The Service and Flow Economic Model

In Natural Capital: Creating the Next Industrial Revolution, authors Amory Lovins, Hunter Lovins, and Paul Hawken discuss the concept of a “service and flow” economy as a key strategy of a transition to an economic system that accounts for the limitations of access and availability of resources. In a service and flow economy, companies liquidize a service rather than a product. To do so, manufacturers of devices, like air conditioners, loan their physical equipment to houses and other buildings, and consumers pay for the maintenance of the service rather than for the machine itself. The authors of Natural Capital suggest that this revision of the traditional producer-consumer relationship would encourage a change in how Americans view the acquisition of goods from an indicator of status to the investment in the most reliable and sustainable goods present in the market.

In encouraging companies to produce higher quality products, the concept of a service and flow is ingenious, as production of poor quality products would force companies to spend more money paying technicians to fix malfunctioning devices. However, what of the companies that respond to the incentive to, “keep their assets productive for as long as possible” (Lovins, 11)?

Innovation is a necessary component of any dramatic improvement to devices or the service of devices within a market. Essential to the promotion of innovation in any sector is the introduction of new technologies and concepts over time. If a select group of companies that respond to the service and flow economy incentive to produce quality, long lasting products, will innovation diminish?

Chances are that it might after a peak period of ingenuity. Aiming to gain a competitive advantage over other producers of similar services, a given producer would likely invest significant funds and time into the first products they would produce using a service and flow model. Depending on the relative success of each machine, certain companies would go on to dominate the market in the service that they provide. With less competition and assumed high levels of customer satisfaction with the high quality product and efficient servicing that the service and flow economic model would support, many companies could become content with the service they currently provide, creating an economic climate in which innovation is disadvantageous and advances in the efficiency of their technologies falls victim to cost benefit analyses.

A potential solution to this problem would be a mandate stipulating that companies set service contracts of a relatively short length. Using this system, companies would be forced to innovate to compete with other companies’ service improvements made over time.  Unfortunately, this solution negates one of the advantages the service and flow economy has over current economic models by it recreating a situation in which long term dependability becomes a detriment to companies that opt to offer quality service, because consumers would have an option to choose a competing service that spent more on developing improvements to their existing service than on maintenance of the survey the currently provide.

In the end, deciding between our current economic model and the service and flow model proposed by the authors of Natural Capitalism differentially support dueling desires of reliability and constant innovation. Because we cannot have one without the other, a radical shift in our economic thought to that of a service and flow economy is unlikely to produce a society of the type the authors suggest it will. It is a nice idea though.