Globalism’s associated and accelerating complexity of interconnected crises from migration to terrorism, from pandemics to climate change, define the new context of our 21st-century reality. Unmanaged technological change and an outdated economic ideology compound the already unfair burden these crises impose on global citizens. One need only consider the 18 percent approval rating of the United States Congress, the recent U.S. election, the EU/Euro fiasco, Syria, Israel, Egypt, Turkey (and more) to question whether the Nation State, a 400-year-old response to a different challenge in a different context, is up to the task.
Ideological rather than pragmatic, a political abstraction that has no grounding in the concrete reality of where and how we live and how life-supporting ecosystems function, the Nation State, together with its political party structure, is not well equipped for today’s most important globally interdependent challenges that cannot be solved through inter-State rivalries where self-interest and might rule the day.
The “City State” predates the Nation State; it endures. Rome is older than Italy, Alexandria is older than Egypt. Cities are expanding as we know. They are already home to more than half the world’s population, and 80% in the developed economies. They are home to 85% of the global economy (and associated greenhouse gas emissions) and much of the evolution of our culture. Like it or not, we have become an increasingly urban species. Visionaries like Jonathan Rose are showing the way to regenerative cities with his timely publication of A Well-Tempered City. At the same time, rural culture, small towns, and life-sustaining rural landscapes, historically understood as essential extensions of the City State, have never been more vital, as I will discuss below.
Cities are also where many of the world’s great challenges must be met. The migration crisis and terrorism are urban affairs. Since most cities are on coastlines or rivers, climate change will increasingly dominate the agenda of cities. And cities will be the target of a nuclear attack if dangerous men go unrestrained. Wise and competent city governance is a matter of life and death, not political theater among self-important globalist and nationalist bureaucrats.
In response to the governance failures of the global system of Nation States, political theorist Benjamin Barber wrote an important book in 2013 called, If Mayors Ruled the World: Dysfunctional Nations, Rising Cities. The Global Parliament of Mayors (GPM), which he inspired, held its inaugural meeting in The Hague, two months before rural America elected Donald Trump against the wishes of a strong democratic majority of citizens living in America’s cities.
Mayors must be pragmatists first. Ineptitude, ignorance, and ideology give way to the concreteness of real problems of real people living in real communities. New York Mayor Fiorello La Guardia once famously said, “There is no Democratic or Republican way of fixing a sewer.” So too for dealing with rising sea levels or, God forbid, a nuclear attack.
When our centralized governing bodies fail to uphold their responsibilities, a power vacuum ensues, creating an opening for dangerous “strongman” responses, as we are now witnessing in the U.S and abroad. Our present moment is particularly dangerous, with the simultaneous failure of other critical and powerful institutions – banking and the media in particular – to uphold their civil responsibilities and serve the health of the whole rather than their narrow self-interests.
Banking’s consequential leadership failures are now a matter for the history books. But the media’s complex leadership failures are still unfolding, perhaps best epitomized by CBS CEO Leslie Moonves’ shamefully cynical comment at a Morgan Stanley analyst conference earlier this year:
“It may not be good for America, but it’s damn good for CBS,” he said of the election circus. “Sorry. It’s a terrible thing to say. But, bring it on, Donald. Keep going.”
Well, the young crowd at Morgan Stanley chuckled, “Donald kept going,” and we have elected a man to the highest office in the land who numerous respected psychologists believe has a (dangerous to the world) incurable mental illness known as “Narcissistic Personality Disorder.”
Not so funny, is it, Mr. Moonves? Enjoy your good quarterly profits. Just as the reckless behavior of Wall Street was not funny, its ongoing consequences leading directly to the rise in authoritarian movements across the globe are not funny.
A core principle of sustainable systems is that a system must adapt to its changing context or it will collapse. The current context of accelerating, unpredictable (by definition) complexity and too powerful, dysfunctional critical institutions – Nation States, banking and finance, and the media, together providing much of the essential fabric of our modern democratic and free society – creates the pressure for real change and the very real prospect of possible collapse.
Our response most certainly lies in the concept of subsidiarity, one of four tenets of Catholic social doctrine, balancing power away from the center and closer to where the inclusive and democratic will of the people is still expressed: the modern City State. Rise up Mayors! And, rise up regional banks and community newspapers!
Looked at through a regenerative systems lens, this is a return to the natural “fractal” ordering of things, demanding an emergent network of City States to counterbalance the corrupted power at the center. Indeed, such a response is already underway with the numerous networks of city-based initiatives such as the prescient GMP, the C-40 focused on climate change, UN-Habitat, the Strong Cities Network, and numerous “Smart Cities” initiatives.
Rural communities, too, have a vital role to play. In addition to preserving the ageless wisdom embedded in the diversity of rural cultures and communities, they have the critical responsibility to steward our essential landscapes – our forests, our soils, our watersheds, all under threat from our short-sighted, extractive, industrial economy. Critically, the regenerative management of forestry and agriculture, with the potential to massively increase natural carbon sequestration, now holds perhaps the missing critical dimension of our ability to respond in time to climate change. Therefore, City States have a self-interest in valuing and supporting the culture of land stewardship, the very foundation of human civilization and still very much alive in rural communities. No soil, no water, no life.
We are passing from the 500-year-old Modern Era in which great progress including the Nation State emerged in response to pressures from a different context. We are entering the “Integral Era,” in response to new pressures and a new context. Power is shifting from corrupted institutions of an extractive and overly powerful center to a regenerative and more distributed network of interconnected City States.
Happy New Era!
Imagine if you can, Donald Trump has arrived as a gift, to illuminate for us the American “shadow” at this pivotal moment in history. The Swiss Psychiatrist C.G. Jung refers to “the shadow” as the dark side of one’s self. The shadow, Jung wrote in 1963, “is that hidden, repressed, for the most part inferior and guilt-laden” aspect of our personality hiding out in the unconscious. Failure to recognize our shadow leaves us exposed to the destructive possession by our disowned shadow.
Are we prepared to see the message of the shadow, illuminating our ongoing collective cultural flaws—more prevalent and tolerated than we would like to admit—from narcissism and misogyny to racism and bigotry? Are we prepared to face the fact that our extractive neoliberal economic ideology has utterly failed us, including trade policies that Trump has shined a light on? Will we now address the lost dignity and fear among a majority of hard-working Americans while wealth soars among a small percentage of Americans to grotesque levels? Do we finally acknowledge the corruption of the special-interest-owned polity controlled by the donor and ruling classes who operate under different rules from the rest of us? The shadow points to lost trust in our institutions for good reason, from government to Wall Street to big business to mainstream media. Do we now see that wealth and winning at all cost is not success, that we lack urgency in dealing with the crisis in American education, or in our mental health crisis? (Yes, Trump appears mentally unstable.) Finally, and perhaps most dangerous in the long run, the shadow points to our lack of moral responsibility to deal with climate change with an urgency that is far beyond anything Obama has proposed.
Trump is of course a dangerous conman. The opportunist wants to “make America great again,” invoking a sense of loss among the vulnerable and cruelly seducing with false promises. But more deeply, is this call to recover our greatness not the shadow pointing to our inflated pride in the idea of American Exceptionalism? Is it not time we honor the greater and higher ideals America was founded upon – life, liberty, and the pursuit of happiness – and the timeless and universal values of humility, grace, gratitude, and loving membership within the beautiful and diverse humanity we share with one another, and with all life itself?
A prescient article on the collapse of American Oligarchy, written by Capital Institute’s Science Advisor Dr. Sally Goerner in April, is well worth a revisit on this new “morning in America.” And her timely analysis of the psychological underpinnings of Trump when he won the Republican nomination has now become essential reading if we are to understand why “this neo-fascist upsurge is a classic consequence of the breakdown of the bonds of love, strength, and intelligence that hold a society together and why rebuilding these bonds is critical to our survival.”
It’s been a slippery slope to our current predicament in my adult lifetime. I experienced this slide first hand on Wall Street beginning in the early 1980s, where our terminal, finance-driven neoliberal ideology first manifested, and then metastasized throughout society. So blame me. Turns out we were more clever than smart.
On one level, waking up on 11-9 felt worse than when I experienced 9-11 first hand. I have had very difficult conversations with my children, one of whom had to field questions from her second graders about whether “grandma would be deported.” It’s all incomprehensible, terrifying, and as my daughter said, it’s an embarrassment.
The “great change” we must usher in was not happening before. It was not going to happen under Hillary Clinton. The mere fact that the Clintons have amassed a $200mm fortune since the former President left office, without creating any economic enterprise, is beyond unseemly. With hindsight, it was a mistake of the Democratic Party to allow her to run, despite her unmatched experience and the appeal of the first woman to reach the White House. The self-important Party hacks were simply “not serious” about the real systemic change that awaits, and which is required. And that decision now has very real consequences. They could be catastrophic. Or maybe not? The stock market recovered quickly, predictions are a fool’s errand when the future is truly unknowable. Maybe this is just the jolt we need to seriously begin to question who we are as a nation…what values we stand for… And what responsibility the elite – in politics, business and finance, and in the media – has to the health of the greater whole.
Will we devolve into a second civil war? Will we destroy our last chance to deal with climate change responsibly? It’s unknowable today.
Or perhaps we will usher in a positive 21st century American Revolution and inspire the world again. Such a revolution will be built on a new story to replace the growth-at-all-costs, extreme neoliberalism that we have most certainly outgrown, and is in conflict with our understanding of how complex systems behave. This new story of the Integral Age entails a fundamental and profound shift to holistic thinking across all domains, with dynamic networks replacing failed command and control institutions. It demands clarifying means and ends in our economics and aligning them with the universal principles that define all other systems that survive over time, and the emergence of a regenerative society that is most certainly underway. Not overseen by Trump of course, but in the opportunity he will afford us, difficult as it is, to stare at our shadow over the coming four years, a mere blip in the course of history.
It was exciting to be in Paris during the COP talks on Climate. There was an unprecedented united movement of scientists, civil society, progressive business leaders, investors, and activists representing social and ecological interests from around the world, all demanding our political leaders put the common good ahead of national interests and actually lead. Soon we will know the results.
Even the best-case outcome in Paris will be insufficient, that much is clear. And the hard work of implementing the voluntary pledges on the ground lies ahead. Canada, under new leadership, deserves praiseworthy attention for its 180-degree turn to the right side of history. Saudi Arabia deserves global scorn for its continued disingenuous interference with progress. America did its part, but of course could always do more. Yet Congress awaits…
The course for the next five years has been charted. Action is rightly now the operative word. But a second line of inquiry continues to simmer below the headline grabbing pledges and initiatives, like Bill Gates’s $1 billion leadership commitment (1.25 percent of his net worth, it must be said) on the Breakthrough Energy Coalition that will invest in clean energy innovation. Of course innovation is essential. But genuine solutions that address root causes are far more complex. For starters, our short-term obsessed financial system needs its own reinvention to effectively serve this unprecedented challenge.
That second line of inquiry is at the heart of Pope Francis’s courageous, wise, and now controversial Encyclical, Laudato Si’, calling for an “integral ecology.”
Four hundred years ago, the leading Enlightenment thinker Galileo Galilei was sentenced to house arrest by the Roman Inquisition under the auspices of Pope Paul V for his belief in Copernicus’s heliocentric view of the universe. The idea that the Sun and not the Earth was at the center of the Universe was heretical, and seen as a direct challenge to scripture and the authority of the Church. The injunction ordered Galileo:
“to abstain completely from teaching or defending this doctrine and opinion or from discussing it… to abandon completely… the opinion that the sun stands still at the center of the world and the earth moves, and henceforth not to hold, teach, or defend it in any way whatever, either orally or in writing.”
Today it is the Pope himself being challenged as a heretic of sorts. He is a heretic to those who subscribe to the conventional, reductionist belief system that sees science as separate from spirituality, and religion as separate from politics and economics. At the core of this contemporary belief system is what Berkeley Ecological Economist Richard Norgaard calls “the Church of Economism,” which has “reshaped the diverse cultures of the world and come to function as a modern secular religion.” This is the “religion” of free market, neo-liberal economics as the arbiter of all questions of the day, as advocated by politicians on the left and the right, by business and financial elites, and even by many environmental advocates. Anyone who challenges this faith, including the Pope himself, had better be prepared for scorn and ridicule, the modern-day equivalent of house arrest.
How far we have come since the birth of the Enlightenment! While the irony is rich, the dangers are great. It’s time for a new enlightenment, grounded in a holistic worldview which understands that everything affects everything, and problems cannot be managed within the expert disciplines that currently define our institutions. The Pope’s Encyclical asserts: “It cannot be emphasized enough, that everything is interconnected.”
Modern science in each of its disciplines understands this to be true: quantum physics for example and the web of life in biology. So too the core religious beliefs, Eastern and Western, express this central idea of interconnectedness, often expressed simply as oneness. Similarly our indigenous wisdom traditions promote the idea of the “unity” and the interconnectedness of all life. Yet in the “house of economism,” and particularly in finance, we insist on breaking down complexity to its component parts so we can better manage them, leaving us with ignorant and dangerous concepts such as “shareholder value.” But in doing so, we lose sight of the interconnected whole as the financial crisis made all to clear.
This reality is central to the Pope’s important message. But unlike so many who challenge the modern “church of economism” with the ideology of resistance, be they champions of social justice or champions of the environment, Pope Francis points to a wiser path. He counsels that the genuine systemic solutions lie instead in our embracing “integral” thinking and decision-making: retaining what’s great about the modern system while addressing head-on its deficiencies and transcending our differences.
“We urgently need a humanism capable of bringing together the different fields of knowledge, including economics, in the service of a more integral and integrating vision.”
A recent study funded by NASA, using a cross-disciplinary “Human and Nature DYnamical” (HANDY) model, found that two crucial and contemporary (interconnected) crises—”the stretching of resources due to the strain placed on the ecological carrying capacity” (climate change is a prime example); and “the economic stratification of society into Elites [rich] and Masses [poor]”— have played “a central role in the character or in the process of the collapse” of civilizations in all such cases over “the last five thousand years.”
The bottom line: The stakes could not be higher: if we don’t change course, we are facing the potential collapse of civilization. Climate change is a symptom of a system-design flaw. So too is the grotesque inequality within wealthy countries and among nations. So too even is the scourge of terrorism. While we move to urgent action post the Paris COP as we must, transforming our energy system in particular, we must at the same time heed the message of the Pope and invest in the search for genuinely integral solutions.
 The Inquisition’s injunction against Galileo, 1616
 Laudato Si’, paragraph 138
 Laudato Si’, paragraph 141
Proximity amplifies the terror. And the fear. I learned that on 9-11.
I agonize as I mourn those lost in Paris, and mourn for their families, their friends and colleagues. I am saddened to consider the now indelible line between what came before and what comes after that horrific evening of Friday the 13th. A fresh scar seared into our collective psyche. They say one man’s terrorism is another man’s war of independence. I’m not so sure.
Proximity – and, let’s acknowledge, a shared culture – also amplifies the solidarity. The crowd gathered in front of the Brandenburg Gate in Berlin Saturday evening, with that iconic symbol of freedom aglow in the red white and blue stripes of the French flag, communicated that unique solidarity among the Germans and the French. Berlin felt very close to Paris that night as I walked the streets. And the same colors lit up the French Embassy in Copenhagen on Sunday night, a serene setting filled with candles and flowers I happened across on my way to dinner. Again, very moving. It was a privilege and a comfort merely to be present, notwithstanding the visible Uzis serving as a reminder that barbarism has consequences.
Paris of course is the location for the upcoming 21st session of the Congress of the Parties to negotiate a comprehensive climate change treaty. Millions if not billions who represent humanity’s best impulses are united and determined to see our leaders find a way to put aside parochial interests and to achieve quantum progress – essential but of course on its own insufficient. The hour is recklessly late.
While the thousands of us from business and civil society who have planned to participate in the multitude of side meetings await direction from officials in Paris, our work must carry on with heightened urgency, unbowed in the face of terror.
No single initiative or even comprehensive treaty will win the real struggle addressing root causes: the struggle to transform our economic system to one that is just and operates within planetary boundaries. We are already transforming – albeit far too slowly – in direct response to the literally millions of initiatives all working in harmony toward the “Common Good.”
Economic transition is underway directly in response to the pressures – social, economic, and ecological. That’s the way all systems evolve. Events in Paris serve to heighten that pressure. We need to arrest the cancer that manifested in Paris last Friday of course. Above my pay grade, but history holds important lessons for our leaders. More importantly, if we keep our heads clear we can also determine its root cause and deal with it wisely and forthrightly.
This is where the work of systems design comes in. Our work at Capital Institute is part of a larger movement as evidenced by the recently launched Next System Project. In the human body, cancers result from the failure of our immune system to cleanse ever-present toxins. True health means investing in and healing our immune system, even if we need to sever a threatening tumor in the short run.
To a large degree, the many societal cancers multiplying around us are interconnected, often in ways we fail to understand, and are the result, directly or indirectly, of flawed political economy system design. Severe poverty and hopelessness affecting nearly half the human race in the face of grotesque inequality within the developed world, financial market crashes, and climate change are leading to health and social crises previously unimaginable. In talking about Syria last summer, Thomas Friedman linked climate change to terrorism, and the struggle over limited natural resources. He wrote:
Its revolution was preceded by the worst four-year drought in the country’s modern history, driving nearly a million farmers and herders off the land, into the cities where the government of Bashar al-Assad completely failed to help them, fueling the revolution.
System design work is urgent now because eventually we will lose our ability to cope with the individual cancers as their interconnected causes and impacts overwhelm us. Economics and finance are at the heart of this design work.
In the context of planning and managing the complexity of war in the face of cascading interconnected crises, the great Army General Dwight D. Eisenhower was once asked, “What do you do when you find a problem you can’t solve?” His answer, “Make the problem bigger.”
Eisenhower was a holistic thinker. To manage complexity, we must shed our reductionist thinking and learn to connect dots that our specialists are bound to miss. This new science-based thinking is the heart of the complex system design challenge confronting us today. We need to think like Eisenhower, as well as American Philosopher and Systems Theorist Buckminster Fuller, and the great Business Strategist W. Edwards Deming.
Paris is a horrific tragedy. Beyond the direct impacts on innocent lives, I hate how it affects the lives and outlooks of so many Millennials who intuitively “get” and are manifesting the transition underway – the great promise of evolutionary progress. Our generation’s failures of wise and responsible servant leadership have so unjustly robbed the next generation of the gift of youthful innocence and bliss. Their road will be harder as a result. But this burden will no doubt imbue their purpose with greater meaning and urgency.
Paris must be used to summon the courage, individually and collectively, to identify and address head-on root causes, systemic causes, no matter how uncomfortable. Even though we do not all agree – this is very hard – we and many others have well developed ideas on this. It’s the system design, stupid!
Paris means we work harder and smarter. Most importantly, Paris means we must learn how to work more collaboratively, empowering broad participation, united in common cause, to upgrade the operating system of economics and finance to align it with the unprecedented and challenging context of the 21st century.
Managing this complexity is the GREAT WORK of our age. Nothing can change that, not Paris, not the tough challenges that remain ahead.
We were very encouraged to hear Bank of England Governor Mark Carney address the financial market stabilization risk of “stranded assets,” the risk that if we are to avoid 2 degree warming, we will need to leave up to 80 percent of proved oil, gas, and coal reserves in the ground, echoing the important message that has been promoted tirelessly by our friends at the Carbon Tracker initiative. (Read Carney’s full speech here)
Capital Institute’s 2011 post, “Our $20 Trillion Big Choice” addressed this issue not just as a financial market stabilization issue. Approximately three quarters of these fossil reserves are owned and controlled by national oil companies. Exxon and BP are relative bit players in this game. The REAL risk and challenge is perhaps the largest geopolitical one ever to face the modern world. Rapid drops in solar costs, and other technical revolutions could render much of these fossil fuels obsolete, resolving the problem, although with profound ramifications for fossil- fuel-dependent economies and their societies, with spillover affects throughout the world. More likely, a comprehensive and highly complex international policy regime will be required far beyond what is currently even contemplated with voluntary “pledges” by nation states negotiating from the perspective of their national interests.
Great progress this week. The hard work lies ahead.
Returning to China for the first time in a quarter century this month was equally awe inspiring and terrifying. The observation deck of the truly gorgeous Shanghai World Financial Center is breathtaking, a fitting testament to China’s rise. But it was the unexpected sense that we might be experiencing history at DeTao Group’s summit in Shanghai, “Future New Economy: Sustainable Model Toward an Ecological Economy,” that left an indelible mark on me.
I had the honor to address the DeTao Group summit on the topic of regenerative investing in natural capital. Inspired by the vision and leadership of DeTao Chairman George Lee, it was an extraordinary experience. The warm hospitality and genuine appreciation and respect extended to all the visiting “experts” was quite exceptional. As George told me, “in Chinese culture, we honor our teachers.”
The context of the summit was of course China’s unprecedented quarter century boom that has seen China emerge the second largest economy in the world, lifted two hundred million people out of poverty (so I’m told), and created middle class lives for many and immense wealth for more than a few. But this newfound wealth and power has come at a significant cost.
China is now the world’s largest carbon emitter, the result of the west’s outsourcing manufacturing production to a location where environmental standards are lower, and cheap, plentiful coal is the power source of choice. I’m told that eighty percent of the population has no access to clean water, and virtually all of the productive soil is toxic. The now infamous air pollution is making people sick and reducing life expectancies. The environmental crisis is not a special interest issue; it is omnipresent.
It was quite significant, therefore, when the 18th National Congress of the Communist Party wrote the construction of an “Ecological Civilization” into the Constitution in 2012, requiring a shift away from the industrial civilization modern China had become. Of course in an authoritarian State with single party rule, a change like this gets translated directly into policy, albeit slowly and unevenly. Note how clear China’s President Xi is with respect to the real source of wealth:
“We value both natural landscape and resource as well as material wealth. The former overrides and promises the latter.” – Chinese President Xi Jinping
I can’t pretend to know how serious China’s leaders are with respect to their stated goal of achieving an “ecological civilization,” and one certainly can’t help but notice the irony when looking at the pollution belching out of smoke stacks as you travel to and from the airport. But I was impressed with what I saw at this summit. Here are a few highlights:
- The conference highlighted the work being led by ecological economist Dr. Robert Costanza in Sanya City (“the Miami of China”) to create the first natural capital balance sheet for one of the world’s major municipal governments. In his speech, Sanya City Vice Mayor Li Baiqing stated that “it is difficult for an entire society to think in a different paradigm,” and “this [management of natural capital] project is our destiny.”
- Mr. Long Yongtu, who negotiated China’s entrance into the World Trade Organization and is now Secretary General of the Boao Forum for Asia, gave a remarkably honest assessment, stating that, “China is at a crossroads. After thirty years of development, people are getting wealthier but are not feeling happier.”
- And Chairman George Lee closed the conference with a notable speech, calling for a “new economic system” in which investing in natural capital will be the doorway to the new economy. He has a vision for private capital working in collaboration with the public sector, enhancing the efficiency and speed of capital deployment for the shared benefits of healthy ecosystems, and the pathway to a “green mountain” to complement the “gold mountain” that has been built.
Now of course the devil is in the details. (For more on that, see my thought piece Limits to Investment.) Unleashing huge surpluses of investment capital in the name of “natural capital investment” can do as much damage as good, and much more is needed than unlocking investment capital. Indeed, Long Yongtu himself cautioned that investment had become “the bad guy” but felt it didn’t need to be. I understood what he meant when I peered from atop the Shanghai World Financial Center across endless nondescript concrete blocks of apartment buildings that stretch as far as the eye can see.
But what struck me most as I listened to the presentations and even more in the private conversations was that I was experiencing history in the making. Unlike so many conferences in the West where there is a lot of talk, and then everyone knows little will change, in Shanghai, I felt the tide shifting under our feet. I felt that a force was being unleashed, that began, no doubt, with the amendment to the constitution in 2012, in response to profound ecological and human crises.
Authoritarian leadership, like it or not, has pointed to a spot on a distant horizon and set change in motion. Five-year plans were affected, and transitioning the economic system will require an ability to plan (take note, America!). Reward systems have been adjusted. Experts are called in for their ideas. Old paradigms that brought great success in the past are put on the table and critiqued in light of the new context. No ideological debate casts a shadow, only debate about how to engineer solutions. We may not like all the answers (200 nuclear power plants are in the pipeline). No doubt there will be ups and downs, and likely crisis. Success is far from certain.
Yet powerful mainstream Chinese interests appeared interested to learn, not defend. Successful and practical business leaders like George Lee, now a practicing Buddhist, have taken up the reins and are initiating action. The mayor of a major city is establishing a natural capital balance sheet and will begin monitoring its rise or fall as “destiny.” Others will follow. We all signed a bold joint declaration, despite an imperfect translation. The media was present in full force doing interviews and reporting on the substance of the event. History was unfolding.
Notes to self: It’s in our collective interest that they get this right. Remember the name George Lee.
The Trans-Pacific Partnership, a potentially historic trade agreement being aggressively pursued by the Obama administration, represents a cornerstone in its strategic pivot to Asia. If ratified by all 12 Pacific Rim countries currently engaged in the negotiations, it would create the largest free-trade zone in the world, accounting for some 40% of global GDP and a third of global trade.
President Obama’s trade representative (and Harvard Law classmate) Michael Froman is aligned with pro-free-trade ideologues on both sides of the aisle and much of the Republican-controlled Congress in his desire to “fast-track” the partnership. This would reduce Congress’ role to an up-or-down vote on the pact without the possibility of amendments or even debate on the floor.
What few seem to realize is that this agreement, if approved as is, could make it virtually impossible for the United States to meet its current and future climate pledges – including those made in its historic climate accord with China last month – without exposing the nation to unprecedented legal and financial risks.
How about a “not-so-fast” track instead?
Trade agreements are largely negotiated behind closed doors, and this one is no exception. While very limited information about its terms have been shared with the public, the media or policymakers so far, it’s concerning – though unsurprising – that some 600 corporate trade advisers, with names like Halliburton and Caterpillar, are listed on leaked drafts published by WikiLeaks earlier this month.
Based on those drafts, we also know that the draft agreement includes a provision for what’s called “investor-state dispute settlement.”
This little-known mechanism was initially created to protect corporate investments in countries where the rule of law is immature or at risk. In reality, it often empowers corporations to sue sovereign nations over any policies that conflict with their supposed right to the profits of free trade – including health and environmental policies designed to serve the democratically determined public interest.
If that sounds far-fetched, one need look no further than the Lone Pine Resources Inc v The Government of Canada lawsuit, filed in 2013, which arose out of Quebec’s moratorium on hydraulic fracking. Lone Pine claims that the moratorium is “in violation of Canada’s obligations under Chapter 11 of the Nafta”. The case is under arbitration.
Or consider Phillip Morris’ multibillion-dollar lawsuit against the Australian government over cigarette-packaging regulation, which uses an investor-state-dispute-settlement clause established in a 1993 free-trade agreement between Australia and Hong Kong.
These corporate-friendly provisions in trade agreements can and have been used on far-ranging issues, from minimum wage laws in Egypt to environmental remediation in developing countries. The troubling, explosive growth of such cases point to a litigious future where corporate interests increasingly appear to trump national sovereignty with billions of dollars at stake.
That’s not to say that those business interests aren’t legitimate. Trade can only flourish where the rule of law cannot be compromised by capricious actions of sovereign states when the political winds shift.
Global trade is a complex subject where economics and geopolitics converge. When managed thoughtfully, expanded markets for producers and enhanced choice for consumers on each side are achievable, but not inevitable, as some free-trade ideologues would like us to believe.
Unfortunately, as Nobel laureate Joseph Stiglitz explains in Globalization and Its Discontents, powerful corporations have been the primary beneficiaries of global trade, often at the expense of society at large and the environment.
US secretary of state John Kerry appears to live in an airplane shuttling from crisis to crisis. He may have missed the legal and financial quagmire risk the Trans-Pacific Partnership poses to his hard-won vital progress towards a comprehensive climate treaty, intended to be signed in Paris next year, which would put stringent carbon emission restrictions in place.
To avoid unintended policy conflict, here are some scenarios Kerry should urgently discuss with US trade representative Froman:
- The US may need to impose sharply escalating mileage standards on automobiles and trucks that all but make combustion engines a relic of history. Would the trade agreement – with the settlement provision – give Toyota and other companies the legal standing to claim that such mileage standards breach their right to sell gas-powered cars in the US?
- The US may decide to place an outright prohibition on dirty tar sands oil being used in any US refinery. In that case, would the trade agreement enable Suncor or other Canadian tar sands operators to sue the US government for unfair trade practices?
- The stranded-asset issue is perhaps the largest geopolitical challenge of all time. I’m referring to our need, according to the International Energy Agency, to leave the majority of existing fossil fuel reserves “stranded” or unburned if we are to avoid catastrophic consequences from climate change. I call the decision our “$20tn Big Choice.” How might this and other trade agreements compromise our ability to tackle this unprecedented challenge?
Can Americans fully appreciate the irony that our president and many parts of the Republican-controlled Congress appear finally to agree on one thing: fast-tracking the Trans-Pacific Partnership with no open debate on its threat to our sovereignty and to our democracy?
Against these threats, it would seem that the only clear beneficiaries of this ideologically driven brand of “free trade” are the corporate influencers with an inside seat at the table, and the Harvard lawyers that craft them.
Doesn’t sound “free” to me.
Henrik O. Madsen joined Norway’s DNV, the world’s leading ship and offshore classification company, in 1982. Thirty-two years later, as Group CEO of the recently merged DNV GL, now a Euro 2.5 billion global enterprise, Henrik made a speech few CEOs will ever have the opportunity to attempt.
He chose not to waste the opportunity when he addressed a crowd of 4,000 guests gathered in Oslo last June to celebrate the company’s 150th anniversary. The “V” in DNV, after all, stands for “Veritas,” which translates from the Latin to “truth.” Without a doubt, Henrik spoke it on that day, as I suspect he always does.
In addition to moving reflections on the culture that has endured through a century and a half in business, he boldly articulated the profound challenges and opportunities ahead, and reminded the audience that “unlimited growth on a limited planet is a physical impossibility.” He went on to describe DNV GL’s commitment to sustainability, both for the organization itself and for its 80,000 customers around the world. It takes uncommon courage to discuss limits to growth of material and energy use when your largest client industry groups include shipping, and oil and gas.
In a press interview following the anniversary event and a two-day roundtable on sustainability that I was privileged to participate in, Henrik repeated his mantra, “you can’t have unlimited growth on a limited planet,” to the entire Norwegian business and political community. He and his colleagues went on to criticize the State-owned oil company Statoil for their decision to invest in the environmentally destructive and carbon-intensive Canadian Tar Sands. Statoil is DNV GL’s largest client.
During the two-day roundtable, we assessed and critiqued the concept of a “Regenerative Economy,” grounded in an understanding that living systems that survive are by their very nature regenerative. We agreed that as a living system, the human economy must itself operate regeneratively to be truly sustainable. It was a vision, we concluded, for an honest conceptual framework to describe how economies must work on Henrik’s “limited planet” if humanity is to change course and is not to destroy its own nest.
DNV GL’s intuitive commitment to Regenerative Economy thinking is well grounded in its own culture and business practices. In a very real sense, like the many projects described in Capital Institute’s Field Guide to Investing in a Regenerative Economy, DNV GL is already living the principles described in the conceptual framework. It is showing that not only is it possible, it’s already very real, if only we had the economic framing to better describe it. As Einstein famously said, “it is theory that determines what we can observe.”
There is probably no such thing as a truly regenerative global company today, but DNV GL is one of the few large global corporations that demonstrates many of the key regenerative qualities that together lead to long-term prosperity. It is undoubtedly no coincidence that DNV GL just celebrated its 150th anniversary.
What is particularly interesting about DNV GL in the context of sustainability is its ownership structure. Never a public company with absentee so-called “owners” placing short-term capital market demands on company decision-making, DNV was owned by a foundation until its merger with GL in 2013. It now has a minority partner, the German family that owned GL for decades. This means the owners are in deep relationship with the company (and now with each other), and assume the responsibilities and long-term stewardship that goes with such a genuine ownership relationship.
This stewardship has been defined by an unwavering commitment to a clear purpose: “safeguarding life, property, and the environment,” and core values (integrity, non-hierarchical, open communication) that drive its business throughout the world.
The second foundational element of DNV GL’s stewardship is its commitment to invest an impressive five percent of its revenues in long-term research. This investment is not limited to product research directly linked to near-term revenues. It includes, for example, the cost of convening a series of multi-day roundtables on deep, long-run sustainability challenges with a group of leading thinkers from around the world. DNV GL’s goal is to grow smarter and wiser, in order to better position itself as a leader for the new opportunities that the world will offer in the future.
DNV GL’s ownership commitment to purpose and values, and its commitment to research is also quite profound from a living systems perspective, and therefore a key to DNV GL’s “regenerativeness.” As living systems thinker, Jane Jacobs once said, “it’s not how big you grow, but how you grow big.”
Systems scientist Sally Goerner teaches us that living systems can only grow sustainably through increasing their structural intricacy and through continuous reinvestment in learning. A cell divides into multiple, more differentiated cells (becoming more intricate) rather than simply growing into a larger cell lacking the necessary infrastructure to support itself. And as Darwin taught us, living systems are continuously learning and adapting qualities best-suited to long-term survival.
DNV GL is able to sustainably “grow bigger” by honoring these same principles. For example it builds the intricacy of its own management structure by remaining non-hierarchical despite its global reach. It insists on, and measures, the continuous and relentless communication of its values and encourages open discussion about the tensions where those values may be hard to translate into other cultures around the world, or conflict with short-term business objectives. And its commitment to reinvest profits in long-term research (rather than have that value extracted by short-term “financial engineers”) to ensure the organization is in continuous learning mode demonstrates in part what it means to be a regenerative organization. Spending a few days with the people at DNV GL convinced me these values are authentic. Capital Institute will illuminate the full DNV GL regenerative story in an upcoming Field Guide.
Is Henrik the type of business leader for whom we are desperately searching as we face the daunting challenges of the transition to a truly sustainable economy? Is his team at DNV GL able to compete in the global marketplace while stewarding these seemingly utopian, but I would call, regenerative principles?
One hundred and fifty years of experience suggests that the answer is a resounding “yes.”
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