“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.
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!
I had the privilege of spending a full day in Buffalo last week before delivering a lecture on Regenerative Capitalism, at the invitation of Amit Goyal, Director of the State University of New York at Buffalo’s RENEW Institute. Regenerative thinking and action is what defines an emergent Buffalo. It is taking place across scales, and it is working at the edges of the private sector, the public sector, the non-profit sector, and the research university.
RENEW is an impressive “university-wide, interdisciplinary research institute that focuses on complex environmental issues, as well as the social and economic issues with which they are connected.” The seven participating schools include the College of Arts and Sciences, the School of Management, the School Architecture and Planning, the School of Engineering and Applied Sciences, the Law School, the School of Public Health, and the School of Medicine. RENEW’s own vision calls for a regenerative economy, and even a one-day visit to Buffalo left me feeling the regeneration happening in real time. It was yet another example, together with our now 35 “Field Guide” stories, which gives me confidence that regenerative economies are indeed an emergent phenomenon happening everywhere on the ground, often in distressed cities and communities where the pressure for change is the greatest. This is as expected, in accordance with our understanding from the science of physics and how natural systems change in response to pressure.
I experienced three distinct manifestations of regeneration during my Buffalo visit.
The RENEW Institute, with an impressive $25 million budget, is certainly a shining example of higher education commitment to interdisciplinary (integrated) thinking and work, the future of higher education in this integral age. Amit likes to say they are looking for “T people” as opposed to “I people” to join the institute. An “I person” is the traditional academic expert, with deep knowledge within his or her field. A “T person” on the other hand, must demonstrate deep knowledge within a discipline, but also be a lateral thinker who can integrate ideas and discover new potential and solutions by working across silos. This is no easy feat as anyone familiar with the academy can attest. Listening to Amit during my visit, and to the Provost during the introduction to my lecture, I got the sense that the University is bound and determined to work at what we like to call the “edges” – the boundaries where different systems (or in this case disciplines) meet – leveraging its considerable domain expertise while at the same time forging relationships of exchange where the real regenerative potential lies.
The second manifestation of regeneration happening on the ground is the People United for Sustainable Housing (PUSH) Buffalo initiative, under the leadership of the energetic Aaron Bartley. Bartley is a Harvard Law grad who returned to his hometown to contribute to its regeneration after decades of decay from what was once one of America’s leading and wealthiest cities when it served as a vital trade hub. Ten years young, PUSH and its partners have transformed neighborhoods one building at a time – inspiring work. Walking block by block with Aaron and sharing brief greetings with local residents, the regeneration was palpable.
Finally, there is the Buffalo Billion, a signature economic development project of Governor Cuomo, who has committed to invest $1 billion into the Buffalo economy. A central premise of regenerative economics is what we call “robust circulation.” This includes ample reinvestment in the economic system to ensure its vitality. Too often wealth is extracted from regions and reinvested elsewhere. Faced with decline often caused by external shocks, modern austerity ideology in the name of balanced budgets (see Europe post financial crisis) only furthers economic decline by starving a community of the vital reinvestment all healthy systems demand. After decades of disinvestment and decline, it is vitally important that the public sector engage in Buffalo’s regeneration in order for it to succeed. The city is very fortunate to have been selected by Governor Cuomo as the target for such large-scale investment.
I was given a tour of the massive solar manufacturing facility being built for SolarCity. At an astonishing 28 acres under one roof, it will be one of the world’s largest and most sophisticated solar manufacturing facilities when it is complete. While the solar plant is but one aspect of the Buffalo Billion, it represents the majority of the funds being invested in an innovative public-private partnership under which the State will actually own the plant.
Our regenerative framework favors a more diversified, risk-mitigating investment strategy, and greater focus on vital, enabling infrastructure and education than on individual enterprises. That said, if successful, the new solar facility will no doubt create a regional hub for innovation and employment, and generate tax revenue that will support the infrastructure improvements the city so sorely needs. The regenerative potential of a project of this scale, coupled with all the other positive things happening in town is truly impressive.
Not to mention that Buffalo is nicely situated with respect to water and climate for the future. We will be back this summer for the New Economy Coalition’s CommonBound (July 8-10). Watch this space!
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
We are pleased to share with you this unsolicited guest blog post from Bob E. Ulanowicz, an American theoretical ecologist and philosopher.
The recent media flurry over Pope Francis’ Encyclical on the environment, Laudato Si’, appears to have missed his major thrust, which happens to connect strongly with Regenerative Capitalism. Most reviews highlight Francis’ concern about global warming or his Integral Ecology – the manifold connections between the natural world, economics, society, and politics. Yet, while attention to such relationships is laudable, this focus has already received considerable notice in the academic and professional literature. Other analysts point to his critique of unfettered capitalism, yet this too is nothing new – Catholic Social Teaching has criticized unrestrained capitalism since Pope Leo XIII’s Rerum Novarum in 1891.
Instead, the radical thrust of this document relates strongly to Jorge Bergoglio’s choice of name as Bishop of Rome – Francis, as in St. Francis of Assisi, the Saint who championed the poor and outcast, and preached that poverty often was the road to deepest spirituality. Pope Francis channels the Saint in his opening section, citing Francis’ “refusal to turn reality into an object simply to be used and controlled” [paragraph 11] and relates how Francis always made sure that a part of the friary garden was to be left to God’s plants and creatures. He shows his awareness of the complex ties between the health of the natural and human worlds and the workings of finance and monetary policy by noting that “whatever is fragile, like the environment, is defenseless before the interests of a deified market, which becomes the only rule” , adding that the “Economic and financial sectors, being transitional, tend to prevail over the political” . He argues that the “undifferentiated and one-dimensional paradigm”  of economics in which “the maximization of profits … reflects a misunderstanding of the very concept of the economy” . He regrets that “Finance overwhelms the real economy”  – these days by a factor greater than 50:1. Yet, Pope Francis reveals his hand most openly in Chapter 5 when he makes what might be his most counter-cultural statement:
“In any discussion about a proposed venture, a number of questions need to be asked in order to discern whether or not it will contribute to genuine integral development. What will it accomplish? Why? Where? When? How? For whom? What are the risks? What are the costs? Who will pay those costs and how?” .
Such questions about who benefits and who pays also tie into Regenerative Economics’ concern about externalities, and to ecological economist Herman Daly’s condemnation of “growism.” Nowadays, if a shopping center is proposed, the guiding issue is whether the project will achieve a high return to the developer – i.e., high “growth” – all other matters become secondary. In contrast, Francis states that, “a decrease in the pace of production and consumption can at times give rise to another form of progress and development” . He cautions we must “contain growth by setting some reasonable limits and even retracing our steps before it is too late” . Francis is confident of the need for such slow-down, writing, “the present world system is certainly unsustainable from a number of points of view”  and we must “leave behind the myth of unlimited material progress” .
These Franciscan prescriptions also speak to regenerative economics emphasis on balance. For example, studies of energy and currency flows in healthy systems show that pursuit of ever greater efficiency and growth pulls the system away from a healthy balance, and heightens the probability of collapse. In contrast, healthy systems maintain a balance between “throughput efficiency” – akin to the kind that fuels economic size and growth – and a diversity that allows for resilience in the face of perturbation. Translated into economics, processes that decrease market efficiency somewhat in order to permit the survival of slightly less-efficient actors may actually improve the system’s overall sustainability.
Studying such dynamics might also clarify how, in a world of very finite resources, to reconfigure economics to achieve a more just apportionment among the “universal destination of goods” . For example, studies of natural systems also tell us that balance is improved by shorter, quicker, lower-level feedback loops – the kind found in well-knit “cooperatives,” in a sense. In contrast, today’s massive corporate structures tend to crush smaller, quicker ventures as soon as they begin to succeed, as happened with the Saturn experiment under GM.
It’s also of note that the balance between efficiency and resilience-enhancing diversity is related to Adam Smith’s balance between self-interest and “sympathy,” the kind produced when we connect to another person’s circumstances as our own. Smith argued that there was a close relationship between moral behavior and the maximization of virtue, and healthy economic behavior which involved the maximization of wealth as a means to a higher end. Self-interest drives wealth; sympathy drives virtue; only a combination of the two drives wealth as a means to a higher end. Regenerative Capitalism also emphasizes the need to balance self-interest and sympathy because the two play important roles in balancing efficiency and resilience. This is also what Rerum Novarum was about.
It remains for people of good will and organizations like the Capital Institute to elaborate the means for dialing back the overall amplitude of the economy without endangering fundamental human needs and dignity. Meanwhile, Francis consoles us by encouraging that we adopt an attitude of “less is more” and a spirituality marked by “the capacity to be happy with little”.