'Regenerative capitalism' and the new bottom line
Why one former JP Morgan executive is convinced that it will take a radical rethinking of entrenched economic frameworks to address the convergence of environmental, social and governance risks.
“Our current economy is destroying the planet, the very basis of civilization, because there is profit in it,” John Fullerton recently told a group of Yale students. “Welcome to the Anthropocene.”
Fullerton's line was a reference to Elizabeth Kolbert's 2014 book, “The Sixth Extinction: an Unnatural History,” which described the Anthropocene as “an era in which almost nothing about the planet escapes the effects of human activity.”
A former JP Morgan managing director who went on to found Connecticut-based think tank the Capital Institute, Fullerton was at Yale to present his recently published white paper, Regenerative Capitalism: How Universal Principles and Patterns Will Shape Our New Economy.
Fullerton's shift away from Wall Street was precipitated by JP Morgan's acquisition by Chase Manhattan Bank. He left without a clear idea of the direction in which his career would go. Shortly after came 9/11, and the convergence of the two life-altering events appears to have set Fullerton on a spiritual quest, which can be said to culminate in the 120 pages of Regenerative Capitalism.
“We live in a time of interconnected crises: economic, social and ecological,” Fullerton said. “I came to the understanding that the economic system was the root cause of the ecological crisis, and that finance is what drives the economic system.”
Rather than totally tossing out the idea of free market economics, Fullerton sought to reimagine the financial system.
“I kind of stumbled into this question of how to fix capitalism so that it works for people and the planet,” he said, “and a related question: what is the purpose of capital?”
As I have written, the intent of Regenerative Capitalism is not to provide a slate of solutions, but to encourage further discussion on a complex and even revolutionary view of finance.
Considering the magnitude of the crises we currently face as a civilization — increasing resource scarcity; global social upheavals; the growth of Gross Domestic Product (GDP) at the expense of the Genuine Progress Indicator (GPI), which accounts for environmental and social well-being as well as economic — a solutions-based approach likely would be as outmoded as our current financial system is.
The time in which we live "may be as big as the Copernican shift," Fullerton said. "The paper is a synthesis of all that we know, but is in conflict with the way we run the world. Theory matters when we are in times of great change."
In other words, missing the forest for the trees could be a particularly costly mistake in this instance.
“The most important point I will make today is this,” Fullerton said. “For 500 years we have perfected the skill of analytical problem solving. We break down what's complicated into component parts. We optimize. But in doing so, we lose sight of the whole. That's when we get in trouble; and we're in trouble.”
To combat that dynamic, he urges more effort on connecting the dots between problems that might not initially seem all that related.
“If we are to avoid a major systemic collapse, the leaders of tomorrow will need to think in systems,” he said.
Reaching for a regenerative economy
“So what is a regenerative economy?” Fullerton asked the audience at Yale. “There are universal principles and patterns that govern healthy complex systems throughout the real world. They apply to living systems, such as our bodies, and entire ecosystems. But also to nonliving systems, such as the Internet. Our challenge is to bring economics and finance into alignment with these universal principles and patterns.”
Referring to the Field Guide to Investing in a Regenerative Economy, published in 2014 by the Capital Institute, as an important source of the concepts in his new white paper, Fullerton described eight principles that would govern a regenerative economy:
1. In right relationship. “The current system is exactly inverted from the way it has to be,” Fullerton pointed out. “There is no such thing as environmental issues. We are part of the environment.”
2. Holistic wealth. “Money is not wealth,” Fullerton observed.
3. Adaptive management.
4. Empowered participation.
5. Honors community and place. (As poet Wendell Berry wrote, “There are no unsacred places; only sacred places and desecrated places.”)
6. Edge effect abundance.
7. Robust circulatory flow.
8. System balance.
“My suggestion is simple,” Fullerton said. “Align our economy with these eight principles instead of the relentless pursuit at all costs of GDP growth and shareholder value.”
Fully anticipating the notion that his ideas would be considered "radical," he explained that other solutions have failed because they fail to address the root cause of the issues at hand.
“It represents a huge challenge to business as usual," Fullerton said. "But anything less is simply not a credible response to the immense challenges we face.”
Plus, there are already examples of financial mechanisms that align more closely with this thinking. Sustainable investment is one such strategy, as are social entrepreneurship, micro-finance and community development institutions.
“I believe this integral or holistic approach is not only realistic. It is already emergent in the world,” Fullerton observed. “We are already moving in the right direction, albeit too timidly.”
Inevitably, even well-meaning initiatives fall short of the radical overhaul espoused in Regenerative Capitalism, as they do not change a failed system but attempt to effect meaningful environmental and social justice from within. What remains, Fullerton believes, is the development of systems that adhere to established scientific discoveries in quantum physics and other fields of science.
“The core insights of our wisdom traditions are remarkably aligned with this new science as well, yet in conflict with our economics and finance,” he said. “We now understand the principles and patterns that describe all the systems in the cosmos. My hope is that the framework that I call regenerative capitalism will provide the vital roadmap we need to help us find that better way.”
This article originally appeared at SocialFunds.