Creating a New Economy That Goes Well Beyond Optimizing Financial Returns for Shareholders
Many of us know we need to completely change our economic system if we're going to survive as a species on this planet, but very few people know how to do it. Fortunately, John Fullerton, founder and president of Capital Institute and renowned thought leader in the New Economy space, not only knows how we need to transition our economy, but he has developed an alternative framework for capitalism that embodies a much deeper purpose than just optimizing financial returns for shareholders. His model, Regenerative Capitalism, promotes long-term health for communities and the environment that ensures a sustainable future all.
In April, John presented his collaboratively created framework and accompanying white paper at an event hosted by Yale University’s Center for Business and the Environment, which calls on business leaders and policymakers to fundamentally rethink economics and how our free enterprise system operates.
I interviewed John soon after this event and asked him some questions on how we can create a New Economy.
Q. In layman terms, can you describe what you mean by Regenerative Capitalism?
A. Regeneration is the process that sustains health in all systems. Like the cells in our body regenerate every seven years on average, they don’t degenerate more slowly to keep us alive. So Regenerative Capitalism is an economic system that sustains health (is sustainable) because it regenerates its own health—social, ecological and economic—in alignment with the universal principles and patterns that govern all systems in the universe, living and non-living. And of course it requires a broader understanding of “capital” than conventional capitalism. We use the same term because we believe it represents the natural evolution of contemporary capitalism, and to not scare people. But it is quite profoundly different. Some people are now using the phrase “net positive” to get at a similar idea. It’s very different than “less bad.”
In this new video, Reimagining Capitalism, John goes into depth about his alternative framework:
Q. Can you elaborate on what changes you feel are needed for business leaders and policymakers to fundamentally rethink economies and how our free enterprise system operates?
A. The essence of the hypothesis is that we should look to the principles and patterns of all living and non-living systems in the universe as our guide, not what John Fullerton or anyone else “thinks.” It will begin with rethinking how we think, perhaps the hardest part. Ever since the Enlightenment 500 years ago, we have been taught to think in a mechanistic way. We break down complicated problems into parts so we can understand them, solve problems and manage what is complicated. But in the process, we lose sight of the whole and that’s how we get into trouble. We are not capable of managing complex systems like human economies (or marriages for that matter) using mechanistic thinking that is well suited to solving merely complicated problems. Complexity is entirely different.
So for example, we have a belief system that maintains “efficient returns on financial capital” is the logical way to allow a competitive free enterprise system to organize itself and to operate. We even evoke Darwin’s “survival of the fittest.” But this statement is often misconstrued and Darwin of course meant the one that “fits best” (most adapted to the changing environment) when he borrowed that term. So our ultra competitive, and “optimize financial returns rather than harmonize returns on multiple kinds of capital (including social)” thinking has caused manufacturing to leave inner cities. This leads to economic hardship and social problems. If there is too much crime as a result, we arrest more people and build more jails thinking we are solving a problem using this reductionist logic. We fail to connect the dots, we lose our ability to manage the whole. We then experience the kinds of tragic consequences we witnessed in Baltimore last month, failing to grasp their root causes. Optimizing financial returns alone is in conflict with the principles, and, it has consequences.
After we all learn to think and make decisions holistically (with a grasp of the whole—very challenging), business leaders and policymakers alike, then we have a chance. The changes leaders need to make will become obvious, but also profound. They will not be ideologically driven, at least this is my hope. They will contrast the universal principles with how we currently manage businesses and the economy, and then get to work. For example, “robust circulation” is a principle, but “exponential growth” is most certainly not (it’s the ideology of a cancer cell that takes over and kills its host as we have heard and know). So policymakers will draft policies that encourage circulation of materials, information and money at all levels of the economy (local, regional, national, global) as a policy priority ahead of undifferentiated exponential growth (which is the current objective). This translates into circular economy incentives for materials and energy so it is already happening (slowly). But it also informs the structure of the banking system to support credit not getting sucked into the center in too big to fail banks and deployed to extractive (and degenerative) leveraged speculation. Rather, it is incentivized to promote circulation of money in the real economy through a diversity of small, medium and yes, large banks in service of the whole. The list is endless. But to be effective, we need to align with the pattern of all principles acting in an interconnected way, not look at one at a time. And we need to be willing to reject current thinking that is in conflict with the pattern (competition rules, growth is the goal, optimize return on capital at all costs, etc.). We will only muster up the courage to do this when we have a robust theory that we can believe in; a framework that can provide rigorous metrics by which to manage the system. This work is underway and is very exciting.
Q. If changes are not made to our current economic structure, what will be the toll on our climate and natural resources? Can you describe what you believe our planet will look like in 20 years if we don’t make this shift and what it would look like if we do?
A. It is becoming very clear that the system will collapse if we keep on doing what we are doing. In fact, the accelerating chaos—social, economic, financial, ecological—we have been experiencing since the turn of the millennium can be seen as a pattern of “pre-collapse” rumbling, like mini quakes before an earthquake to release pressure. Releasing pressure is necessary, and if it catalyzes change, we can avoid the big one. Maybe we could call the current accelerating chaos the “early collapse” phase of collapse. Regardless it serves the same purpose. It releases pressure and wakes us up.
I don’t say this as an alarmist, but as a calm rational observer of the pattern. The only questions are, what does “collapse” really mean? And, is it possible to change the system? I don’t have a good answer for either question if I’m being honest. For example, if we don’t course correct, I suspect we will collapse the economy before we collapse the Earth support systems we rely on. And that will relieve pressure on the Earth systems, but create massive social upheaval. But I can’t predict that with any real conviction. One of the things about holistic thinking is an awareness for the need to be humble. We simply cannot anticipate how complex systems evolve and adapt to accelerating change. Who predicted social media and the consequences that flow from it when the Internet was invented?
Q. Are you familiar with B Corporations? Do you believe that baking sustainability into a company’s DNA can change the way business is done today and in the future, by giving the legal protection to directors and officers to consider the interests of all stakeholders, not just shareholders, when making decisions?
A. What many call “stakeholder capitalism” is very much in alignment with the regenerative principles at the level of the firm. But of course, firm level management is microeconomics, absent the macro context that is rapidly becoming THE CRITICAL issue. We have just woken up to the concept that we have an aggregate carbon budget for the entire global economy. That is the context of what matters for individual businesses and society as a whole (holistic thinking). So doing less bad at the micro level is not good enough, no matter how well intended.
It’s a great way to begin, so I’m a huge cheerleader for B Corps! Some current businesses (and entire industries) cannot exist in their current form without driving us toward collapse. The same goes for some consumption behavior. The growing popularity of B Corps (Etsy is the first B Corp to go public last month), naming an idea that began long before the invention of B Corps (Patagonia, Ben & Jerry’s, Stonyfield), like the idea of impact investing, which existed long before the term became fashionable, is evidence that the our free market capitalist system is evolving in alignment with the regenerative framework.
Codifying legal protection for directors in fresh legislation is a useful tool to shine a light on the issue. Legal scholars such as Lynn Stout would argue that the “business judgment” rule already allows directors all the discretion they need. But of course we live in a litigious society so more clarity is good. But the power of B Corps is at least to a significant degree in their power to change the story, the narrative of how business can and must be done.
Nevertheless, and this is crucial, I would suggest that we can’t address a macro systemic crisis by looking at micro management alone. All business management is essentially microeconomics. We need an overarching macro framework—a coherent theory that is aligned with how the universe actually works—that holds everything together.
Q. Clearly we live in a world of overconsumption. What role do you believe the consumer has in changing our economic system?
A. Every one of us living in America, particularly those of us living a middle class lifestyle or above, are complicit in the unsustainable system. So we all play a role in changing the system. There are no silver bullets, it’s all important beginning with our light bulbs. But it is disingenuous for business to hide behind consumer demand when business uses huge advertising budgets to manipulate consumer “desires” and creates needs out of wants. And it is naive to assume that “the market” will resolve these challenges though some magical invisible hand.
I’m no fan of regulation and appreciate unintended consequences. I much prefer a system that has self-regulation built in via incentives. The capital surplus rule for “systemically important” (too big to fail) banks and regulatory relief for simple productive lending banks in the real economy is a great example of the kind of self-regulating incentives I favor. But, we desperately need policymakers to do their job, yesterday.
Consumers can help, but they can’t do government’s job. Nothing could be more naive. We managed to outlaw slavery for our own self-interest and because it was morally right rather than “leave it to the market.” To fix our most egregious and immoral over-consumption habit, we need our elected officials to do their job and enact a policy that sets a serious and rising price on carbon, uniformly enforced. And that’s for starters. Government must do its job. And given the power of big business in modern society, I believe it is incumbent upon big business to use that power to exercise leadership where government is failing to do their job. Business should come together and demand a price on carbon. Just like it demanded a discriminatory law be fixed in Indiana—in a week!—rather than “leaving it to the consumer and the invisible hand.”
Q. Is there anything else you’d like to share with EcoWatch readers?
A. I’ve overburdened them enough. It’s important to keep a good sense of humor folks, it’s going to be interesting!
I hope you've enjoyed John's candid answers. And, in case you want more, here's John's White Paper Cheat Sheet:
- There are universal principles and patterns that describe all living and non-living systems in the cosmos. This is understood by modern science, in particular energy flow science (everything is energy) which encompasses complexity science and ecology as well as quantum physics and modern biology (web of life, not misconstrued Darwinism)
- These principles are remarkably in alignment with several of the core insights of many of the world’s wisdom traditions—Western, Eastern, and indigenous—but they're often in conflict with modern economics and finance.
- The hypothesis is that human economies are examples of such energy flow networks, and therefore must be grounded in these same principles and patterns if they are to be healthy (sustainable). We need to see where conventional economics (of both the left and the right) and finance are in alignment, and where they are in conflict. But if one rejects the hypothesis, then one needs to make the case as to why human economies and our financial system are not subject to the principles that guide all systems in the universe, or quibble with the principles which of course can always be done ...
- The paper identifies the 8 principles we see as most relevant to human economies, and their critical inter-relationships.
- To transition to an economic system aligned with these principles requires a new way of thinking. We need to transcend the reductionist thinking of the Enlightenment, to holistic or integral thinking. This is new and hard. It is not hippie mumbo jumbo, but scientifically rigorous. It is transforming every discipline from medicine to management, from urban planning to architecture, and yes I suggest, it must and is transforming economics and finance!
- And systems scientists (including our own Dr. Sally Goerner) are now developing metrics for “regenerativeness” across most of these principles so they can be measured empirically and with rigor. This will inform an entirely new policy agenda. For example, it will lead to policies that promote robust circulation of materials, information, and money (rather than GDP growth) because circulation is more important than rate of growth for our health. To quote Jane Jacobs (whose work was informed by the same energy flow science), “It’s not how big you grow, it’s how you grow big.”.
- The paper suggests that it is the regenerative process itself that leads to health (sustainability) as the outcome of the system design. Current approaches to sustainability tend to focus on addressing the problems (symptoms) of the current system in a reductionist and ultimately losing battle.
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By Matthew J. Landry and Heather Eicher-Miller
When university presidents were surveyed in spring of 2020 about what they felt were the most pressing concerns of COVID-19, college students going hungry didn't rank very high.
Why It Matters<p>This is not just a matter of growling stomachs. This is a straight-up education and health issue.</p><p>When students don't really know if they'll be able to get enough to eat, it can lead to a series of problems that make it harder to stay in school. For instance, it can affect <a href="https://doi.org/10.1177%2F1359105318783028" target="_blank">academic performance</a> and <a href="https://doi.org/10.1186/s12889-019-6943-6" target="_blank" rel="noopener noreferrer">sleep quality</a>. It can also lead to <a href="https://doi.org/10.1177/1359105318783028" target="_blank" rel="noopener noreferrer">poor mental and physical health</a> outcomes for college students.</p><p>Food insecurity can also result in disrupted eating patterns if there is <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6627945/" target="_blank" rel="noopener noreferrer">not enough food or the variety</a> or <a href="https://bmcpublichealth.biomedcentral.com/articles/10.1186/s12889-019-6943-6" target="_blank" rel="noopener noreferrer">quality of what someone eats</a> is low.</p>
Campus Food Pantries<p>Previous strategies by <a href="https://www.gao.gov/assets/700/696254.pdf" target="_blank">colleges and universities</a> to fight hunger in their student bodies have varied widely. They include campus food pantries, emergency cash assistance and nutrition education through noncredit classes or workshopse.</p><p>These strategies were put to the test during the spring 2020 semester, when nearly <a href="https://hope4college.com/wp-content/uploads/2020/06/Hopecenter_RealCollegeDuringthePandemic.pdf" target="_blank">three in five students</a> said they had trouble meeting their own basic needs during the pandemic.</p><p>College food pantries saw <a href="https://www.utrgv.edu/newsroom/2020/05/01-utrgv-student-food-pantry-seeing-recent-increase-in-demand-during-covid-19.htm" target="_blank" rel="noopener noreferrer">big increases</a> in demand. Others said they <a href="https://www.theprospectordaily.com/2020/09/22/uteps-food-pantry-is-running-out-of-food/" target="_blank" rel="noopener noreferrer">were getting less donated food</a>. This made it even harder to meet the rising food needs of students.</p><p>Campus food pantries largely rely on local or regional food banks, which have been dealing with <a href="https://www.indystar.com/story/news/local/2020/10/04/indiana-food-banks-call-more-food-stamps-meet-publics-need/3523683001/" target="_blank" rel="noopener noreferrer">greater demand</a> than they are able to meet during the pandemic.</p><p>The many students who are attending college remotely will, of course, have less access to campus resources like food pantries.</p>
Federal Help<p>Other potential ways to get more food are government programs like the <a href="https://www.fns.usda.gov/snap/recipient/eligibility" target="_blank">Supplemental Nutrition Assistance Program</a>, known as SNAP. Yet the majority of able-bodied students are not eligible. Long-standing restrictions, like the <a href="https://www.fns.usda.gov/snap/students" target="_blank">college SNAP rule</a>, prevent full-time students from receiving these benefits.</p><p>Such regulatory hurdles were created under the assumption that most students can rely on their parents to get enough to eat. However, college students have vastly different levels of financial support. Some students can rely on their parents for everything and others cannot rely on their parents for anything.</p><p>Decreased reliance on parental financial support is <a href="https://ir.library.louisville.edu/jsfa/vol47/iss3/5/" target="_blank">especially common</a> for first-generation students and students of color, who now make up <a href="https://1xfsu31b52d33idlp13twtos-wpengine.netdna-ssl.com/wp-content/uploads/2019/02/Race-and-Ethnicity-in-Higher-Education.pdf" target="_blank" rel="noopener noreferrer">45% of enrolled college students</a>.</p><p>Under normal circumstances, many college students might rely on part-time jobs to pay for their food.</p>
Short-Term Solutions<p>Universities and colleges can make it a priority to ensure students are aware of all available campus resources and services. They can also potentially help students apply for federal assistance benefits.</p><p>Campus food pantries are not a fully effective and efficacious solution for the scale of college food insecurity, but they can be a good interim solution to increase access to food for students.</p><p>Campuses without food pantries can start one, making use of resources the <a href="https://cufba.org/resources/" target="_blank">College and University Food Bank Alliance</a> provides. Schools with food pantries can try to get them to <a href="https://www.swipehunger.org/5campuspantry/" target="_blank" rel="noopener noreferrer">reach more students</a>.</p><p>Universities and colleges can also lean on one another for support. The <a href="http://wp.auburn.edu/endchildhungeral/alabama-campus-coalition-for-basic-needs/" target="_blank" rel="noopener noreferrer">Alabama Campus Coalition for Basic Needs</a> is a great example of this. It brings together 10 universities across the state of Alabama collectively working to address student food insecurity.</p>
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By Dr. Kate Raynes-Goldie
Of all the plastic we've ever produced, only 9% has been recycled. So what happened to all that plastic you've put in the recycling bin over the years?
Triangle of Mistruths<p>The myth created around plastic recycling has been one of simplicity. We look for the familiar triangle arrows, then pop the waste in the recycling bin so it can be reused.</p><p>But the true purpose of those triangles has been misunderstood by the general public ever since their invention in the 1980s.</p><p>These triangles were actually created by the plastics industry and, according to a report provided to them in July 1993, <a href="https://www.npr.org/transcripts/912150085" target="_blank">were creating "unrealistic expectations"</a> about what could be recycled. But they decided to keep using the codes.</p><p>Which is why many people still believe that these triangular symbols (also known as a <a href="https://sustainablepackaging.org/101-resin-identification-codes/" target="_blank" rel="noopener noreferrer">resin identifier code</a> or RIC) means something is recyclable.</p><p>But according to the American Society for Testing and Materials International (ASTM) – which controls the RIC system – the numbered triangles "<a href="https://www.astm.org/Standards/D7611.htm" target="_blank" rel="noopener noreferrer">are not recycle codes</a>." In fact, they weren't created for the general public at all. They were made for the post-consumer plastic industry.</p><p>In other words, the symbols make it easier to sort the different types of plastics, some of which cannot be recycled – <a href="https://www.ecobin.com.au/understand-recycling-codes/" target="_blank" rel="noopener noreferrer">depending on the recycling facility</a>.</p><p>"Unfortunately, just placing your plastic into the recycling bin doesn't mean it will get recycled," says Lara Camilla Pinho. She is an architect and lecturer at the UWA School of Design who is researching novel uses of plastic waste.</p><p>"The recycling system is complicated and often dictated by market demand. Not all plastic is recyclable. We cannot recycle plastic bags or straws for example."</p>
Behind the Scenes<p>So, what makes recycling plastics so difficult?</p><p>"Essentially, there are two types of plastics – thermoplastics and thermosets. While thermoplastics can be re-melted and re-molded, thermosets contain cross-linked polymers that cannot be separated meaning they cannot be recycled," says Lara.</p><p>"Even thermoplastics have a limit to the amount of times we can recycle them, as each time they are recycled they downgrade in quality."</p><p>Even when plastics are recyclable, it is <a href="https://www.theguardian.com/environment/2019/oct/13/war-on-plastic-waste-faces-setback-as-cost-of-recycled-material-soars" target="_blank">often more costly</a> than simply making new plastics.</p>
Sugar, Seaweed and Mushrooms<p>If the conventional recycling system isn't working, what else can we do with all the plastic we've created?</p><p>Lara is looking for ways to add value to recycled plastics such as using it in the design and development of architectural products. She hopes to use these architectural products to help underserved communities that are disproportionately affected by plastic waste.</p><p>In addition to recycling, we also need to find ways to reduce our use of virgin petroleum-based plastics.</p><p>Bioplastic is one such product that has been getting a lot of hype over the last few years. And although they're better than petroleum-based plastics, bioplastics also come with their own <a href="https://phys.org/news/2017-12-truth-bioplastics.html" target="_blank">set of challenges</a>.</p><p>"There are already a lot of bio-based alternatives to plastic, such as bagasse – a byproduct of sugar cane processing," says Lara.</p><p><a href="https://blogs.scientificamerican.com/observations/the-mycelium-revolution-is-upon-us/" target="_blank" rel="noopener noreferrer">Mycelium</a>, a type of fungi we most often associate with mushrooms, are also providing an interesting plastic alternative.</p><p>"In the field of architecture, mycelium is starting to be used as an alternative to plastic insulation, but also as compostable packaging and bricks," says Lara.</p><p>"The bricks take around five days to make and are strong, durable, water resistant and compostable at the end of their use."</p><p><a href="https://www.arup.com/news-and-events/hyfi-reinvents-the-brick" target="_blank" rel="noopener noreferrer">Hy-Fi Tower</a>, created by <a href="http://www.thelivingnewyork.com/living_about.html" target="_blank" rel="noopener noreferrer">The Living</a>, is an example of a building made from these bricks.</p><p>And finally, there's seaweed.</p><p>"[Seaweed is] cheap and can reproduce itself quickly without fertilizers. In architecture, there is use for seaweed as an alternative to plastic insulation but also as cladding," says Lara.</p>
More Money, More Problems<p>While all these alternatives are great, the main cause of our plastic dilemma is not scientific or technological, but economic.</p><p>As long as it remains <a href="https://engineering.mit.edu/engage/ask-an-engineer/why-is-it-cheaper-to-make-new-plastic-bottles-than-to-recycle-old-ones/" target="_blank">cheaper to create new plastics</a> from fossil fuels rather than from bioplastics or from recycling, we're going to be stuck with plastic garbage islands floating in our oceans.</p><p>The true cost to our health and our environment has yet to be included in the equation. But once it is, maybe that is when the real shift will happen.</p>
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