Author: John Fullerton
“There is nothing more difficult to plan, nor more dangerous to manage, than the creation of a new system. For the creator has the enmity of all who would profit by the preservation of the old system and merely lukewarm defenders in those who would gain by the new one.”
— Niccolo Machiavelli
Einstein once said, “It is the theory which decides what we can observe.” i
I believe this assertion holds both truth and great wisdom. Its macro importance is trivial when the world operates according to a theory that fits the context of the times. Its importance becomes paramount when the world is running on a theory that no longer fits the realities at hand. NOW is such a time.
The so-called “practical people” who dismiss theory as being “academic” (by which they mean unimportant) have missed this critical distinction. We are in trouble now precisely because such “practical people” run the world today. As a result, we are literally flying blind. And the consequential turbulence – the complex and interconnected political, social, economic, financial, and ecological crises swirling around us – is accelerating.
Now I’m a practical person by training, a former Wall Street banker. But I have been obsessed for over a decade now with the many fundamental incongruities and paradoxes that inhabit our modern, highly reductionist, finance-driven, economic ideology (of both the left and the right). The list is long: the exponential function at the heart of finance-driven economic growth on a finite planet; the shareholder-value principle taught at most leading business schools and driving most corporate decision-making; the discount rate that discounts the value of a hospitable planet for our children whom we love more than life; Modern Portfolio Theory that is the basis for most investment allocation decisions, and Value at Risk as the guiding metric of financial risk, despite the well-understood limitations of both and their track records of failure. And the one that got me started down this path: how to reconcile the invisible hand with the Golden Rule.
My obsession with these incongruities led to the creation of Capital Institute. Since our founding in 2010 we have been collaborating on this journey with a determined and growing network of fellow explorers, including the courageous pioneers who have been on the case for decades. Our work has culminated in the theory that informs “Regenerative Capitalism: How Universal Principles and Patterns Will Shape Our New Economy,” ii and our forthcoming Regenerative Finance white paper due out later this year. This theory is more rediscovery, synthesis, and extension than it is genuinely original insight. But rest assured, this theory has also been experienced first hand in working models on the ground both through my own direct investment practice and then via our story telling initiative, The Field Guide to Investing in a Regenerative Economy.iii Not only theory informing practice, but practice informing theory.
My premise is that the history of economic thought did not end with Keynes and Hayek, or Minsky and Friedman, leaving us nothing to do but shout our ideological beliefs across the public square. I believe this early stage of understanding regenerative economies is the natural next step in the evolution of economic thinking, bringing economics into alignment with our latest scientific understanding of how the universe actually works, building upon the profound advances of ecological economics as developed by Herman Daly and colleagues. The potential and structure of regenerative systems applies to both ecological and humanistic values; it is not simply a “green” idea. We already see expressions of regenerative efforts emerging all around us, although they are often invisible to those observers still trapped in the outdated reductionist paradigm. Until now, this transition has been hampered by the lack of an effective story.