to live off of the planet’s interest, not recklessly squandering its capital. We must therefore learn to effectively manage the environment just as we would any other business. But as no business can be successfully run without precise accounting practices, environmental resources cannot be sustained without accurate ecological bookkeeping. If consistently and broadly applied, ecological bookkeeping combined with proper taxation can, within a few decades, generate the new market mechanisms necessary for sustainable growth, a growth that ensures freedom of entrepreneurship without depleting the planet’s resources.

Ecological Bookkeeping

To effect this change, I propose a three-step plan. The first step is to make ecological bookkeeping mandatory for all companies in the developed world within, say, five years. The ecological bookkeeping I propose is based on the concept of extracted value, or the burden a product places on the ecosystem throughout its life cycle. This burden is expressed in financial terms based on the theoretical costs of either devising a sustainable alternative or reversing the environmental damage caused by a product to a level at which the natural ecosystem is able to diminish the residual effects.

Though the concept of extracted value is relatively new, I can envision a time not so very far in the future when the extracted value (with and without recycling) of a product, whether it be a can of beans or an automobile, will be listed on the packaging, right next to the number of calories or the miles per gallon. For ecological bookkeeping to be successful, we must devise an accounting system that can accurately translate the extracted value of a product into cold, hard cash. This system of objectively determined extracted values will reveal just how often we rob Peter to pay Paul in our current efforts to solve the environmental crisis. It will also expose those who pay only lip service to the objectives of true environmental responsibility.

Rio_Wintzen_Figure2.jpg
John F. Martin for Chevrolet
The first pre-production of the Chevrolet Volt (an electric car) moves along the assembly line at the Detroit-Hamtramck manufacturing plant in March 2010. The extracted value tax would push both companies and consumers to move toward products that use fewer natural resources, such as oil, and have less impact on the environment.

Extracted Value Tax

The second step involves the implementation of an extracted value tax of 5 percent to come into effect concomitantly with mandatory ecological bookkeeping. After an initial introductory period, the extracted value tax will be increased by a certain percentage every year until, say, in 30 years time it reaches 100 percent. This type of full-cost pricing will then include the environmental costs (extracted value) in the total life cycle of all goods. The gradual introduction of the extracted value tax will give businesses in the industrial sectors sufficient time to prepare an adaptation strategy and adjust their practices. It will also create a situation in which the economic interests of business coincide with those of the planet. But, most important, it will dramatically change the habits of both business and consumers.

Repairing the Damage

The third step in this process is the simplest and also perhaps the most important: use a growing part of the revenue generated by the extracted value tax to repair the damage done to the environment. In this way, a fully sustainable economy is a feasible proposition.

Assigning Values

In the effort to establish concrete extracted values, policymakers will be presented with a philosophical “Sophie’s Choice”: decide which irreplaceable natural resources are most valuable. What is the extracted value of the white rhinoceros species, for example, when compared to 100,000 barrels of oil? It is therefore imperative that these extracted values be determined on the basis of scientific fact. It is also important to note that the theoretical costs of cleaning up damage or replacing resources can only be based on current scientific and technological capabilities. As these capabilities change, so will the theoretical costs of repair and replacement.

On Objections to Change

In the scenario I’ve just described, corporations will be forced to develop new paradigms for doing business and consumers will be forced to develop new patterns of consumption. The ideas I’ve outlined here will undoubtedly be met with considerable resistance. Some will wonder how our society can be expected to undergo such fundamental change. In response, I would remind them that the changes I’m proposing will be implemented over a period of a few decades. If we look back on all the technological and lifestyle changes that have taken place over the last 30 years, do these proposals still seem so drastic?

Change is inevitable, and the key to business success lies precisely in responding effectively to change. It is therefore only good business sense to anticipate change and let it work in our favor.

Earth Inc.’s Shareholders

Ideally, we’d have some kind of cosmic accountant, an omniscient bookkeeper who was there at the Big Bang and thus present at the moment of the opening balance, someone capable of tallying up our planetary credits and debits. In lieu thereof, however, we’ll have to rely on good science and our own judgment.

Sustainable development is possible, but only if we begin managing the environment according to sound business principles. The goal of every company is to ensure its continuation and economic growth for the benefit of its employees and its shareholders. Is it not time then for us all, as equal shareholders in Earth Inc., to guarantee the sustainability of our own future prosperity? We must do this neither out of pie-in-the-sky idealism nor vague messianic ambitions, but out of pure economic necessity, a source of inspiration that has been the mother of so many fruitful inventions in the past. We have to face the fact that the only real driving force in the world is business. Simple idealism isn’t going to get us anywhere.

Ecological bookkeeping is just a beginning. But as the ancient Chinese Taoist philosopher Lao Tzu once wrote: “A thousand-mile journey begins with one step.” It only remains for us to take the next step on the road toward sustainable development together.

Editor’s Note

This article, written by the environmental entrepreneur Eckart Wintzen (1939-2008) on April 19, 2000, has been edited for Solutions. The green venture capital company Ex’tent, founded by Wintzen, researches and promotes the ideas described in this article through the Ex’tax Project (www.ex-tax.com).