2016/07/27 08:35 John Fullerton, “Reimagining Capitalism: Transitioning to a Regenerative Economy”, ISSS 2016 Boulder

Plenary @ISSSMeeting John Fullerton @CapInstitute, Keynote #isss2016USA, 60th Annual Meeting of the International Society for the Systems Sciences and 1st Policy Congress of ISSS, Boulder, Colorado, USA

Day 3 theme:  Cultural, Ethical, and Economic Wisdom

Plenary V: Making Sense in Economics, Ethics, and Policy

  • Description: We need to examine the foundation of our global economic system that assumes unlimited growth in a finite world, to consider the paradigms of regenerative capital, steady-state economics, and innovation. This means considering no-growth and negative-growth models, and perhaps shifting our concept of growth from quantity to quality, from extraction to investment in natural and human capital.

Chair: Mila Popovitch, University of Colorado, Boulder

This digest was created in real-time during the meeting, based on the speaker’s presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted by David Ing.

Presentation by John Fullerton, Capital Institute


[John Fullerton]

John Fullerton, Wednesday plenary

Recovering banker

  • Worked for JP Morgan almost 20 years, left in 2001
  • JP Morgan name still exists, but the company doesn’t

Not understanding the money system

  • Learning journey, discovering systems science

2010, founded the Capital Institute

  • Exploring and effecting the transformation of economics, through the transformation of finance
  • Eisenhower:  whenever you find a problem you can’t deal with, you need to find a bigger problem

Tribute to Kenneth Boulding:  They, economics and evolution, are both exxamples of a larger process, which has been at work in this part of the universe for a very long time

  • We got stuck with neoliberalism

Daughter is a student here

  • Leaerning from Allen at Sayberry Institute, wholistic land management
  • Expanding from grasslands to global
  • Mom is a 1951 graduate

Finance has wrought problems in the world, issues not well understood

  • Understood failed ethics and morals
  • If every banker was a boy scout (girl scout), the systemic flaws would still exist, and we would be hurdling off a cliff
  • Scams and illegalities are a distraction from the bigger issues
  • Shareholder value, internal rate of return are non-values
  • Value at risk, short-term
  • Speculating and investment as the same thing (not)
  • Finance and banking, with the essential role in economy to provide credit — have an ideology for market to do it
  • Ideological overshoot means we’re on financial overshoot:  premised on continuous exponential growth at its core
  • Finite forever, then have a major repricing with impacts
  • Superfiduciaries, insurance companies, acting in a reductive way, but role in world should be on the path to an economy we need
  • Institutionalization of the commons, commons not factored in
  • GDP growth, as scale of the economy is consumption + government spending + exports, limits to growth ==> limit to investment, so we have put a constraint:  who gets to invest in what?
  • We’re lost in economics and finance, we need to get back to principles

Smuts:  holistic thinking

The Economist Anthropocene 2011

Shift to integral era from modern era

Pope Paul V, in inquisition against Galileo:  earth not the centre of the universe

Pope Alan, Church of Economcs, reign 198702006

  • Symptomatic of a belief
  • Liberals and conservatives have versions
  • Financial crisis
  • The whole intellectual edifice (of how banks manage risk) collapse last summer

New pope gets it:  Pope Francis

  • Encyclical Letter Laudata Si:  We urgently need a humanism
  • At Notre Dame, disappointed at how few priests have read the encyclical

Wrote book:  Regenerative Capitalism

  • Mostly a synthesis of learning, may not have many new ideas in it
  • Other books on generative systems

Pause to be clear about theory

  • Albert Einstein:  We love to build models, but when we run the world on a model that is flawed, we need to rethink
  • Economics is root cause of social issues
  • Finance drives economics
  • If no new economics and finance, will be dealing with the symptoms, not root causes

Organized complexity

  • Finance based on physics
  • Financiers understand non-linear, and build models
  • Governance assumes normal distributions
  • Benoit Mandelbrot:  the very heart of finance is fractal, “The (Mis)Behavior of Markets”
  • Fractal patterns describe everything in the universe

Examples of holistic thinking

  • Eastern healthcare versus western disease care
  • Economies of scope vs. economies of scale
  • Regenerative value networks (Lovins) vs. supply chains

John Fullerton, From Degenerative To Regenerative Design

Bill Reed, from degenerative design to regenerative design

  • Need to understand regenerative, if we’re going to shift the economy to sustainable path

8 principles of a regenerative economy (which is reductive, as really can’t reduce to just 8 principles)

1. In right relationship:  Bateson would put up hand, what do you see?  Four relationships between the fingers?

  • Corporations, short-term, activities beyond income statement
  • Most people understand the relationship between a customer and the company is important, as is employees and management
  • Yet capital markets have intermediated management and markets
  • Severed relationship between owners and companies
  • Not like private companies
  • Shareholders, but no owners with ownership responsibility
  • Sustainable finance is important with transparency, but need to reconnect those who are responsible; otherwise dealing with symptoms
  • Need to change the way companies are own
  • Then different conversation with fiduciaries

John Fullerton, Health Systems Balance Multiple Variables

Relationship between finance, economy and planet is wrong (upside down)

  • Adjust for risk-adjusted return on capital
  • Markets, then people as labour and land as resources
  • Need to think finance embedded in economy
  • Need to get clear about tiers, dealing with root causes

In balance (from Bob Ulanowixz, Sally Goerner 2013)

  • Systems that are resilient for a long time, don’t optimize efficiency, they balance multiple variables

Storytelling from theory into practice

  • The Field Guide to Investing in a Regenerative Economy

Savory network:

  • Two fields, can see which is better
  • Need to get clear about the whole under management:  watersheds
  • Global economy is an abstraction, need to get to place-based wholes under management
  • Focus on mayors and cities, rather than companies

Work on metrics

  • Abstraction, until we get to measures
  • Mutualism, symbiosis between parts:  real investment permits win-win; financial speculation is a win-lose relationship, therefore violates regenerative systems, should be taxed

Richard Tarnes:  First Copernicans … intuition ran in advance of theoretical and empirical work

After leaving JP Morgan, on subway, guy said “They just flew a plane on the World Trade Center”

  • Took a long time to get home
  • Looked at children, couldn’t tell them about the world that they would live in

Now, great work, to build economics and finance based on holistic thinking