Future of Finance

  • Judith Samuelson: Professor Lynn Stout, A Legacy

    April 22nd, 2018 by ewalsh


    The following excerpt was written by The Aspen Institute’s Judith Samuelson in memory of Lynn Stout, Distinguished Professor of Corporate Business Law at Cornell Law School. Click below to read Judith’s full piece.

    “It’s all a question of story. We are in trouble just now because we do not have a good story. We are in between stories. The Old Story—the account of how the world came to be and how we fit into it—is not functioning properly, and we have not learned the New Story.” ~ Thomas Berry

    Working alongside teacher and legal scholar Lynn Stout was like accessing a source of power with unlimited, rechargeable energy. Her passion for delving into complex problems was contagious. Her work ethic was legion. And she put these qualities towards some of the most important questions of our age – why do corporations exist? What should they aim to do? And if we want to enlist companies to tackle societal problems of significance, what are the key principles of law, business and finance that need to be “disrupted” to embrace a new reality?

    How do we move from the Old Story to a New Story—to enroll business as an agent of public benefit?

    Click here to continue to read Judith Samuelson’s full piece.

  • The Character of Our Technology

    January 31st, 2018 by ewalsh


    “We can’t influence the direction of technology, but we can influence its character,” says Kevin Kelly, founder of WIRED, in a recent interview with Krista Tippett. 

    A quarter-century ago, financial derivatives technology, enabled by the emergent technology of distributed computing, was about to transform finance and global capital markets forever.  The rise of derivatives technology made profound contributions to the global economy, from a revolution in genuine risk management for banks, businesses, and governments, to mass efficiencies that resulted from linking global capital markets which reduce the cost of capital for productive investment.  The technology also, in part, enabled and most certainly exacerbated the financial crash of 2008, with extreme adverse consequences still pulsing through the real economy—consequences that have destabilized the democratic liberal order of the Western world. 

    During the formative years of derivatives technology, we on Wall Street argued earnestly that responsible self-regulation of derivatives would enable innovation to unlock the potential efficiencies and resulting economic prosperity that was the promise.  Undue government regulation, no matter how well-meaning and thoughtfully crafted, would impede innovation that this technology made inevitable.  Furthermore, there would be unintended consequences “worse than the disease.” We were wrong.

    It turns out that the character of Wall Street, reflecting on the insight Kevin Kelly shared in his Krista Tippett interview, was not up to the challenge.  Derivatives were hijacked by reckless speculators, manipulators, and, in certain cases, outright fraudsters.  Derivatives, as a result, is now a dirty word.

    Far more than financial derivatives, social media brings the promise of immense social welfare through previously unimagined connectivity and the network effect, which makes each social platform exponentially more valuable as more people and organizations join it.  Like derivatives in the early years, social media as a technology is largely unregulated, this is in part because would-be regulators struggle to understand it, much less keep up with its rapid evolution, and its many uses and abuses. Will social media become the derivatives of tomorrow? 

    The unintended social consequences of this technology on our children in a world dominated by intentionally addictive social media are daunting enough.  Recent evidence that the technology has spurred an underground of millions of fake accounts—used fraudulently by many (including the Russians to undermine our democracy, it now seems clear)—is chilling.  The “LIBOR scandal” is trivial in comparison. 

    And we are now facing a future of artificial intelligence that some believe will fundamentally change what it means to be human.  What to do?

    Kelly guides us to focus on the character of our technologies.   He uses the example of the Amish, generally (mis)understood to reject modern technology – they ride in horse-drawn buggies rather than cars for example.

    Kelly explains that the Amish make technology choices as a community, in contrast to the personal choices most of us in the West make when considering whether to adopt a technology or not.   For the Amish, their culture rests firmly on two values: family and community.  So when considering a new technology, they assess (through trial by early adapters) whether the new technology will strengthen the family, and, whether it will strengthen the community.  Their decision to stick with horses, Kelly explains, means travel is limited to the fifteen-mile range of a horse.  This ensures that both social connection and commerce is concentrated within the local community, strengthening it in the process.  Of course, this value system comes with costs, but the Amish know what they value and are equally clear to ensure the character of the technologies they chose to support their values.

    If there is one value that America remains united around, even in these divisive times, it is democracy.  Like the Amish, we would be wise to be clear on what values we hold dear, and make our technology choices accordingly. 

    In the rapidly evolving context of technological advance, there is truth to the argument that unintended consequences of regulation can be worse than the disease.  But if we have learned nothing else in the past quarter-century, we should now understand that ideologically based calls for free markets, free speech, and freedom to carry guns are insufficient.  Reality is more complex.  Rules and regulations (or lack thereof) are all choices we have no way to avoid.

    Equally impossible to avoid is technology’s exponentially growing impact on our lives, and even our humanity.  As such, it has never been more essential to get clear on the character of technology we want.  And for that we must be willing to make hard choices, just like the Amish do, grounded in the fierce defense of the values we hold dear.

    Democracy demands, at the very least, fair elections not compromised by either foreign powers, hostile or otherwise, or ideologically driven billionaires, no matter their views. Last election, social media enabled manipulation—if not compromise—by both.

    If our values were truly grounded in a fierce defense of a fair democratic process of governance, we the people, through our elected leaders,  would, among other things, deliver Facebook and Twitter a blunt message, recognizing full well the consequences of such a choice: 

    Trying harder is not good enough.  Either prove you can protect your networks during elections from fraudulent and malicious bots, whether homegrown or from foreign hostile powers, or we will have no choice but to shut you down for the three months prior to our national elections.

    If a similarly harsh message were delivered to Wall Street and taken seriously regarding the abuse of derivatives to exacerbate the consequences of fraudulent lending, and the existence of fraudulent lending at all, the 2008 crash would not have happened.  The stakes with social media and artificial intelligence in the future are far more profound. 

    Will society and Silicon Valley, learn from the derivatives technology experience?  If not, “social media” and “artificial intelligence” are destined to become dirty words as well.  And society may not recover.

  • Tax Reform: A Real Cohn Job

    December 13th, 2017 by ewalsh

    Chief Economic Advisor to the President Gary Cohn (pictured left) alongside fellow Goldman alumn Steve Mnuchin, U.S. Secretary of the Treasury. Photo courtesy The Washington Times.


    It seems that Gary Cohn, a trader and former heir apparent at Goldman Sachs—a life-long Democrat, let’s recall—and Trump’s current chief economic advisor, is heading for an early exit. 

    After whiffing on his near-decision to resign on principle when Trump equated the neo-Nazis in Charlottesville with the demonstrators resisting the torch march, he naturally fell out of favor with Trump when he later aired his opinion on Charlottesville with The Financial Times.  Bye-bye, Fed Chairmanship.  He reportedly decided to stay on the job out of “duty to country,” which he is manifesting by pushing the charade called “tax reform” — a brazen power grab by the powerful, and a direct assault on his middle-class childhood friends from Ohio where he grew up.

    I have never met Cohn.  I’ve heard he’s a decent man, tough, and a shrewd trader with a quick mind and a short attention span.  But I do know the trader culture that can subsume “decent men” on Wall Street, where everything—a deal, a job, a house, even a marriage in some cases—gets reduced to and commodified as a “trade”.  Values and sentiments like home rather than house, purpose rather than job, meaning rather than winning, and integrity rather than success are sneered at as “weak”.  Money is the measure.  Exceptions exist, of course, but this trader culture is pervasive on Wall Street. 

    Let’s imagine Cohn reflects such a trader culture (safe bet) and analyze his decision to trade Goldman Sachs for gold man Trump.  A decade ago next year, trader Cohn was trembling in his boots, worried that his entire Goldman Sachs equity, undoubtedly the vast majority of his net worth (recall money is the measure), was at risk of going down the same rat hole that Lehman collapsed into. Tough guy Cohn played a central role in architecting the “big short,” a hedge for Goldman’s mortgage morass that many, including the SEC, would call brazen fraud.  It mirrored the infamous Abacus trade, the architecture of which I called financial evil.  With help from the Fed, the “hedge” saved Goldman at the expense of their reputation and clients.  Whatever it takes.

    Fast forward to Donald Trump’s election.  Our man Cohn senses an opportunity for a trade.  His net worth had recovered along with Goldman Sachs’ stock price (Thank you, Mr. Obama) to “between $250 and $600 million” according to his financial disclosure form.  There he was, worth let’s call it half a billion; the number two at Goldman; and locked in the shadow of his mentor CEO Lloyd Blankfein with no indication from the board he would succeed to the throne.

    If he retired, he would walk away from his unvested stock grants, likely tens of millions (handcuffs are indeed golden at Goldman).  If he then sells his Goldman stock (reported to be $285 million when he left Goldman) to prudently diversify his assets, he pays a large capital gains tax on cheap stock he and other partners helped themselves to around the time of the financial crisis in lieu of cash bonuses, likely additional tens of millions.  Feels like a loser.  So he hatches a trade. 

    He offers his services (and reputation) to the new rogue president hungry for credibility in his cabinet.  In Trump’s eyes, Cohn is a “winner” (he’s rich), and his Goldman bona fides buttress his B team administration.  Never mind that he is an active Democrat, and represents the Wall Street interests Trump ran against. 

    But here’s the key.  If Cohn leaves the private sector to take a cabinet-level job in the Administration, he is required to sell all his Goldman stock (conveniently at the high – good trade) to avoid the appearance of conflicts of interest.  In exchange for his “public service,” the IRS allows him a one-time free pass (deferral) on the liquidation of all that stock and other investments, including his private partnership investments with unrealized capital gains.  To Cohn, he’s been “paid” unknowable tens of millions (in taxes foregone) for a year of going to meetings and standing next to Trump (literally and metaphorically) when he spews narcissism, lies, mouths off his racist and bigoted rants, and disgraces our nation in the eyes of the world.  And the cherry on top: Goldman vests Cohn’s unvested prior stock bonuses as a parting bro hug, likely worth tens of millions more.  No one needs to tell Goldman the importance of having friends in high places.

    But there’s more.  Cohn doesn’t seem to do anything commensurate with his duties as chief economic advisor (he’s a trader, not an economist—big difference) during his year in Washington from what we have seen beyond defending the negligent, grotesquely irresponsible, and blue state-targeted, dynastic wealth-enhancing tax deal, a deal that flies in the face of Cohn’s prior Democratic sensibilities.  He embarrasses himself by suggesting corporate tax cuts will unleash laughable growth rates, and a round of hiring and pay raises by corporate America, an idea that the CEOs in the audience deny (and that makes no economic sense).  And what really matters to dynastic wealth (forget the 1 percent, we are talking about extreme fortunes of hundreds of millions like Cohn’s and billions like others in the administration), is the elimination of the Estate Tax, which could easily be worth another $100 million to Cohn’s family by the time he passes to that great trading desk in the sky. 

    So let’s see how our man Cohn is doing now.  As a thought experiment, let’s assume for this simple analysis that he diversified his $500mm investment portfolio (tax free) into a broadly diversified stock index fund.  The market is up 18% this year, significantly on the promise of lower corporate tax rates (ask our Treasury Secretary who said as much).  Let’s assume 10% of the rise is attributable to the corporate tax cut, and another 10% increase will accrue as the tax cut becomes more certain.  On his $500 million portfolio, that’s another $100 million in Cohn’s pocket, never to be taxed if he passes the stash on to his family without an estate tax since he can now indefinitely defer those capital gains as a gift for his “public service.”

    Several of my neighbors’ kids (and thousands of others’) risked their lives by joining the Marines following 9-11 and did several tours of duty over many prime years of their lives.  It was in response to a genuine call for duty to country.  It was not a trade; it was service. 

    In stark contrast, for a year of “public service,” our shameless Cohn makes off with well more than $100 million (after tax, thank you).  The trade does have a cost most would not afford: selling one’s soul to a corrupt, inept, and dangerous regime.  The seemingly well-intended (but integrity-dependent) tax break to attract our so-called best and brightest to public service has been exploited for personal gain under the gloss of “public service.”  It’s a con. It’s gross.

    Money is the measure.  Abuse of power by scoundrels of all stripes knows no limits (#allofustoo).  Corruption is bringing down the Republic.  And the band plays on.

  • Fix (Don’t Flush) the Estate Tax

    October 31st, 2017 by ewalsh


    “The external glitter of wealth conceals a corrupt political core that reflects the growing gap between the very few rich and the very many poor.” – Mark Twain, The Gilded Age: A Tale of Today (1873)

     

    The Estate Tax, or a tax on wealth passed onto heirs, is not unique to America, but many OECD countries have no such tax. Only Japan, South Korea, and France have statutory estate tax rates higher than the US rate of 40%, but in America, the first $11mm is exempt for couples. By definition, only the truly wealthy pay the wealth tax, although loopholes abound.

    Enacted in 1916 in response to the excesses of the first Gilded Age and a search for revenues, the Estate Tax is on the chopping block in this second Gilded Age. Strangely, it’s getting less attention than the other components of the “tax plan” like a reduction in the corporate tax rate, apparently because it doesn’t raise much money (as if $20 billion is not much money). Defenders of the plan either (falsely) suggest it breaks up family farms and small business, or more cynically, they maintain that “anyone smart enough to amass a large fortune is smart enough to avoid paying it anyway.” That’s the spirit!

    Yet there is probably no aspect of the U.S. tax code more aligned with the values that the Founding Fathers risked their lives for than the law taxing inherited wealth. After all, what the American Revolution was all about was emancipation from the corrupted power of the King and a general, well-considered aversion to Old World aristocratic rule.

    Aristokratia (rule by the best) was originally conceived by the Greeks as a system where the best and brightest — the elite — would rule in the interest of society as a whole. But too often in the real world, aristokratia devolved into tyrannical plutocracy, both in Greece and later with the Roman Empire (followed by centuries of the Dark Ages I must add). Rather than wealth recirculating in a way that served the common good, it became increasingly concentrated within an elite class through marriage and policymaking, further enriching that class and ensuring its hold on power. The pattern has repeated itself throughout history, with disastrous consequences for the rich and the poor alike.

    America was to be an experiment in something different, breaking from the European aristocratic tradition. America was “conceived in Liberty” (specifically liberty from the English Monarchy and from aristocracy more generally), and from that conception grew a unique entrepreneurial and opportunistic culture of discovery and personal fulfillment previously unseen in the Old World. America would go on to lead the world and become the envy of many nations. Some (dangerously) even believed it was America’s God-given “manifest destiny” to spread a system of liberty (by whatever means necessary) based on democratic self-governance (in sharp relief to the Old World’s aristocracies).

    America also has a great philanthropic tradition that is aligned with this experiment and directly opposed to the extreme consolidation of dynastic wealth and power. Andrew Carnegie, perhaps the father of American Philanthropy wrote in his Gospel of Wealth that “the amassing of wealth is one of the worst species of idolatry.” His position on the “duty of the man of Wealth” is clear:

    First, to set an example of modest, unostentatious living . . . and to provide moderately for the legitimate wants of those dependent upon him; after doing so to consider all surplus revenues which come to him simply as trust funds, which he is called upon . . . and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community…

    Carnegie’s Gospel of Wealth is not perfect and needs an update for the modern context of complexity. But even this “robber baron” of the first Gilded Age – and certainly Mark Twain and our Founding Fathers – would be rolling in their graves if they knew an American-billionaire-narcissist president (with the advice of two former Goldman Sachs partners in his cabinet and politicians corrupted by big-money donors) was trying to ram through a tax plan that eliminates, rather than fixes, the Estate Tax.

    It’s easy to rebut the critics of the Estate Tax. It is a tax triggered by death. So what. Would you prefer it be a wealth tax imposed annually? And it’s not double taxation on the creation of real wealth, rather it is largely a tax on hitherto untaxed unrealized gains—looking at you Jeff Bezos and Walton family. Let’s have a healthy debate on what level the exclusion should be. $1 million or $10 million? One can make the case for an even higher level. But the right number for a healthy civilization is not $1billion, much less no limit at the amount that the next Paris Hilton is born into. It turns out that some people need a little nudge to help them join the Giving Pledge, and the Estate Tax provides such an incentive. The question on the table is not whether the current tax collects enough revenue to be worth the effort. Rather, the question is: do we want to moderate the extreme wealth inequality in America’s second Gilded Age or exacerbate it further?

    I’ve not read anywhere that the Founding Fathers believed in the freedom to amass ever larger concentrations of wealth and to create family dynasties. That’s not the “freedom” the founding fathers sought to protect. Given the long run stakes, it is terrifying to me how little intelligent debate on this topic is even taking place, with all the daily distractions, many around other forms of abuse of power.

    Several years ago, my science colleague Dr. Sally Goerner observed that we are facing two immense challenges at this moment in history: The first is to transition to a new era; what many are calling the Integral Era. It requires us to transcend the mechanistic worldview on which the Scientific Revolution was grounded, and to embrace an integral or holistic understanding of how the world works, consistent with the universal principles and patterns of modern complexity science. This mirrors the necessary transition humanity made from the Medieval era to the Modern Era some four hundred years ago. It will be a monumental undertaking, certain to be filled with chaos and resistance from those in power.

    But the second challenge is one humanity has experimented with and temporarily mastered but never succeeded at over the long term. That is how to organize and maintain a healthy hierarchy that provides the necessary coherence any complex society requires, while at the same time ensuring that those in positions of power act in such a way that serves, not merely their own self-interests, but the health of the whole system, or what we call the Common Good. Recirculating this wealth, either voluntarily or through taxation is fundamental to a healthy metabolism, as we know from the study of all regenerative systems. It’s not ideological.

    When in the history of this great nation have we witnessed, to such a degree, the soul- and civilization-destroying consequences of corruption and the sheer predatory abuse of power as we are experiencing at this moment in time?

     

  • Dear Cities: Resist Amazon’s HQ2

    September 30th, 2017 by ewalsh


    There is something untoward about the feeding frenzy we are witnessing as cities across the country vie to be the site of Amazon’s second headquarters (“HQ2”). Amazon, after all, is the poster child for driving, first, independent booksellers and then retailers out of business, hollowing out communities across America. It is considered a meat grinder for white-collar workers who churn through the place at a rapid clip in search of their piece of the gold, and equally well-known for treating its warehouse workers like draft animals. It is also a notorious if not clever tax avoider.  Just the kind of company you want to build your economic development strategy around, right? Yet cities are drooling over the opportunity to bribe the company with tax giveaways and other subsidies in a sickening and dumb race to the bottom in which citizens are the losers, and powerful companies (and their executives) only grow more powerful.

    Reports suggest that Amazon will invest $5 billion and create 50,000 jobs over a ten-year period (with little common sense scrutiny), mostly in support areas like finance and accounting. We should be glad Amazon is searching in the US, and not in India, I suppose, since no doubt cost is a driving factor for the (barely) profitable Amazon. If we take founder and CEO Jeff Bezos at his word on Amazon’s “plans” (I view them as chum in the water to create a feeding frenzy), this would provide one of the largest single job creation and real estate development stimulus impacts since Disney moved into the Orlando area in the late 1960s. If the plans materialize (big if, see below), they will transform whatever city is chosen, for better (perhaps) and for worse.

    Of course, mayors and real estate developers are huddled in their “war rooms” to rashly cobble together their proposals under an absurd (and thus telling) time limit. Mayors rightly care about jobs, and real estate developers know all too well the formula for this once in a lifetime bonanza. These are the times when it can be very lonely trying to articulate a more regenerative approach to economic development. One might say “tilting at windmills,” but here goes.

    First of all, it is stunning to consider the scale of this enterprise today, before contemplating its growth plans. Amazon occupies over 8 million square feet in downtown Seattle, more than the next 42 Seattle enterprises combined. Citibank, the second largest corporate headquarters in a major US city, occupies only 2.7 million square feet by comparison, representing a tiny fraction of the concentration in much larger New York City. Reports suggest Amazon intends to expand another 50% in Seattle to 12 million square feet, in addition to the HQ2 project.

    Scale matters. If something goes wrong at Amazon, it will send a crippling shockwave across Seattle (Boeing was barely a ripple in comparison) and wherever HQ2 ends up. No city, no matter how appealing in the short term, should want to have its future rest in the hands of one company, as many “company towns” have learned over the ages. Detroit, one of the cities that has assembled a war room to pursue the opportunity, has suffered precisely because it built its city around one industry. The science of living systems reveals that systems that sustain themselves over time nurture diversity and the resiliency that goes with it, and seek a balance in favor of many complementary small and mid-sized organisms over one dominant one (even if benevolent, which Amazon most certainly is not).

    As a brilliant and searing recent report released by the Institute for Local Self-Reliance points out, Amazon, valued at $450 billion, captures one in every two dollars Americans spend online, thanks in large part to the irresistible genius of Amazon Prime (I admit to being a member). Half of all online shopping searches start directly on Amazon, not on Google or individual retailers’ websites. Think about it. This would make even the railroad barons of earlier days blush.

    Cities must think long term, and anyone who doesn’t consider a major anti-trust risk for Amazon that could materially undo its growth plans, even in our corrupt current political environment, is not thinking clearly. In fact, there is already rising bi-partisan clamor rightly agitating around the power of the mega tech platform companies, beginning with Amazon.

    Furthermore, despite its hegemonic reach, Amazon’s core retail e-commerce business still basically loses money on a global basis. Its razor-thin US operating margins are offset by losses overseas. Never in the history of business has a company managed to grow to many tens of billions in sales without making a profit. What keeps the juggernaut not only afloat, but soaring? Three things.

    First, founder Jeff Bezos is not only very smart and visionary, he is a master salesman. Like no one before him on such a scale, he has managed to get the stock market to buy into his world dominance dream, built on a fierce commitment to customer convenience and satisfaction (a critical vice of our consumerist society and thus a brilliant cover for a monopolist). Second (and related), the highly speculative stock market has enabled Bezos to pull off a stock bubble feat while the dotcom crash is still visible in the backs of our minds. And third, that same visionary foresight combined with an insider’s view on emerging technology trends allowed Amazon to leap ahead of slower stalwarts like Microsoft and IBM to grab a leading position in the highly profitable and scalable cloud computing sector, providing the much needed and just-in-time earnings boost to keep Amazon flying high. The result is the fourth largest company in the US, thanks to an absurd price earnings multiple of 243. The three largest American companies, Apple, Google, and Microsoft have price earnings ratios of 17, 27, and 28 respectively. Amazon could be overvalued by nearly ten times compared to its closest peers!

    Thoughtful observers will notice the precariousness of all three vital legs of Amazon’s shaky stool. There is significant key man risk, and Jeff Bezos—love him or hate him—is one of the greatest entrepreneurs of our day, so not easy to replace. There is always technology risk in the technology industry (ask IBM and Microsoft, not to mention Dell and HP) and probably no better time for valuations of cloud computing businesses than right now (nowhere to go but down). There is stock price correction risk of at least 50 percent or perhaps much more for Amazon, which could be triggered by an Amazon-specific event such as an anti-trust backlash, or some blockchain innovation that disrupts all powerful platforms at once – here’s hoping. Finally, there is the strong possibility of a general market reversal that many (including me) think is only a question of time given the Fed’s artificial manipulation of capital markets post financial crisis. Remember, the higher you climb, the harder you fall. There is perhaps no company more exposed than Amazon.

    Boom. Bust. We know the story. All the best-laid plans for H2Q go up in smoke if Amazon’s stock crashes back to earth. And a localized real estate crash wherever HQ2 ends up will no doubt ensue, causing severe fiscal shock to that city, unable to capture the promised prosperity they will have paid dearly for.

    A regenerative city builds from the inside out. It values healthy trusting relationships and a diversified business mix—not just sectoral but of small, mid-size and larger enterprises. It invests in its infrastructure as a way to attract good companies at the appropriate scale, rather than participate in a zero-sum race to the bottom for the dubious prize of a single mega-corporation with a reputation.

    Mayors of America, lead!  Don’t be divided and conquered, which is Amazon’s real plan.  You dictate the terms for an Amazon welcome mat and the line beyond which you walk away.

    “It’s not how big you grow, but how you grow big.” — Jane Jacobs

  • From Paris to Drawdown

    June 7th, 2017 by ewalsh


     

    Yes, it was a shameful poke in the world’s eye by the dangerously narcissistic, temporary occupant of the White House.

    Like other unconscionable and unfathomable acts of the early 21st century—a period of historic great change already—Trump’s pulling out of the Paris Climate Agreement has sent me searching for the deeper meaning of it all, while the pundits flail away.  

    The attack on the World Trade Center, an iconic symbol of globalization if there ever was one, triggered for me a period of introspection and a personal existential crisis as it opened up a possible dark side of my previously unquestioned Wall Street-influenced worldview.  Then the financial crisis drove a stake in the heart of our failed neoliberal economics and finance ideology, leaving in its wake profound and still unanswered questions.  Brexit shined a light on the flawed architecture and economic assumptions underlying the European Union, while Trump’s unimaginable election should force America’s self-anointed elites, in particular, to face their own shadow.

    Is there not a deeper message being offered up to us as we undergo the shock therapy that is the Trump phenomenon, with his extraordinary ignorance, egotism, and moral ineptitude, most recently evidenced by his unconscionable withdrawal from Paris?  It’s worth our reflection: Trump as cosmic messenger, the wake-up call we deserve.

    Consider the reality. The Paris Agreement is not an enforceable treaty with binding emissions limits.  Nor is it even an adequate statement of intention, since even if all signatories live up to their promises, the best scientific projections suggest we will not stay below the intended 2-degree warming ceiling.  And, we know we actually need to stay below 1.5 degrees warming, a radically different proposition.  Finally, nothing in the Agreement addresses the existential threat it poses to all Petro States since the math implies that 80% of existing fossil fuel reserves, the lifeblood of these societies, must remain in the ground, demanding unprecedented economic transitions requiring a new development paradigm, and that it will that take decades of investment and hard work.  See Venezuela for a preview of the challenges to come.

    Russia is such a Petro-State.  Hmm…Calling Jared?

    So perhaps the first deeper message we need to hear, disguised below Trump’s disgraceful act is: “The Paris Agreement amounts to little more than appeasement; get serious, people.”  

    So far, the initial response within the United States and globally is actually quite hopeful.  States led by California, cities led by Pittsburgh, and a vast cross-section of the business community have been emboldened to show the world (and ourselves) that the “current occupant” does not get to decide for its people on a matter of such grave importance.  “We’re still in!”  Perhaps the sleeping bear – we, the people – has finally been poked?

    Second, one primary reason the Agreement was not a binding treaty is that all participants understood that Obama could never deliver the dysfunctional U.S. Congress.  So the deeper message we must confront is that many of the leading global institutions of governance, from the United Nations to the United States, to the European Union, are all incapable of addressing the urgent and interconnected global governance crises of the 21st century.  Where are the serious plans to address this reality, while at the same time reacting to the unending crises of the day?

    Third, despite decades of scientific analysis and diplomacy around climate change, we are still working off a horribly inadequate playbook that reduces the complex challenge of restoring balance to the earth’s carbon cycle to simply a call by nations to “cut fossil fuel emissions” by some seemingly random, politically negotiated amount based on what each nation was willing to commit to, that collectively is grossly inadequate to the task at hand.

    Just in time, Paul Hawken and colleagues have recently published Drawdown. The name calls out the real goal we must embrace: “drawdown” of the concentration of greenhouse gasses in the atmosphere, rather than the insufficient objective of reducing emissions.  We are at 402 PPM today and need to get below 350 in the face of a growing population and rising standards of living for the majority of humanity.  That’s the task.  It demands an integrated, multi-dimensional, rigorous plan.  Drawdown provides the analytical foundation for such a plan, documenting the 100 top viable solutions using available technology, and conservative assumptions about their realistic scale-up rates and economics over a thirty-year period between 2020 and 2050.  

    Good news:  the math says we can do this!  It identifies 1000 Giga Tons reduction in atmospheric CO2 (or equivalent), and requires collectively a highly diversified investment of $30 trillion over thirty years, generating economic savings (in the aggregate) of two and half times that amount, on top of avoiding the worst-case consequences of climate change.  To be clear, this represents a profound and unprecedented shift in the allocation of resources from business as usual.  That’s the deal.

    The results from the Drawdown analysis are not what most will expect.  First of all, the single largest solution is not solar or wind.  It’s refrigerant management.  HFCs, the “solution” to the ozone layer problem of the past, turns out to have somewhere between 1,000 and 9,000 times the greenhouse effect of CO2.  We must simply swap out the AC, which will have nine times the impact of converting to electric vehicles (only number 26 on the Drawdown list).  Who will be the Elon Musk of AC?

    Perhaps more revealing is the combined impact of family planning and educating women, which, when looked at together, would move to the top, exceeding onshore and offshore wind combined.  Population is often a taboo subject.  But an extra billion people all desiring to live a middle-class lifestyle makes a massive difference, so we need to be able to talk about it as part of a comprehensive plan.

    And perhaps most hopeful, the report rightly turns our attention to the amazing natural “technology” we take for granted: photosynthesis, the basis of all life on this planet.  Drawdown demands we focus on the massive carbon sinks where carbon is safely stored, in addition to reducing emissions.  Remarkably, few realize that our soils are the second largest carbon sink after the oceans, comparable to the world’s forests.  Small, achievable percentage changes in the stock of carbon held in our soils, through profitable regenerative agriculture hold massive potential for drawdown, without even factoring in all the ancillary benefits to human health and, therefore, our healthcare crisis, water retention, desertification, and species loss.  The role of regenerative agriculture and land use of all varieties, from no-till crop farming to holistic grazing accounts for fifteen of the top twenty-five drawdown solutions.

    So the message we need to hear underlying Trump’s Paris fiasco:  The current occupant will be judged by history; but so will we:  wake-up call.  The U.S Congress and the Trump enablers in his Administration have a chance to restore their integrity, but no one is depending on it.  National leadership on climate has long been outside the U.S. federal government and that’s OK, but it’s a lost opportunity.  U.S. states, cities, the U.S. military, and the private sector are already mobilized and that will now only accelerate.  

    We must shift our attention from grand diplomatic gestures by institutions of governance designed for a different time to a rigorous, empowering plan where there is no silver bullet but unlimited and empowering opportunities where the real leaders are already defining our future.  Those leaders are us.

    The goal is simple: drawdown.  It’s no easy feat, and time is not on our side.  Let’s roll, people.

  • March for Science — Really?

    May 2nd, 2017 by ewalsh

     


     

    How is it possible that in America, on the 47th anniversary of Earth Day, it was concluded that our situation was so dire that what was needed was not just a march for aggressive climate policies, but rather a “March for Science” itself?  

    Small-minded, corrupt, and power hungry state governors banning the mere use of the phrase “climate change” in official communications seemed laughable at the time.  But now the ignorant and dangerous Trump regime has signaled double-digit cuts to scientific research, including climate science, after appointing a climate-denier to head the Environmental Protection Agency.

    One cannot help but notice history repeating itself.  A mere 401 years ago, an Inquisition under the direction of Pope Paul V issued a Special Injunction against Galileo instructing him 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.”

    In 1616, Pope Paul and his minions’ concerns were quite clear:  the heliocentric worldview “explicitly contradicted” the literal interpretation of the Holy Scripture. The “alternative facts” of an earth-centered universe were the very foundation of the Pope’s power over the Western world. Consequently, the unquestioned power of the Church would be undermined if the heliocentric view were to be accepted as fact.  

    Fast forward to the present day.  Like all things Trump, the present situation is both worse and more complex than it might appear.  First, let’s be clear:  Trump is more putz than Pope, an ignorant narcissist, but also a clever opportunist at his core.  Trump’s influence in the world is, by comparison, a far cry from that of Pope Paul V 400 years ago.  But we have given Trump, with the aid of the Russians or not, frightening power—in absolute terms far greater and more dangerous than any Pope has ever had. 

    But here’s why the situation is both more complex—and more of an opportunity—than meets the eye.   The science most of us believe we are marching for is the science of the Scientific Revolution that Copernicus and Galileo ushered in 400 years ago.  It is rooted in the reductionist logic—simplify what is complicated by breaking it down into understandable parts—that brought us airplanes, iPhones, and all the progress we hold dear.  It opened up the way to the Enlightenment, which replaced blind faith in the doctrines of the Church with a belief in each individual’s human potential.

    In the ultimate irony: it is the modern day Pope who understands what the reductionist science of Modernity and what contemporary “leaders” don’t see (and Trump could not understand).  In the Pope’s words, included in his beautiful Encyclical, Laudato Si, “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.”  

    We appear to have entered a new era, a Second Scientific Revolution, that is permeating all fields of knowledge.  Integrated medicine, regenerative agriculture, integral urban design, and the entire study of ecology are all examples of this systems-based approach.  In it, integral or holistic thinking is augmenting the reductionist method, unlocking unimagined potential, and, in the process, the only genuine solutions to the critical and complex challenges of our time to emerge at the edges of our individual disciplines. Our failure to make this transition is a life and death matter.  It is critical to our understanding the interconnected climate and other ecosystem crises, the healthcare crises, and the economic system crises accelerating around us at an exponential rate.  

    Is it possible that the Trump insanity might just be the jolt our scientific research community needs to make the historic, essential, and immensely difficult shift into effective transdisciplinary thinking and collaboration?  For example, how much of the National Institute of Health’s immense $30 billion annual budget goes towards “chasing a cure for cancer” (using the best reductionist science) when those researching (with pennies in comparison) and practicing integral health – both physical and mental – increasingly understand that a “disease” like cancer is actually often a mere symptom, whereas the genuine root cause (holistically understood) is more likely to relate to communication breakdowns at a cellular level in the natural regenerative capacities of our immune system?

    If we want to reverse the health crisis (much less the healthcare crisis), we must invest in better understanding and support of our immune system, and immune system health begins with the food we eat and the soil it is grown in, most of it now toxic from the financially entrenched, industrial agriculture system our reductionist method delivered to us unaware of the disastrous unintended consequences.  How about in response to the Trump budget shake-up, an allocation of just 10 percent of the NIH budget to regenerative agriculture, which will enhance health and unlock the massive potential for real climate solutions through natural carbon sequestration in the process.  This is but one example of the potential that lies at the “edges” of disciplines that will be revealed in the Second Scientific Revolution. 

    Don’t get me wrong.  I don’t support cutting science research so we can increase our insanely bloated military budget. But far more important than a few years of budget chaos is the need to understand our future in the integral age lies in probing across disciplines, not merely digging ever deeper into each one, treating symptoms rather than root causes.  Systems and established institutions don’t change without a shock to the system.  Let us work creatively and smartly to use the Trump circus, with all its ignorance and bluster, as that needed shock opening up unimagined new possibilities.  In human and ecological health, and in our economic health. 

    The Second Scientific Revolution is indeed afoot, ushering in the rise of integral science – the physical sciences and social sciences together.  It is happening, but it is happening outside our leading institutions, which by design are resistant to such threatening challenges, just as the Church was four centuries ago.  Woven together as never before with the great wisdom traditions—Western, Eastern, and indigenous, all of which have stood the test of time—it will trigger a movement future historians may call the “Great Second Enlightenment”.  It will demand universal participation, our best and most creative minds, bodies, and souls, and give much-needed meaning to our lives. 

    That’s the parade I want to march in!

     

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  • Shifting From Parts to Patterns

    April 4th, 2017 by ewalsh


    All our knowledge has its origins in our perceptions.” – Leonardo Da Vinci

    I had the pleasure of hearing my friend Nora Bateson speak last week at The Players Club in New York City where she held a reading and conversation around her recently published book, Small Arcs of Larger Circles: Framing Through Other Patterns.

    If that title slows you down a bit, well, I think that’s the point. The book is a collection of essays and poems, and the conversation with Nora included personal stories of growing up in the Bateson household (Nora’s father was the pre-eminent systems scientist and anthropologist Gregory Bateson, whose first marriage was to Margaret Mead. Nora’s grandfather William, was a biologist who coined the term genetics.)

    Collectively, the passages in Nora’s book draw us into a state of heightened curiosity that leads us to question how we perceive reality, ultimately enabling us to better understand our world and the challenges accelerating all around us. She invites us to probe the profound difference between our now four-hundred-year-old reductionist way of thinking (which is rooted in the Scientific Revolution), and the demands and mystery of a more accurate, complex living systems view of the world. Critical to the understanding of this more accurate world view is Nora’s enigmatic assertion, itself an invitation to the most important conversation we could be having:

    “The opposite of complexity is not simplicity; it is reductionism,” she mused.

    In the context of our interconnected 21st century social, political, economic and ecological challenges, the critical distinction between complexity and reductionism is far from a trivial one. It is, in fact, a life or death insight.

    It is precisely because these indivisible challenges are rooted in complexity that our continually applying reductionist thinking to them has led to disastrous consequences.  Overcoming them depends on our shedding our unconscious reliance on reductionist thinking and adopting a more holistic way of looking at our world.  In other words, our failure to comprehend complexity itself, in an increasingly complex, interconnected world that seems to be spiraling out of control, may well turn out to have life or death consequences for many of us, and even civilization itself as we’ve come to know it in the Modern Age.

    Admittedly, reductionism – breaking down what is complicated into its component parts so they can be analyzed and understood – has made immeasurable contributions to the progress of human civilization. The laptop I’m typing on and the man on the moon are achievements made possible through the reductionist method.  But as Wes Jackson says, “there’s nothing wrong with the reductionist method so long as you don’t confuse the method with the way the world actually works.”

    Holistic thinker Allan Savory once illuminated for me that complexity is profoundly different than what’s complicated.  An iPhone or an airplane is complicated.  With time and ingenuity, it can be perfected and then mass produced, the same every time.  We humans have become experts in making what’s complicated, thanks to our now well-honed expertise in reductionist reasoning and problem solving.

    But complexity is a different animal altogether.  A nation is complex. A city is complex.  A business is complex.  A rainforest is complex.  War is complex.  So too a marriage, a family, and our human self – our physical body, as well as our collective body/mind/spirit.  The complexity of a living system is distinguished by the ever-changing context that surrounds it and affects it, with feedback loops and consequences impossible to fully comprehend in advance.  Our political economy, in the context of culture and place, is such a complex living system.

    Bateson explains that living systems that survive over time are characterized by mutually supportive learning networks that continuously communicate and interact across multiple contexts and variables in the system.  Yet we pretend to believe we can manage complexity as we manage what’s merely complicated, with our rules and protocols, and our key performance indicators designed through reductionist logic.  In today’s America — a complex system if there ever was one — the danger is compounded by leaders who seem to think they can govern without reference to accurate information, better known as “facts,” without which trust-based communication is impossible.

    Trust issues aside, our challenges run even deeper.  Bateson writes, “The education system that reaches around the globe is a mess… The violence of breaking the world into bits and never putting it back together again substantiates the kind of blindness in which we have separated ecology from economy, and psychology from politics.”  I would add another reductionist “violence”— the separation of what used to be called “political economy” into politics and economics.  From the professional silos in which business and finance, governance and the law operate today, we literally can’t “see” the patterns that define the interconnections of complexity accurately enough to have a chance to manage them in a way that the times demand.  In truth, our aim should be to constructively guide and flow with the complexity that defines modern reality, since complexity can’t really be “managed” in the sense of asserting control.  How many presidents, CEOs, or regulators, or any of “the people running the world” understand that?

    Gregory Bateson famously wrote: “Break the pattern that connects and you necessarily destroy all unity.”  Yet we don’t even see the patterns, much less honor the resulting unity as the essence of our health, even our survival.  Instead, in our ignorance, we break such patterns all the time, for example, the carbon cycle, which has resulted in the climate change that we now view as a “problem” to solve.  In reality, it is the unforeseen but direct consequence of our failure to perceive, understand, and humbly work within complexity.

    We humans have evolved into problem solvers using the reductionist method, a direct outgrowth of the Scientific Revolution.  It’s now baked into our DNA, limitations included.  A Second Scientific Revolution is underway, one that integrates the reductionist method with the patterns of connection that define our integral reality.  Our life depends on it.

    That’s worth slowing down a bit to ponder.

  • Hell No!

    February 28th, 2017 by ewalsh
    PaulPolman

    Paul Polman, Unilever CEO (Photo courtesy: Forbes.com; Photographer: Munshi Ahmed/Bloomberg)

     


    Sustainability icon and Unilever CEO Paul Polman made his feelings crystal clear on the unsolicited merger offer last week by Kraft Heinz, backed by the Brazilian cost-cutters at 3G Capital and their partner Warren Buffett:  the proposed deal, Unilever said, “had no merit, either financial or strategic.”  Ouch.

    I recall early in Polman’s CEO tenure hearing him say there were many cynics watching him and his sustainability quest, hoping he would fail (so their single-minded focus on shareholder value could continue while the invisible hand takes care of complicated global matters like ecological footprint). Right on cue, we see the 3G boot attempting to pin Polman’s head under water for the greater good of short-termism, furthering the scourge that financialized capitalism has become for society.

    Unilever swatted away their unwanted financial-driven suitors like a grizzly bear smacks down an interloper if her cubs are close by.  How could the purportedly well-respected 3G financiers — and Warren Buffett no less — fail to understand that Unilever was not just a commodity portfolio of consumer brands to manipulate for a quick short-term profit boost before moving on to the next “opportunity”?  Unilever is, rather, a purpose-driven company on a quest to “make sustainable living commonplace” and show that sustainability can also be good business.  In other words, Unilever has meaning for its customers, its employees, and the world.  It’s a “baby cub” that mama bear – Polman in this case — will protect to the death.  It is hard not to conclude that the 3G suitors – often referred to as mercenaries for their ruthless cost cutting, eliminating 13,000 jobs from Kraft Heinz for example – must have viewed the “sustainability stuff” as little more than corporate waste and soft public relations B.S., and that Polman would have a price for his dream.  They miscalculated, “friendly” offer notwithstanding.

    But the fundamental issues at play here are worth more serious reflection than the mere machismo of win-or-lose deal-making in the greed-driven world of finance. We must ask ourselves three questions. First, is a genuine commitment to sustainability compatible with winning in the competitive global marketplace?  Second, is it possible for courageous business leaders to lead this transformation in the face of “market reality,” rather than rely on government regulation?  And finally, how does a company like Unilever navigate the short-term demands of stockholders (and protect itself against the sharks) while at the same time working to effect the difficult, long-term transformation that a genuine commitment to sustainability demands?

    I will assert the answer to the first question is, “yes, definitely in the long run, and no large company, including Unilever, is close to being truly sustainable”;  and, to the second, “yes, we had better hope so, and thank goodness for the example provided by Polman, whom business leaders like Buffett and his 3G friends should be studying not stalking.” With respect to the final question, I say, “it may well be impossible to accomplish within the current capital market context.”  Let me explain.

    The increasing short-termism driven by so-called “investors” who are simply speculators having nothing directly to do with real investment and the real economy—including activist hedge fund operators, algorithmic “high-frequency” traders and a lot in between—is well understood, with negative implications for the long-term health of the real economy.  But with respect to businesses’ ability to transition their business models to sustainability-focused ones—which is the long-run imperative for civilization itself—this short-termism cancer may be terminal.   Unilever found itself in the heart of this dilemma last week, ironically with none other than the champion of long-term investment, Warren Buffett, sitting across the table on the side of the short-termism opportunists.   We live in confused times.

    Both perspectives are valid when looked at through the lens of the speculative capital market paradigm – what’s needed is a shift in perspective to an alternative paradigm, ironically, a shift back toward a more evolved version of the buy-and-hold real investment approach upon which Buffett built his stellar reputation.  In doing so, we discover a third way to address both the genuine needs and desires of prudent investors, as well as the sustainability transformation imperative of the economy and civilization.

    The food products business (not to be confused with fresh, nutrient-rich food) is mature, which means little if any growth.  Yet brands like Unilever’s Hellmann’s mayonnaise generate stable cash flow, the classic “cash cow” businesses.  But because they grow slowly, if at all, the stock market rightly values them at a low multiple of cash flow.  So these cash cows become a valuation burden, dragging down the stock price multiple of their parent companies and inviting ruthless (and in part sensible) cost-cutting to generate earnings growth.  But transitioning them to more sustainable products – mayonnaise using non-GMO soybean oil grown using regenerative rather than industrial agricultural practices and paying farmers a living wage – often means higher costs at least in the short-term.  So there is a tension that is difficult if not impossible to reconcile for a company whose stockholders (speculators) hold their feet to the fire with a short-term perspective.

    But enlightened investors like pension funds should see the opportunity.  They want two things for their pensioners:  stable cash flows purchased at a reasonable price (Unilever’s cash flows are cheap, which is why Buffett and friends had an interest) so they can match the fixed pension obligations they have with less risk than speculating in the stock market. And second, they also should demand products from the companies they invest in that are both healthy for their pensioners and healthy for the planet on which their pensioners and their children need to live.

    Drawing on the framework of regenerative economics, we see that “right relationship” – relationships that are mutually beneficial – is the critical principle out of alignment here, and thus a profound opportunity.  There is no “right relationship” between stock speculators and the companies whose shares they speculate in.  There is often no genuine relationship at all.  And a “relationship” with a suitor like 3G that would mean destroying the well-considered purpose of the company is hardly a “right relationship”, as Mr. Polman made abundantly clear with his “hell no” response.  But if large institutional investors like pension funds could see outside the capital markets paradigm, they would notice vast opportunities for win-win “right relationship” in creative partnerships at scale with purpose-driven companies like Unilever.  The Evergreen Direct Investment method is but one of many possibilities for such creative real investment partnerships.

    Is this the future of “investor relations” in the transition to a just and regenerative economy led by courageous pioneers like Polman in partnership with bold and truly responsible institutional investors, where retail investors can tag along for the ride to participate in the essential and profitable transition of big business?  Hell yes!

  • Broken Trust

    January 27th, 2017 by ewalsh

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    At this year’s World Economic Forum gathering in Davos, Switzerland, PR firm Edelman shared its comprehensive annual Trust Barometer, confirming what we all know: global trust in institutions and leaders is at an all-time low.  Fully two-thirds of countries are now considered “distrusters” (under 50% trust in the mainstream institutions of business, government, media and NGOs to do what is right), compared to about half a year ago.  This is a stunning collapse in trust, even from last year’s low base.

    Trust in leadership is equally low. Only 37 percent of the general population believe CEOs are credible, even worse for government officials – 29 percent credible.  A paltry 15 percent believe the system is working.  Ironically, it was Chinese Premier Xi, in his first address at Davos, who stood in defense of globalization (quoting Abraham Lincoln, it should be said), arguing that the system is sound, but it is (Western democratic) governance that has failed.  Note China ranked second on the trust index, second only to India.

    Talk about a humbling moment (if that’s possible) at the annual gathering of the global economic and political elite.

    There was lots of talk this year at Davos about “inclusive capitalism” (Jack Ma actually puts substance behind the slogan in his must-watch interview — a great example of Alibaba’s seemingly regenerative business model in service to its network partners rather than extracting from them, and a sharp contrast to Amazon’s model, as Ma explains).  But the “inclusive capitalism” talk included little honest analysis of the root cause of this stunning collapse in trust, why it is so dangerous (the rise in extreme forms of authoritarian populism rooted in emotion more than evidence and its unpredictable path), and what if anything can be done about it at this late date.  Nobel Economist Joseph Stiglitz wrote a prescient piece on this topic in 2013, and called for strong regulation and bold regulators to enforce the laws.  Clearly, we have failed.  And without a culture that not only values trust but demands it, I am not optimistic about better regulation and stricter enforcement.

    The decline in trust pervades all four institutions studied in the Edelman survey. Unfortunately, Edelman did not single out finance and report on it separately from business.  Surely few would doubt that the finance sector (Wall Street mega banks, in particular) would rank at the bottom of the trust barometer within the business category.  In fact, research confirms that bankers are more likely to cheat than the rest of us. (As a former banker, this is upsetting to me!)

    Nothing defines banking’s breach of public trust better than the 2008 financial collapse.  Being told to move on, It is easy to forget how much of the world’s current social and economic woes can be traced to the financial bubble and subsequent 2008 systemic collapse, either directly or indirectly.

    Recall that the financial collapse destroyed $19 trillion of economic value in the U.S. alone, permanently destroying the economic security of millions of families across America.  An estimated 34 million jobs were destroyed globally in the process.

    The rise of today’s dangerous brand of authoritarian populism—manifesting first in Brexit and now Trump—is directly connected to Wall Street’s breach of trust.  It’s not just because of “globalization” or “technology” taking our jobs as if it were all inevitable.  We cannot forget that compounding and exacerbating these legitimate and complex challenges, and more (climate change-induced drought driving immigration, linked to the Syrian carnage comes to mind) was the willful act of dropping a bomb into an already vulnerable society.  The Goldman Sachs/John Paulson Abacus trade was the Hiroshima of modern financial history.

    The mortgage fiasco was a massive, reckless act of violence, perpetrated upon global society by an industry failing in its critical purpose while instead proving itself willing to do just about anything to make grotesque profits through fraud and egregious deceit.  The efficient market narrative of bringing home ownership to the masses was all a cynical cover.  And the industry’s ongoing fraudulent activities post the crisis, from the LIBOR scandal to FX price rigging, to wrongful foreclosure with robo-signers to Wells Fargo’s opening millions of fake accounts out of its “community banking” division of all places (where the do-gooders are supposed to work), sealed the fate of the industry as devoid of trust for some time to come, unfair as that may be for the many honest bankers out there.

    Blaming populism on bankers’ unparalleled breach of trust is a strong claim.  But think about it:

    Less speculative finance, less speculative real estate lending.  Less boom created from unsustainable misallocation of human, physical, and financial capital to speculative real estate. Less wasted carbon in the atmosphere and less farmland destroyed, exacerbating the drought-driven migrations.  Less unearned wealth for bankers and less resulting inequality, and less power for the sector to rig the rules, buy off and brainwash the politicians and even regulators, resulting in asymmetric risks only the opportunist bankers truly understood.  (Trump once referred to the bankers—now his advisors—as “killers” on the campaign trail, and he’s had to cross them more than once, so he knows).   Less demand on the public sector to socialize the losses to “save the system” and therefore less public debt and no need for the misguided austerity driving society further into despair.  That means more resources available to address the consequences of globalization and automation, and greater acceleration of investment into the transition to renewable energy and into rebuilding our aging yet vital infrastructure.  More assets channeled into education, perhaps even into the revival of civics classes!  We know how this narrative continues.  We know it does not end with the election of a fraud to the most powerful office in the land.

    Donald Trump, whose ethics seem guided by the probability of winning lawsuits, is about as unlikely a remedy for broken societal trust as one can imagine, as his hopeful supporters are sadly about to learn.  Coal is not coming back, sorry.  So the consequences of lost trust will only amplify in dangerous and unpredictable ways that now stunningly include the Orwellian introduction of “alternative facts” into the Trump Administration’s everyday narrative.

    The so-called “activist investor” Carl Icahn is Trump’s fellow bully buddy and now Special Advisor on Regulatory Reform.  He has defended the need for Dodd-Frank banking reform in the past and held the banks responsible for the financial crisis in public statements.  That is a testament to his common sense and refreshing objectivity as a Wall Street insider.  Time will tell whether a man who has spent half a century as an opportunist (bully) stock speculator can come to see that an ideology that conflates speculation with investment and means (finance and the stock market) with ends (a healthy economy) can guide us to a more enlightened and still desperately needed financial system reform and begin the long process of rebuilding trust in Wall Street, and in the process within society.

    Not holding my breath.

  • City States Rising!

    December 29th, 2016 by ewalsh

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    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.

    Interesting.

    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-Habitatthe 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!

  • Sail On, Sail On, Sailor

    September 16th, 2016 by ewalsh

     

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    Image Courtesy of BlueOrigin.com

     

     

     

     

     

     

     

     

     

    The following blog post originally appeared on EcoWatch.com.

    “Our vision is millions of people living and working in space, and New Glenn is a very important step,” said Jeff Bezos, unveiling this week his space travel company Blue Origin’s giant rocket named after Astronaut John Glenn.

    Of course there is also billionaire entrepreneur extraordinaire Elon Musk’s SpaceX, Richard Branson’s Virgin Galactic, and Paul Allen’s Vulcan Aerospace. Dream big, that’s the spirit! The final frontier with limitless possibilities. Our boys and their toys. Great fun!

    Most of us sail at a lower orbit of course. Our games, our striving and exploration, our fun, takes place a little closer to earth. My soul is nourished near and on the sea, so boats are my toys of choice. In my middle age, I have largely traded the competitive sailboat racing of my youth for a desire to “mess around” in relatively small, wooden boats in particular – sail and power – luxuriating in their handcrafted and poetic aesthetic.

    As I’ve documented previously, large, ocean-going yachts are a whole different kettle of fish, and pose a particularly grotesque challenge to any sense of a responsible carbon footprint, even if money is no object. My “boat toy” desires are far more humble. Until a couple weeks ago, my “yachting” consisted of a high performance paddle board with a bamboo deck – sustainable right? In my future, I see a pretty day sailor, handcrafted in Maine out of local wood (I sold my prior sailboat since the kids preoccupied my free time), and a small motorboat to explore harbors (we call this “toodling around”) and to make occasional short journeys around the southern New England coast where I live.

    This summer, I visited the talented craftsman Doug Hylan and his partner Ellery Brown of Hylan & Associates in Brooklin, Maine to continue a conversation we’ve had on and off for over a year about building a small “green” powerboat. Same logic as a car or a house – energy, materials, etc. The challenge of making motorboats fuel-efficient is that it takes much more energy to push a boat through the water than to roll a car down a road. And a boat requires an exponential increment of power to push it faster than what’s called “hull speed” – in other words to make it rise up and plane.

    So the design challenge was to find the right shape (long, narrow, and light), but stable enough for offshore conditions (wide and heavy is better) and with a highly efficient engine that would go “just fast enough”. Doug has done some cutting edge work in this arena, with some updated versions of classic designs and power system innovations. But even with Doug’s design ingenuity, latest technology, and lightweight building techniques, he hasn’t yet come up with a way to overcome those pesky laws of physics. Water is heavy and hydrostatic pressure is a bear.

    As we were talking over the concept we had in mind, I sensed a distinct lack of enthusiasm for my vision of the first truly “green” picnic boat, locally crafted, that had the potential to redefine pleasure boating away from the unsustainable fiberglass that ends up on a junk heap, and overwhelm Doug with new orders in the process. That’s when he turned to me and said, “You know John, if you want to enjoy green, responsible boating, just slow down.”

    Doug’s truth pierced Maine’s stark summer beauty as we looked across the cove, silently absorbing the implications that ran far beyond boats. All the latest advances in design and technology couldn’t come close to simply riding down the steeply sloped and physics determined energy curves he had showed me (slow down, use exponentially less energy).

    I gave up on a new, high tech wooden boat and bought a classic bass boat that has been for sale all summer, built out of wood in 1969, and totally restored in 2009. For a fraction of what a new boat would cost I might add. Reuse, recycle!

    And I’ll be the guy going slow, at least most of the time. At hull speed (about 10 miles per hour), I’ll burn less than a gallon of diesel per hour, a quarter of that when just calmly exploring a shoreline with friends in good conversation, going slow, enjoying the quiet. That’s when the experience feeds the soul, and relationships deepen, so it’s not all sacrifice. Going “fast” when we “need to get somewhere” (about 22 miles per hour is tops in this case), I’ll burn 8 gallons per hour with a guilty conscious.

    In contrast, a yacht like I wrote about before will burn between 20 and 40 gallons per hour going 10 miles per hour. And a fast offshore fishing boat designed to get out to the shelf for the big fish and back in a day, burns 150 gallons per hour at the high speed necessary to be home for dinner – in other words, a 500 gallon a day toy.

    My boat toy fetish makes me complicit, as does the rest of my lifestyle. But it’s mostly the flying I do. As many have pointed out, we sustainability workers sure do fly around a lot. Flying kills a carbon budget fast. Physics again. No doubt we Americans have a big adjustment to make with our living. Much less flying and offshore fishing. More fly fishing. And more sailing, sailor. Not so bad.

    Which brings us back to space travel. There certainly are real societal benefits from space exploration, and some interesting space opportunities only these super-human entrepreneurs could ever dream up. But a little research suggests a frightening energy curve – based on those same pesky laws of physics – that we must confront (hopefully with Doug Hylan’s wisdom hovering about).

    Aside from the money issue, the amount of fuel for a one day (probably hour or less) zero gravity tourist experience in space you wonder? Well, according to my calculations based on one seemingly reliable source, it’s 64,000 gallons of diesel equivalent.

    Some fun. Sail on, Sail on, sailor.