Photo by Angel Evangeline on Unsplash: https://unsplash.com/photos/lIYoJZwXy2U
In this final act, Act IV of my booklet Finance for a Regenerative World, I argue that finance must be transformed for the primary purpose of serving the emergence of regenerative economies. A truly effective policy framework for financial reform must be designed with this vision and these goals in mind, and with this clear purpose for finance.
Such a policy vision is a far cry from simply trying to mitigate the damage and destruction the financial sector can wreak on society if left to its own devices.
I will not constrain or influence my argument by any preconceived ideological limitations on what finance can be, should be, or should be allowed to do beyond this clear purpose: to serve the emergence of regenerative economies. Anything that is in conflict with this purpose must be discouraged if not eliminated. Anything in support of this goal must be encouraged and perhaps incentivized. Other than that, we let our eight principles of regenerative economies guide us and let the chips fall where they may. Only if we align finance and the economy it must serve with the patterns and principles of living systems, can we expect these systems sustain themselves over the long term. In doing so, we will unlock the seeming miraculous potential demonstrated by life itself directly into our economies, as the source of true human thriving into the future.
Some will reject this vison as unrealistic or utopian, some may balk at the scope and scale of these proposals. Some of these policy shifts will have a progressive tone, while others will sound more rooted in free enterprise thinking grounded in the entrepreneurial energy that is so vital to our economies. Living systems patterns are what they are. They belong to no political parties or ideologies.
Below is a high-level summary of the ten policy recommendations proposed in Act IV. I invite you to dig into the paper for the necessary context and concrete detail about each of the policy recommendations. As always, I welcome and encourage your feedback.
I believe that these policies would collectively shift finance and investment — and with it, the entire real economy — in a regenerative direction. Perhaps more importantly, they would curb the most extractive and degenerative elements of the present financial system.
With the macro shifts I propose, the impossible task of policing institutions that are “too-big-to-fail” can be relieved at the source of the problem. An ounce of prevention in finance, through intelligent systemic design, is worth many pounds of cure.
Ten-Part Framework for Regenerative Financial Reform
Allowing our 8 Principles to guide our judgments, here is the policy reform agenda that I propose for the United States, adaptable to the context of other countries as well.
1. Curtail Speculation
• Curb excessive speculation.
• Encourage capital to flow into real investment, and particularly into projects aligned with the transition to regenerative economies.
2. Reduce Leverage
Financial leverage in its many forms enhances capital efficiency while reducing systemic resiliency.
• Reduce or eliminate incentives for excess leverage.
• Increase incentives for equity and risk-sharing partnership models.
3. Regulate for Fractal Structure
A healthy financial metabolism ensures circulation of money into small and mid-sized enterprises at regional and local scale rather than allowing ever more concentration at the top as is the case today.
• Rebalance the structure of the finance industry to heavily penalize systemic risk and concentration.
• Encourage structural diversity and broad circulation in the flow of capital by following the design of effective circulatory systems, such as our fractal cardiovascular system.
4. Prioritize Business Formation
• Encourage capital flow into new business formation in clusters — and into small business expansion — with emphasis on “green” business and social enterprises of all shapes and forms addressing genuine societal well-being.
• Curtail emphasis on state-sponsored subsidies to large and concentrated business enterprises, while updating anti-trust laws for the 21st century.
5. Reform Tax System
• Socialize windfall profits and dynastic wealth into both social and natural capital stocks that have been systematically depleted.
• Shift the tax burden toward capital with offsetting incentives to high regenerative impact capital projects.
• Enhance systemic resiliency by upgrading and simplifying the social safety net to include a broad-based, guaranteed minimum income.
6. Test Sovereign Money
• Launch multiple diverse, controlled, regionally-designed, sovereign money experiments of meaningful scale, beyond QE, in accordance with Modern Monetary Theory (“MMT”) (for more on this, see Act III of this series).
• Target renewable energy infrastructure assets, labor-intensive infrastructure repairs and upgrades, green infrastructure projects that restore vital ecosystem function, regenerative agriculture and related regional food system infrastructures.
• Experiment with education and healthcare systemic investment and a guaranteed minimum income, all of which help ensure all citizens are empowered to participate (one of our principles) in the economic transition.
7. Realign Fiscal Spending and Investment Priorities
• First, cut government waste and outdated priorities that are not adapted to the new context.
• Eliminate extractive and degenerative public investments and tax policies such as fossil fuel subsidies, capital investment subsidies over labor, and out of proportion defense expenditures.
• Replace these with regenerative public investments in education of all types, in physical and mental health focused on prevention, in the public health system, in innovative social enterprises, and in the social safety net — all in alignment with forward looking national security priorities and genuine well-being.
8. Realign Public Research Investment
In the new world of complexity, public investment must prioritize addressing root causes over responding to the never-ending escalation of symptoms. Bold new commitments to research in energy technologies, advanced material science, green chemistry, soil science and regenerative agriculture, in public health systems and an understanding of how to invest in human immune systems are all essential in order to catalyze innovation in these vital areas.
9. Redesign Philanthropic Incentives and Constraints to Accelerate Impact
• Increase incentives to accelerate shift of dynastic wealth into charitable vehicles with greater accountability to the common good.
• Unblock the sclerosis within the philanthropic sector that prolongs perpetuity of individual foundations.
10. Establish Capital Investment Review Board (CIRB)
• Establish a Capital Investment Review Board, perhaps at each of the twelve regional Federal Reserve Districts, to review the regenerative quality of all public and private real capital investment programs greater than $250 million.
The Future of Finance
As mentioned above, these policy recommendations will be fiercely resisted by the financial establishment. They can rightly be critiqued as “unrealistic.” But without a clear vision of what is needed, we have no chance of attaining it. It is past time to begin the real conversation we desperately need.
The real problem with our many failed efforts at financial reform that seem to lead to ever more and larger financial crises is a lack of imagination. If nothing else, the Finance for a Regenerative World series is an intentional exercise in informed imagination. The longer we resist dealing with the reality of genuine financial reform, the greater will be the damage done until at some point we reach the point of no return for society, and indeed for the human project. The stakes could not be higher.
Fortunately, with the pressure rising, the regenerative financial green shoots are emerging all around us. Our task now is to connect, nurture, reinforce, amplify, and enhance this emergence into a powerful new story of not only what’s possible, but what is essential and ultimately inevitable.
This is the future of finance. This is the critical path to a Regenerative World.