From the Gilded Age of Capitalism to a Golden One — Part Three
by Rob Schuham, Co-founder of Undercurrent
Continuation from Part 2: (part 1 is here to start from the beginning)
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Phase 3: Circularity and Regeneration:
Undercurrent partner, and Founder of Natural Capital Solutions, Hunter Lovins and her co-authors identify in their recent book, A Finer Future, that humanity is in a race with catastrophe. She inquires as to whether or not “the future is one of global warming, 68 million migrants fleeing failed states, soaring inequality, and grid-locked politics? Or one of empowered entrepreneurs and innovators working towards social change, leveling the playing field, and building a world that works for everyone? While the specter of collapse looms large, we have a unique and novel chance to thread the needle of sustainability and build a regenerative economy through a powerful combination of enlightened entrepreneurialism, regenerative economy, technology, and innovative policy.”
When we come to this point in the phases of a new capitalism, we have by now been exercising new muscle memory in the collaborative and cooperative service of people and planet. We have leveraged technology and advanced sense-making toward creating an economy that’s in service to life, rather than the next quarter’s earning reports. Yet at the same time, we have identified a massive multi-trillion dollar opportunity for businesses. We have essentially gathered the environmental economics evidence, outlined the principles of a regenerative economy, and are now on to a policy roadmap to achieving it, including:
- Transforming finance and corporations
- Reimagining energy, agriculture, ecosystems, and how we work
- Enhancing human well-being
- Delivering a world that honors all of nature
What exactly is a Regenerative Economy? Hunter Lovins’s co-author John Fullerton’s reprises his paper “Regenerative Capitalism” and identifies 8 key principals:
#1: In Right Relationship: Understands that the ecosphere is composed of nested systems, living and nonliving. Recognizes that the human economy is embedded in both culture and the ecosphere and must operate in dynamic and cooperative relationship with them, respecting cultural needs and planetary limits. Allows for critical value adding exchanges to occur at all scales in reciprocal relationship, in contrast with commoditized transactions.
#2: Views Wealth Holistically: Defines wealth in terms of the well-being of the ‘whole’ rather than only what is reducible to money. Redefines wealth to mean multiple kinds of capital beyond financial wealth. Recognizes that numerous dimensions of human and natural capital cannot be measured in monetary terms but must be nurtured as intrinsic components of holistic wealth.
#3: Innovative, Adaptive, Responsive: In a world in which change is both ever-present and accelerating, the qualities of innovation and adaptability are critical to health. It is this idea that Charles Darwin intended to convey in this often-misconstrued statement attributed to him: “In the struggle for survival, the fittest win out at the expense of their rivals.” What Darwin actually meant is that: the most “fit” is the one that fits best i.e., the one that is most adaptable to a changing environment.
#4: Empowered Participation: All healthy living systems are self-organizing and operate through continual negotiation with one another and in constant ‘conversation’. So too, a healthy human economy requires the empowered participation of individuals and groups, negotiating in their own enlightened self-interest as they naturally promote the health of the whole.
#5: Honors Community and Place: Each human community consists of a mosaic of peoples, traditions, beliefs, and institutions uniquely shaped by long-term pressures of geography, human history, culture, local environment, and changing human needs. Honoring this fact, a Regenerative Economy nurtures healthy and resilient communities and regions, each one uniquely informed by the essence of its individual history and place.
#6: Edge Effect Abundance: Creativity and abundance flourish synergistically at the “edges” of systems, where the bonds holding the dominant pattern in place are weakest. For example, there is an abundance of interdependent life in salt marshes where a river meets the ocean. At those edges the opportunities for innovation and cross-fertilization are the greatest. Working collaboratively across edges — with ongoing learning and development sourced from the diversity that exists there — is transformative for both the communities where the exchanges are happening, and for the individuals involved.
#7: Robust Circularity Flow: A regenerative material economy mimics the metabolic process found in resilient living systems, up taking what we now discard as ‘waste’ in an ongoing, productive, circulatory, and value-enhancing flow. Likewise for the circulatory, value-enhancing flow of information and money.
#8: Seeks Balance: Being in balance is more than just a nice way to be; it is actually essential to systemic health. Like a unicycle rider, regenerative systems are always engaged in this delicate dance in search of balance. Achieving it requires that they harmonize multiple variables instead of optimizing single ones. A Regenerative Economy seeks to balance: efficiency and resilience; collaboration and competition; diversity and coherence; and small, medium, and large organizations and needs.
“A Finer Future” lays out the policies and practices needed to transform finance, corporations, energy agriculture and governance including case stories of how this is already being done. It’s a playbook for how we rebuild from the COVID crisis, and avoid the other looming emergencies facing humanity.
Charting the course to a regenerative economy is inarguably the most important work facing humanity in this phase. In Kate Raworth’s Doughnut Economics, she identifies seven ways to fundamentally rethink economics into one that works for all:
1. Change the goal — From GDP to a doughnut (regenerative) one
2. See the big picture — From self-contained market to embedded economy
3. Nurture human nature — From rational economic man to social adaptable humans
4. Get savvy with systems — From mechanical equilibrium to dynamic complexity
5. Design to distribute — From ‘growth will even it up again’ to distributive by design
6. Create to regenerate — From ‘growth will clean it up again’ to regenerative by design
7. Be agnostic about growth — From growth-addicted to growth-agnostic
What’s encouraging is that the movement to a regenerative economy is now getting support from unlikely sources. The Business Roundtable, a group of CEO’s representing some of the largest 181 companies in America, in August of 2019 had identified that “Maximum shareholder profits no longer can be the goals of corporations.” Almost 60% of CEO’s said they see the business value of sustainability according to Accenture. And some of the largest companies in the world including Microsoft and Starbucks have committed to eliminating their carbon footprints and actually reversing their carbon transgressions over time.
Larry Fink, CEO of BlackRock, which manages over $7T in assets, says “Profits are in no way inconsistent with purpose — in fact profits and purpose are inextricably linked.” And in the recent 2020 Davos Manifesto, it was stated “(A company) consciously protects our biosphere and champions a circular, shared and regenerative economy.”
Words like “Regenerative” and “Circularity,” while not new to communities, researchers and authors who have been deep in identification and creation around these principals, have finally emerged into mainstream business culture. Many successful companies that embrace ESG (Environment, Social Governance) practices are performing at higher levels than non-ESG ones.
The movement had effectively begun, but now in combination with identified upside potential from wartime efforts and radical collaboration skillsets, we can leverage this crisis to accelerate towards the next generation of well-being based capitalism.
However, corporations alone can’t do this. Political will has to be generated to legislate and even constitutionalize a new era. And the next phase addresses this…
Phase 4: New Governance and Policy:
The crisis has illuminated a number of weaknesses in Government institutions across the globe that we are all experiencing, and paying the price for. It’s not just our medical and economic systems. What it’s also revealing is the fragility of Government’s social contract with its own citizens.
The crisis is laying bare inequality income disparity, environmental degradation, gutted and/or woefully ill-equipped social services departments, and other hollowed out government branches. Oliver Laughland and Lauren Zanolli of The Guardian examined the disproportionate impact on minorities in the U.S. African Americans and Latinos are less likely to be able to work from home and more likely to be forced to take public transportation, increasing their risk of exposure to coronavirus. Minority and low-income communities are more likely to experience food insecurity, which is linked to higher rates of obesity and diabetes, and less able to stockpile supplies. Thomas LaVeist, Dean and Professor at Tulane’s school of public health and tropical medicine says, “If you look at the health conditions that we (now) know dramatically increase the risk of death if you’re infected with Sars Covid-2, African Americans have much higher prevalence of every one of those conditions. Diabetes, hypertension, heart disease, you name it, African Americans have a higher prevalence.’
“It’s an education system issue, it’s a health and resources system issue and it’s a public transportation issue,” said Cedric “C-sharp” Redmon, a local rap artist and youth ambassador for the city of St Louis who is part of the city’s (Covid-19) outreach efforts, as he attempted to pinpoint the root causes of the disproportionate death toll. “There’s a lot of stuff that would need to be rectified in order to stop something like this again.”
It’s also magnifying the deep ideological divides on a national and local level which drives an uneven response and favoritism (Governors who were “nice” to the President got more ventilators to save more lives), and unfairly leaves states, cities, agencies and bureaus behind. Which means even citizens who are politically aligned with the current administration are directly and negatively impacted. So everyone loses when this happens.
According to a recent article in the Financial Times, radical reforms — reversing the prevailing policy direction of the last four decades — will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labor markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income, guaranteed jobs and wealth taxes, will have to be in the mix.
The above lays out some of the domestic challenges government policy makers will face. On an international basis, governments will need to embrace coordinated responses to Covid and other future pandemics. Best practices (such as mandated quarantining and testing) will need to be shared, as will economic responses.
In Phase 2, it was identified that companies and organizations could start to see the benefits of radical collaboration. Governments could likely see the same response here as well. Some will respond with deep isolation as a pandemic response, however we will likely see over time that you can’t contain something you can’t see, and that the most efficacious way forward is collaboration and coordination. Accountability and information-sharing is key. Critically, responses will need to be even, analytics based, and not random or haphazard.
Accordingly, corporate reporting and accounting for externalities will need to be standardized. In an article by Jeffrey Unerman of the School of Management, Royal Halloway, University of London says “For most companies, interactions with nature … are not visualized on a company’s profit and loss statement or on their balance sheet. They remain ‘externalities’, or issues without internal consequence. However, there are several potential drivers that may lead to such externalities being internalized in the future including increasing regulatory or legal action, market forces and changing operating environments, new actions by and relationships with external stakeholders, plus an increasing drive for transparency or voluntary action by businesses because they recognize the significance of transparency to future success.”
This is hard, but doable. And there have been several experiments by organizations over the last few decades in order to achieve global acceptance and ultimately be enforced by the securities and exchange commissions.
SASB (Sustainability Accounting Standards Board) has been a notable force and is being adopted by some large companies. SASB states “Its standards are designed for inclusion in financial reports. In the US, this takes the shape of the Form 10-K. U.S. securities law firmly undergirds SASB’s work and process, providing a solid foundation for the use of SASB standards by U.S. companies.”
Other organizations and standards like SEAR (Social and Environmental Accounting), GRI (Global Reporting Initiative) Standards, TCFD (Task Force on Climate-Related Financial Disclosures), the GHB Protocol, IR (Integrated Reporting), and shareholder reporting based on internal Corporate Social Responsibility efforts have all been been in play as well. They are all important in that they have kept the conversations vibrant around putting nature and humanity writ-large at the forefront of all stakeholders.
If these phases are implemented, we very well could be on our way to implementation of a “Golden Age” of capitalism. Government policies and approaches will take time, however let’s look at a transitional landscape as recently identified via a recent scenario planning exercise where Deloitte and Salesforce identified four possibilities that could take place over the next 3–5 years. Some are optimistic, some are gloomy. I’m going to focus on a combination of two that intuitively feel most likely; “Good Company” and “Sunrise in the East”
“Good Company”: In this scenario Covid-19 pandemic persists past initial projections (including resurgences due to countries “opening up” too quickly), placing a growing burden on governments around the world that struggle to handle the crisis alone. A surge of public-private sector partnerships emerges as companies step up as part of the global solution. New “pop-up ecosystems” arise as companies across industries partner to respond to critical needs and drive much-needed innovation. Social media companies, platform companies, and tech giants gain new prestige.
Ultimately, companies shift further toward “stakeholder capitalism,” with a more empathetic stance to how they can best serve their customers, shareholders, and employees to rebuild after the crisis. Economic recovery begins late 2021. Recovery is slow in early 2022 and speeds up by the second half of 2022.
“Sunrise in the East”: The Covid-19 pandemic is severe and unfolds inconsistently across the world. China and other East Asian countries manage the disease more effectively, whereas Western nations struggle with deep and lasting impacts — human, social, and economic — driven by slower and inconsistent responses. The global center of power shifts decisively east as China and other East Asian nations take the reins as primary powers on the world stage and lead global coordination of the health system and other multilateral institutions.
The ability of China, Taiwan, and South Korea to contain the outbreak through strong centralized government response becomes the “gold standard.” China significantly ramps up foreign direct investment efforts, bolstering its global reputation. Economic recovery begins late 2021, with notably quicker and more robust recovery in the East.
I will combine the two in order to lay out a vision for what I see as a possible version of a “Golden Age” of capitalism, and a more optimistic government policy stance over time:
- Public-Private partnerships continue to increase, given the high values placed on innovation and fast crisis response.
- As the importance of sharing IP and data rises, so do new laws and regulations that support and encourage these practices.
- Public private partnerships create a “commons” where benefits of such practices are equitably shared amongst companies and governments.
- Governments can “turn on” and reward the private sector to address both crises, as well as long-term chronic and slower-rolling crises such as climate, loss of biodiversity, air/land/water pollution, inequality, human trafficking, animal cruelty, access to healthcare and nutrition, mental health and so many others.
- Governments recognize the value of pricing-in harmful externalities, and reduce or eliminate subsidies and tax breaks for harmful companies.
- New accounting practices are put in place that blend SASB and others like ESG standards in order to align balance sheets with socially and environmentally sound business practices.
- Renewable, regenerative and humane practices are incorporated throughout government and incentives are implemented to re-imagine and/or reboot our energy, agricultural, infrastructure, military, law enforcement, civil service, telecommunications, public transit and health care sectors.
- Health, Environmental Protection agencies, Food and Drug administrations, Social Security and welfare agencies and child and other protective services are strengthened and given more operational capacity.
- Governments leverage contact-tracing on a limited basis in order to control and manage health and safety. Surveillance via facial recognition, geo-tracking is significantly “rate-limited” via human rights laws.*
- Treasuries and Central Banks are re-thought and re-imagined to hold financial institutions more accountable, while reigning in the impact of Index Funds, esoteric financial products and other instruments and products that have been abused and cause harm.
- Social media and platform companies, while having an important role, are reigned in on advertising and content standards, as well as privacy. People regain control of their data.
These shifts start to move us towards a world where the well-being of people and planet come before shareholder primacy. It’s the basis of a new form of circular capitalism. It’s mutual thriving. And, it can also lead us to a post-capitalism world where all things living benefit.
*The drawbacks of ubiquitous surveillance and a corresponding reduction of our liberties are important to consider, and I have addressed this in a recent article titled “Reigning in Runaway Technology.” We will be debating and politicizing these tradeoffs for years. But we are in a new world. Pandemics are real. And so is the need for at least a rudimentary methodology of tracking and tracing infectious diseases. There will need to be legislation that protects our privacy, but also can do what’s necessary to keep us all healthy. It’s an affront to many. But in the U.S. for example, the question will be how to work within the framework of our constitutional rights in order to achieve something that could ensure our collective health? Legal scholars and the courts will be in debate for years to come.
Conclusions:
There are challenges and obstacles to everything I have described above. Does a golden age of “mutual thriving” mean ubiquitous surveillance and runaway technology? Can companies still perform and grow if collaboration is seen as more important than competition? Can we truly achieve a phase-shift given a deeply rooted economic system that currently only rewards performance? Can we really put nature on the balance sheet and get it federally mandated?
I recognize that there is much utopian thinking here. However, I believe that we will be faced with a stark choice as we grind through the pandemic and attempt to bolster the economy… and ask ourselves who do we want to be? My fingers and toes are crossed that we answer that question in a way that not only impacts the way we vote, but how we rewire our massive and complex systems for resilience and planetary health.
At Undercurrent we see an emergence of the new Capitalism, one that looks many generations ahead, where nature and society are essential stakeholders. As we say, “if you’re worrying about the next quarter, you’re gonna have a bad century.”
Special thanks to Hunter Lovins for her valuable input and edits.
