Industry as an Economic System

Industrial development, especially in the 19th and 20th centuries assumed an inexhaustible supply of materials, energy, air, and water (the earth as an endless source). Constant growth in the production of goods was valued and waste production was not even considered a problem. Production measured by the GNP or Gross National Product, or the total value of goods and services produced during a given time period is taken as the indicator of progress, development, and a nation's well-being.

Figure IE1 shows the societal and industrial attitude toward the use of the earth for human activities. This scheme shown in Figure IE1 below led to a loading of air, water and land by various materials, both toxic and nontoxic.

Figure IE1. Scheme of material flow in early Industry

This sequence of production and use of consumer products in general consists of energy inputs and waste outputs at each stage, with limited energy recovery from waste in some industries such as paper, and some recycling of materials in industries such as aluminum. Because economic rather than environmental concerns were at the forefront, and gasoline and diesel for transportation was available cheaply, many production facilities were centralized to take advantage of economies of scale. Large factories produced large quantities of material and products, and a highway and rail system network distributed these to points of use. Thus each transportation stage in the Figure IE1 consisted of an energy expenditure.

Traditional economies have considered an industry, corporation, or business firm as a system, defined by their inputs and products. In this view, inputs are capital, materials (including energy) and labor - things paid for by the corporation. Outputs are products - goods and services the corporation produces. In this view, a view of what the corporation had to account for in its expenditures, waste and byproducts and especially pollution were considered externalities — "external" to the system since the corporation did not have to pay for it.

This myopic view led to behaviors such as discarding waste materials into air, land, and water without much thought. The U.S. Environmental Protection Agency, created in 1970 by the National Environmental Protection Act of 1969, forced industries to consider their waste streams as something they would have to pay for and add to their list of expenditures or inputs. This began to "internalized" some of the externalities. Pollution became a "cost" to the corporation because it would have to pay for remediation and disposal of waste and pollution.

This expanded the notion of the industrial system to include waste management at the site of production. It took a while for this to extend to "wastes" like the overburdening left at coal mines, land use, and other "costs" to the environment and risks to the health — of people and of nature — such as loss of biodiversity or incident of chronic disease. The burdening of land, air, and water, especially near large population centers such as cities or large industrial zones led to shortages of land and pollution of air and water. With some of the waste material and emissions being toxic, the nineteenth and twentieth centuries began seeing new "plagues" such as black lung, asbestosis, emphysema, various forms of cancer, hormone disruptions, nervous system effects and reproductive effects. It is a well known fact that lead paint has had detrimental effects on children, but it wasn't until the 1980's that exposure to lead in the air from gasoline was proven to caused IQ deficits in children. [Needleman] The high cost of caring for these new plagues and health related problems generated interest in Industrial Ecology by many unrelated industries. It is now starting to hit home that health care providers must pay the costs of injured or ill workers due to toxic exposure to pollution.

Resource depletion, air pollution, and the shortage of land and energy led to the first examination by industry of how to recover material from used items rather than continuing to extract new material from earth. The 1970's also saw "embedded energy analysis", a technique to see how much energy was used in our activities including product manufacture and use. A closer look at "life cycle of products" began in the mid-1980's. Figure IE2 shows a slightly altered scheme of production that began to emerge, with some attempts at material recovery.

Figure IE2. Life Cycle of Durable Products into Recycling of Material

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