Capitalism has never been static, and it continues to develop. It has evolved through the Industrial Revolution, been shaped by Hayek, Keynes and Milton Friedman, and weathered the Lehman Brothers collapse. Now the excesses of economic inequality and atmospheric carbon are provoking a backlash that could lead us into a more equitable, conscious capitalism than we have been used to.
John Fullerton, a disillusioned former Wall Street banker and founder of the Capital Institute, calls the new conscious capitalism "regenerative." He recently unveiled his Regenerative Capitalism framework at an event hosted by Yale University's Center for Business & the Environment.
"Regenerative Capitalism" is an economic system that acknowledges that the market we have now is not a beautifully self-correcting free market, but a market that is manipulated by the most powerful forces. And it is a capitalism that states that just as the goods and services we take from each other are not free, the value we extract from nature (water, land, fossil fuels and so on) comes with a cost.
Fullerton's Regenerative Capitalism, therefore, corrects injustices in the economic landscape and charges for the use of natural capital, by taking into account not just shareholders but all stakeholders, such as the community and the planet.
This is already happening incrementally. Corporations are under regulatory and reputational pressure to introduce sustainability, effectively catering to all stakeholders and moving the needle forward on environmental, social and governance issues.
I recently spotted a quote in an article that startled me: a spokeswoman for a large pharmaceutical company, asked about unjustified price increases on life-saving drugs, said the company's main duty "is to our shareholders and to maximize" product value. "Sometimes pricing comes into it, sometimes volume comes into it," she said.
It's not long before that kind of talk from corporations will provoke enough social media activism that it will simply stop. Companies perceived to be focusing on shareholders or executives' bonuses at the expense of consumers, local communities, forests, human rights, ecosystems, or taxpayers will be punished, directly and soundly, for their greed.
In his 120-page Regenerative Capitalism paper, Fullerton maps out the shift we need to make from today's capitalism to tomorrow's. He includes cases of holistic approaches to improve value for all stakeholders, which take into account the complexities of the systems we live in. In Chicago, for example, a new generation of tech leaders is being trained at an inner city school as part of a partnership among government, organized labor, educators, the private sector, and civil society to create an advanced manufacturing renaissance in the city.
The premise is that today's version of capitalism, by focusing only on short-term profits, has created severe problems that must be addressed. Fullerton includes a chart, borrowed from the Equality Trust of the UK, demonstrating that countries with the greatest inequality also have the worst statistics on life expectancy, math and literacy, infant mortality, homicides, imprisonment, teenage births, trust, obesity, mental illness including drug and alcohol addiction, and social mobility. Income inequality in the US used to be balanced by a healthy amount of social mobility, but in recent years has increased dramatically while social mobility declined--in fact, the US stands out on the chart as the country with the greatest income inequality and the worst problems.
These problems don't just represent a moral indictment of our society; they are financially costly. If we want to solve any of them we can't just treat the symptoms, we must attack the causes. And that can only happen by thinking holistically about entire systems.
Probably the most thorny issue in Fullerton's transition to Regenerative Capitalism is economic growth. We have all been raised to think more is better, and everything we do economically is measured in comparison with what came before. But of course we know that just as money doesn't buy happiness, GDP growth doesn't buy happiness; many other indicators of well-being exist. We are also aware of demographics the population explosion and the pressure our growth-at-any-cost focus has put on our ecosystem.
There are those calling for a return to nature, away from the technology and "progress" that have brought us where we are today. I personally am a big fan of technological innovation, but I believe we can put technology to good uses or bad. This is why we absolutely need to apply holistic, systems thinking to all our processes.
Positive innovation-led growth, for me, means bringing people in the developing world out of poverty and disease. It means poor people cooking their food with non-toxic, renewable energy and being able to sell their crops for a decent wage. It means new arrivals to America may once again dream the American dream. Like technology, GDP growth can be good and bad. For example, economic growth can help introduce efficiencies that augment environmental well-being.
But just as we need to get away from too heavy a focus on short term profits, we also need to move away from our addiction to economic growth just for the sake of itself. We should focus on community, stakeholders, the environment, and working together holistically. Together we can bring in a better, more regenerative capitalism for future generations.