Future of Finance

  • A Multisystemic Response to Covid-19

    March 17th, 2020 by ewalsh






    “We can’t predict when, but given the continual emergence of new pathogens, the increasing risk of a bioterror attack, and the ever-increasing connectedness of our world, there is a significant probability that a large and lethal modern-day pandemic will occur in our lifetime.” – Bill Gates, 2018

    The Covid-19 pandemic is upon us.  It is a multisystemic crisis, spinning out of control, threatening the healthcare system, senior living communities, the education system, the food delivery system, our transportation systems, and indeed the entire economic system, the financial system and with it the retirement system, and as a result, the political systems of the world, all at the same time.

    It is a multisystemic shock, threatening multisystemic collapse, and demanding a multisystemic response, both immediate and in the medium term.  First to the immediate.

    By now the necessary and urgent medical response to the pandemic is becoming clear, frustratingly late, but that’s an issue for another day.  What is also clear is that the richest country in the world, that prides itself in the best health care system in the world, is woefully unprepared.  Governors and local officials are filling the vacuum left by an abysmal failure in Federal leadership. Shift power and resources to governors.

    An urgent economic policy response is equally critical.  Aggressive central bank monetary policy support is a necessary but insufficient first step.  But the unprecedented shut down of entire industries and a large share of the global economy, potentially for months, demands unprecedented government action.  Private sector demand destruction and associated wages, coupled with unknowable uncertainty about the future, is comparable only to wartime as an economic shock.  A rapid, wartime-like response is imperative, first to mobilize a surge in our human healthcare response and associated needs, and then to plug the demand gap for the interconnected global economy.

    The financial condition of the United States is fragile.  Thanks to the Wall Street induced financial crisis, and to the reckless late expansion stimulus by the Trump administration, our debt to GDP ratio exceeds 100%, exacerbated by massive “off-balance sheet” obligations ranging from our underfunded pension obligations to the looming liabilities associated with climate change.  The private sector is also over leveraged as well, thanks to a borrowing binge on artificially low interest rates, again leftover from the 2008 financial crisis. Other countries are even worse off.  And yet, there is no alternative to a massive government stimulus program to plug the immediate demand gap triggered by the necessary lock-down to slow the spread of the pandemic and hopefully prevent a health care system collapse.

    In such times, countries such as the US have a weapon at their disposal that has not been used since Lincoln financed the Civil War with Greenbacks.  Central banks with their own reserve currency have the ability to simply print money and spend it into circulation, in accordance with Modern Monetary Theory.  Think of it as “Qualitative Easing” to complement “Quantitative Easing” (which entails printing money to purchase securities in order to manipulate market prices).  No new debt.  No new debt service burden.  And in circumstances such as this, with a massive hole blown through the demand side of the economy, there is no risk of inflation.  On the contrary, not filling the whole invites spiraling deflation and depression.

    Stephanie Kelton and her Modern Monetary Theory (“MMT”) colleagues have made the compelling case for MMT for years.  They have shown that unlike the inflation hawk story we have been told, the balance of the private sector surplus with an equal and offsetting public sector deficit is an accounting identity, not a policy option.   Any private sector deficit caused by an unemployment shock MUST be and will be met with an equal and offsetting public sector surplus, the last thing we want in a recession.  A massive infusion of public sector stimulus is essential, or the private sector will collapse.

    What MMT reveals is that we don’t need to pile on debt in a demand crisis like this.  In simple language, since we have our own reserve currency, we can and must print money, and get it into the hands of all citizens whose wages have been temporarily cut-off by the crisis, and particularly into small businesses, the lifeblood of the real economy.  And if we want our transportation systems to survive, a public infusion will be necessary.  No doubt this stimulus will approach a Trillion dollars in the United States alone before we are done, but only time and the severity of the downturn will tell.  What matters now is to act boldly.

    But what about the medium term?  What does a genuine multi-systemic response look like beyond the crisis tourniquet to stop the hemorrhaging? To answer this question, we must shift from our problem-solving instinct to holistic design thinking.

    A holistic approach begins with understanding, as quantum physics proves, that everything is literally connected to everything.  It is, in fact, one multisystemic crisis.  And it is one system that may well have entered collapse.  After all, scientists have warned for years that we are in the 6th great extinction due to the literal collapse of biodiversity.  However, too few are able to see how the expansion of the human economy footprint, particularly the relentless expansion of industrial, degenerative agriculture (feed lot grazing systems and clearcutting forests included) into the world’s remaining wilderness areas is what is causing the collapse in biodiversity.  And epidemiologists are learning how such altered landscapes are the root cause of new infectious diseases spreading from the wild to humans, when humans come into contact with animals in new ways with an inability to adapt quickly enough.  Pandemics are the result, as we were warned.

    But this pandemic, like the Climate Crisis, are mere symptoms of a new reality.  We are living through the end of the Modern Age and entering the Regenerative Age.  This moment, forced upon us against our will, is the consequence of an extractive, exponential growth driven economy as the source of our prosperity that has run to its natural unsustainable conclusion.  Wisdom demands we see ourselves as one system, embedded in, not separate from, the sacred Blue Marble that is our only home.  Wisdom demands we source our future prosperity by harnessing the immense potential available if we align our economy with the patterns and principles of living systems, as if we intended our economy to behave like a living system that sustains itself over long periods of time – that is, as a Regenerative Economy.  Such wisdom is aligned not only with modern living systems science, but also with the teachings of Indigenous cultures around the world, the only cultures in human history that have not yet collapsed.

    The Covid-19 pandemic will alter life as we know it.  The question remains whether it will alter the way we think.

  • “We’re Done!” How’s that for a Purpose Statement?

    October 11th, 2019 by ewalsh

    “We’re done.”  With those words, Ed Stack, the CEO of Dick’s Sporting Goods demonstrated what principled leadership looks like.  No purpose statement necessary.  No “business case for sustainability” discussion.  No ESG debate.

    A clear ethical choice presented itself and he acted.  Dick’s destroyed $5million of assault rifles on the spot to keep them off the streets once Stack learned that the Parkland shooter purchased a rifle at Dick’s. No matter it was not the gun the shooter used. “It could have been.”  The company anticipated that its principles would cost it a quarter of a billion dollars in sales per year — and alienate certain customers.  It did both.

    I have been holding my tongue about the new and much-vaunted statement by the Business Roundtable (BR) on the “Purpose of the Corporation.”  Many colleagues in the sustainability movement have seized the pronouncement as a pivotal moment, a watershed event.  All are pushing for deeds to match the words which is of course essential.   But with all due respect to my colleagues (meant sincerely), and despite the many genuinely good corporate actors who believe what they are saying, I’m not buying it.  Not from the Business Roundtable.

    Let’s look at some facts.

    First, the statement itself was milquetoast — hardly a bold call to action backed up by deliverables.  It felt more like, “If we say this, and then do some good stuff, is that good enough?”  What about immediately terminating the profoundly bad stuff first?  Stack’s act was to immediately stop something that was clearly bad for society, and potentially catastrophic.  Did the BR even consider opposing the shareholder-friendly but society-damaging Trump tax cuts?

    Second, the statement just barely snuck in the word “environment,” tucked under the point about “community,” and bore no specific mention of climate change.  And all the while the house is on fire — literally in the Amazon — a direct result of our economic system dominated by these same corporations.

    Third, this new statement simply restores the BR’s position on the purpose of the corporation to the long-standing stakeholder capitalism philosophy that was interrupted in 1997 by the Milton Friedman inspired statement which read, “The paramount duty of management and of boards of directors is to the corporation’s stockholders.”

    The BR’s 1981 “Statement on Corporate Responsibility” called for corporations to “be a positive force in society” right when many of today’s CEO’s were receiving their training in business school.

    “The Business Roundtable issues this statement out of a strong conviction that the future of this nation depends upon the existence of strong and responsive business enterprises and that, in turn, the long-term viability of the business sector is linked to its responsibility to the society of which it is a part.”  — Business Roundtable Statement on Corporate Responsibility, 1981

    The simple truth is this:  In the wake of untold havoc wreaked on society over the past twenty five years — corporate interests capturing our democracy, the financial crash, the many consequences of grotesque and still accelerating inequality, and the terrifying and deadly climate chaos and other environmental catastrophes spinning out of control — the Business Roundtable is asking for a quarter century mulligan on the Purpose of the Corporation!

    Finally, there’s the essential interconnected issues of context and hypocrisy.  Let me begin with context.   We are destroying the life sustaining ecosystem functions of the planet because there’s a profit in it.  Certainly, that’s not how we want the epitaph of capitalism to read.  And it is most certainly not what the purpose of the corporation needs to be.

    With today’s unprecedented civilization at risk context, with the ravaging (and still accelerating) affects of climate change and diversity loss now a daily news item rather than a future abstract risk, any statement on the purpose of the corporation, and the spokesman for such a statement, had better be ready to stand up to scrutiny.

    Unfortunately, the hypocrisy underneath the purpose platitudes is galling.

    The Chairman of the Business Roundtable — and therefore its defacto spokesman on the new and improved purpose of the corporation — is Jamie Dimon, CEO of JPMorgan Chase.   Dimon is arguably the most important and powerful banking leader in the world.  Who better to lead, right?  Unfortunately, while Dimon has served his shareholders very well per the old purpose of the corporation, the house of Morgan’s purpose is not in 21st century order, given the essential 2019 context in which our collective house is on fire.

    Since the Paris Climate Agreement, the top 33 global banks have financed nearly $2 Trillion of fossil fuel energy development, when the atmosphere can’t afford to burn what’s already been discovered.  This acceleration, in the face of the Paris pronouncements, was led by none other than JPMorgan, far ahead of its nearest rivals, and winning the distinction of the “Worst in the World” in a comprehensive Rainforest Action Network report on fossil financing.

    And then there’s this thing about Jamie’s “boss.” While Dimon holds the titles of Chairman and CEO, the longstanding and lead outside director of JPMorgan, the closest thing to Dimon’s boss, is a man named Lee Raymond.  That would be the same Lee Raymond that was CEO of Exxon from 1999 to 2005, the years Exxon, together with the Koch Brothers, lead the well-funded and now well exposed climate denial campaign – an act that history will surely judge to be a crime against humanity (and all life).  At the same time, Exxon apparently began raising the level of its offshore oil platforms so they could withstand the expected rising seas.

    Purposeful leadership is about principles not platitudes, and principles worth anything carry costs.  Purposeful leadership is action like Ed Stack’s on guns.

    Follow Ed’s lead Jamie.  Cleanse your board and announce your exit from fossil finance today.  Say it: “We’re done.”

  • #Greenwish

    July 20th, 2019 by ewalsh



    No doubt you have noticed my blog has gone on sabbatical. There are two reasons for this. First, I am working on releasing the final sections of “Finance for a Regenerative World,” the four Act complement to my 2015 paper, “Regenerative Capitalism,” while also embarking on a new book project. And second, to be honest, the unfolding of our political and ecological crises has entered a new phase this year, often leaving me struggling to find words. So, I am directing my energies to the longer writing projects that I hope will hold value beyond this difficult moment, to support the inspiring emergence of our Regenerative Communities Network unfolding on the ground which holds tremendous promise, and to my regenerative agriculture and aquaculture impact investment projects.

    Today, I am pleased to introduce an important idea from Duncan Austin who recently left a large sustainable investment firm after many years: “Greenwishing.” Duncan’s important message, coupled with John Elkington’s product recall last year on “triple bottom line,” a term he coined 25 years ago, reflect the growing consensus that sustainability in business is not working. Instead, the chorus for systemic transformation is growing. Duncan calls for policy change. I certainly agree. I also believe in a third way, emerging at bioregional scale, that will transform the way we think about economics. With our divisive politics, and the ignorant ideologies that continue to inform our policies across the political spectrum, things will need to get worse before they get better. The good news is that systems can and do change, and only change in response to pressure.


    Pressure’s rising.

    Greenwish: The Wishful Thinking
    Undermining Sustainable Business
    Duncan Austin
    July 2019

    Bad news for the environment: sustainable business isn’t succeeding.

    I’m frustrated, too. But we can make it succeed.

    The two-decade-old sustainable business movement has reached a major crossroads that few of its participants yet recognize. While the movement can claim many early successes, it is increasingly diverting effort and resources away from the only form of change – policy change – that can now adequately address our environmental challenges.

    The sustainable business movement has long confronted instances of so-called greenwash, whereby certain companies cynically promote token ‘green’ initiatives to distract attention from unsustainable core businesses.

    Today, we face a new affliction of greenwish – the earnest hope that voluntary sustainability efforts are much closer to achieving the necessary change than they really are. This condition may prove every bit as harmful because it is more widespread and arises principally from good intentions.


    I reach this conclusion reluctantly because, for 25 years, I have been an advocate of the sustainable business movement, first at an environmental non-profit organization and then at a sustainable investment firm. As environmental policy initiatives faltered in the late 1990s, I, like many others, turned to market forces to promote sustainability, encouraged by the prospect of win-win opportunities – business solutions good for both planet and profit.

    Today, sustainable business appears to be thriving. A socially responsible investing (SRI) industry now accounts for a quarter of global financial assets and many sustainable investment funds have outperformed. In the corporate sector, chief sustainability officers – a designation virtually unknown before 2004 – are ubiquitous.

    Yet, 20 years after this major transition to market-led environmentalism, key environmental metrics continue to deteriorate. Global CO2 emissions are now 55 percent higher than in 1997, the year of the landmark Kyoto meeting. After a brief hiatus between 2014 and 2016, emissions are growing faster again. In May, the United Nations reported that ecosystem health is declining at rates unprecedented in human history and that the rate of species extinctions is accelerating.

    While environmental indicators would surely be even worse without the sustainable business efforts of the last 20 years, the fact that matters in 2019 is that these indicators are not much, much better. The harsh reality: sustainable business is necessary for a sustainable culture but far from sufficient. It is not that there are not win-win opportunities nor good investment returns to be had from identifying them, only that the global metrics reveal today’s economic growth remains an overwhelmingly win-lose phenomenon, but one now granted inadvertent cover by the current form of sustainable business.


    The core problem is that sustainable business’s well-intended efforts are undermined by their deeper prior commitment to shareholder value maximization (SVM), which, applied to today’s incomplete prices, induces business to cause more ecological damage than their voluntary efforts can repair.

    Only three hundred years after the market began its cultural ascent, our price system remains a work in progress, and the profit calculations it engenders remain incomplete. Our markets are riddled with negative externalities; our ‘economy’ is more unpriced than priced. Consequently, the financial statements that steer business activity offer a highly skewed picture of wealth-creation.

    Energy and manufacturing companies have no line items reflecting the damage caused by their greenhouse gas emissions. Agricultural companies have no bills recorded for soil erosion, nor chemical companies for mounting pesticide resistance and toxic runoffs into our waterways. The food industry shows no financial outflows for the obesity crisis prompted by their sugar, salt and fat offerings of past decades. The tech industry’s accounts seem to be missing cost entries for the adverse mental health and privacy consequences of business models optimized to promote screen time.

    Yes, there is certainly a tax line intended as a contribution to society, but this is an indiscriminate catch-all – florists and mining companies face the same basic rate.

    Ponder this for long enough and eventually one’s eye is drawn from the profit margins within the income statement to the empty margins of the surrounding page. Those empty margins are a curiously eloquent expression of everything that is missing – the deforestation and species loss not paid for, the animal cruelty not fully compensated, the screen addiction not charged, the contribution to climate change not reimbursed, the plastic pollution not indemnified. They are all there in the empty margins if you look closely enough, but – be warned – once you start looking, empty margins might become all you see.


    To be sure, companies have sought to address this problem by disclosing supplementary environmental, social and governance (ESG) metrics. Initially, in the late 1990s and early 2000s, this proved beneficial. The mere act of compiling such data prompted many companies to view their business in a brand-new light, fostering a new ecological awareness and teasing out new areas of innovation. However, with each year that passes, this disclosure strategy exhibits diminishing returns to effort. While businesses are now alert to sustainable innovation paths that are profitable, environmental and social metrics that dutifully flag unprofitable challenges cannot escape their second-class status. They are metrics investors may consider, but, unlike profit numbers, rarely lose sleep over. Pitting values with prices against values without prices is not proving a fair fight. SVM trumps SRI. It is greenwish to pretend otherwise.


    The critique signals the opportunity. The low-hanging fruit for meaningful corporate action now lies firmly on the side of systemic interventions. The disclosure now required is not more detail about a company’s greenhouse gas emissions or water use, but rather what companies publicly stand for regarding the changes in rules and prices needed for a more sustainable world – and what, exactly, they are doing about it. This is the critical question we must now ask our portfolio managers and corporations.

    Obviously, for business to demand potentially costly new rules to protect the planet challenges the institutionalized self-interest of the modern corporation. So, it will have to be up to the human beings that work in corporations to reflect on whether the sustainable potential of their organizations is ever thwarted by commercial imperatives, and, if so, what that implies about our market system.

    My comments may dishearten members of the sustainable business community, but in many respects, that community has successfully executed on a genuine opportunity that unfortunately now appears more limited as an ecological strategy than we had all first hoped. What would be a mistake is for the sustainable business community – and society more broadly – to deny the crossroads we have reached. Today, our rapidly deteriorating environmental situation prompts justified calls for urgent response. The sustainable business movement must avoid falling into the trap of responding simply by pursuing old strategies with more urgency, and instead urgently adopt new strategies that the moment demands

    July 2019

    Duncan Austin has had a 25-year career in the sustainability field, having held senior positions at both an environmental non-profit organization and a sustainable investment firm. He currently writes as an independent. This is an abridged version of an essay available at Preventable Surprises (www.preventablesurprises.com) and Capital Institute (www.capitalinstitute.org).

    Read Duncan’s full article here.
  • An Open Letter to Finance

    September 19th, 2018 by ewalsh
    Photo by Aditya Vyas

    Photo by Aditya Vyas

    Ten years have passed since the U.S. Federal Reserve Bank allowed Lehman Brothers to file for bankruptcy, attempting to signal to the market that no firm is too big or important to fail. That mistaken belief triggered panic across the global financial system. The next day, a chastened Fed decided to rescue AIG, the insurance colossus ensnarled in a credit default swap tsunami that threatened to bring down much of the financial system with it, beginning with Goldman Sachs.

    The media waves are filled with analyses of causes and expert testimony on what’s changed, and questioning if it can happen again. Unfortunately, most of this decade on analysis fails to go deep enough to assess true root causes that lie in issues like purpose and systems design principles. Without such analysis, we can say with confidence, as many pundits agree, that it can and will happen again.

    To avoid such an outcome, to which governments are far less capable of responding than they were ten years ago (perhaps one of the most dangerous consequences of the crisis), we must fully internalize four fundamental lessons from the crisis:

    Lesson 1: Finance is a sacred trust upon which societies rise and fall, and the modern global financial system is inexorably dependent upon the support of Central Banks, and the U.S. Government (and China) in particular.

    The unprecedented, multi-trillion-dollar rescue of finance largely worked as hoped. And any pretense of a “free market” financial system is a fraud. We should understand the global finance system as contingent socialism. The system, when in crisis—which is the only time the socialist part is relevant—is fully backstopped by the full faith and credit of the world’s major governments. There can be no other way, so we must think and act accordingly.

    While many bankers lost their jobs, including some fat cats, few lost everything, and most recovered just fine. The real human costs of the financial crisis have been born by ordinary citizens in the real economy. Trauma of this magnitude causes damage that reverberates for generations. Millions lost their jobs and homes with profound consequences on families’ life-long emotional and financial well-being. Billions more around the world had their livelihoods profoundly shocked or worse. More have been permanently scarred from the cascading effects of the credit crunch on consumers, businesses, towns, schools, hospitals, indeed the entire real economy and with it, the social fabric of society. Local, State, and National Governments have had their financial positions damaged, leaving them far less resilient to weather the many interconnected crises arriving at an accelerating rate, from bridge collapses to storm devastation, from the opioid addiction to the mental health crisis affecting our children.

    Such costs should be seen as unacceptable by modern governments with an interest in survival, no different than invasion by an enemy power. The scale of government response must reflect this reality. This is the implication of a contingent socialist financial system.

    Lesson 2: The global response to the financial crisis was wrongly focused on saving finance to save the economy.

    It is true that a financial collapse would destroy the economy, but it does not follow that saving finance will save the real economy. In the contingent-socialist finance that we have, like it or not, it is incumbent upon governments of the leading powers to create structures and institutions that protect economies from catastrophic loss. Finance has lost the opportunity to self-govern itself in such a way to make it safe for society. All actions have consequences. Similarly, it was necessary following WWII to conceive of NATO to protect Nation States (and society) from themselves.

    The lesson is that Finance is embedded in, and inseparable from, the real economy and society as a whole. Any notion of a “financial sector” apart from the broad economy is, in reality, a fiction, useful to clever financiers who exploit the contingent socialist contract for massive gains, on the backs of the citizens without their knowledge or consent. The speculators even have a name for it: The “Fed put” which allowed them to actually increase risk-taking focused on banks, knowing full well that the Fed would not allow the system to collapse. Heads I win, tails society loses, while the speculators’ bet has a floor under it. It’s like free insurance, and financiers understand the value of free. The aggressive ones load the boat on “free” to the direct detriment of society.

    Modern Finance extracts by design, and therefore undermines the health of the host within which it is embedded (the real economy). In fact, “to extract value” is an ordinary and unquestioned term within the practice of finance. The distribution of costs and benefits from financial activity is asymmetrical and extreme. Finance takes a disproportionate share of the winnings when times are stable, while distributing the losses across society during crisis: this is contingent socialism.

    Lesson 3: Malfeasance coupled with injustice has consequences.

    The injustice of the bailout has been seared into our collective psyche. None of the worst offending fat cats went to jail. Few were held accountable in any meaningful way. No doubt the political tribalism here at home and across Europe is, to a significant degree, a result of the financial crisis and associated human misery, made worse by the ill-informed austerity policies the crisis brought in its aftermath. Then, to make a terrible situation unpalatable, there has been a complete lack of accountability for those responsible (private sector and public sector alike). The public knows in their guts that this contingent socialist system (referred to now as simply “Wall Street”) is fundamentally unfair, they are understandably angry, and the western political order is in great peril.

    Lesson 4: Without a fundamental strategic reassessment, we cannot change the nature and ideology of finance. Indeed, it has not changed.

    Many of the regulatory responses to the financial crisis were tactically correct, but, as can be expected, they had unintended consequences. It was correct to increase the capital and liquidity buffers of banks (it arguably should have been more). It was correct to tackle the off-balance sheet derivative exposure through the use of centralized exchanges for much of the counterparty risk. It was correct (but unrealistic) to attempt to create “living wills” for banks. It was correct to attempt to reign in speculation with the Volcker Rule. Nevertheless, all these changes have been heavily negotiated by the banks who retain too much power to determine their own fates. And some of these good intentions have proved to be practically very difficult (Volcker Rule in particular). And the cost of dealing with all this new regulation means greater fixed costs for all, harming the smaller banks we need more of, while creating further economies of scale for the very largest. Indeed, the too big to fail banks of today are much larger than during the financial crisis a decade ago. Even if they are better capitalized, they most certainly remain too big to fail, and they are far from fail-proof.

    Tactical responses to the flaws of the last crisis without a fundamental strategic reassessment about what is the purpose of finance, and what kind of financial system do we as a society want (and in fact need), can only deliver incremental improvements. Tactical responses cannot change the nature and ideology of finance. Indeed, it has not changed.

    A strategic assessment of what went wrong a decade ago (and what went wrong on the hundreds of prior financial crises) must begin with two questions:

    First, what is the purpose of finance?

    And second, will we accept any financial activity that is deemed by society not to be in the interest of the health of the whole system (the real economy within which finance is embedded)?

    I would suggest a thorough and serious evaluation of the first question is long overdue. And I hear virtually no real discussion by those in power about the second question beyond some bashing and shaming the villains in finance. What is missing is an evaluation of our finance ideology and the grip it has on us as a society. We must find the right questions to ask.

    Questioning financial activity and its consequences for society, like the fact that much of modern finance emanating from Wall Street is dedicated to short-term speculation which we confuse with “investment” rather than in service to the real economy. Or like the predatory nature of much of the rush to securitize assets in what has become known as financialization or even the positive-sounding and implied “market completion” by financial economists. Let us be clear: the subprime crisis was never primarily about extending home ownership to low-income households as we would be led to believe by the “market completion” narrative. It was about manufacturing massive quantities of securities with high yields that could be sold to yield hungry investors with correspondingly massive fees taken out in the middle by financial predators. The tail wagging the dog with horrendous human consequences. We as a society can and must decide whether we need to allow anything just because it’s possible (we don’t). Yet we do allow it.

    To begin a conversation about these important questions and more, I plan to release “Regenerative Finance”. The thought piece asks a singular question: what would finance look like if it were to operate in service to the economy and a healthy biosphere? Such an approach to finance is one that is aligned with the principles of regenerative economics as articulated in my previous work, “Regenerative Capitalism: How Universal Principles and Patterns Will Shape the New Economy” (2015).

    We will take a living-systems view of what the design principles of systems that sustain themselves for long periods of time actually look like, and use this as an objective, ideology-free lens to assess finance strategically, rather than reactively and from engrained ideological positions which is the conversation one usually sees in the Financial Times and the Wall Street Journal. Political difficulties with policy implementation are suspended while we get clear on where we actually need to go.

    We will present the project in the coming weeks and months in four acts following an introduction to provide context:

    Act I: Implications of the Regenerative Paradigm for Finance
    Act II: The Failures of Finance
    Act III: Towards Regenerative Finance and a New Investment Theory
    Act IV: Agenda for the Genuine Financial Reform We Need

    Your feedback and suggestions are not only welcome but they are also a vital part of the project. So please send your thoughts in writing to feedback(at)capitalinstitute(dot)org and accept our sincere gratitude in advance. You can also share your suggestions on social media using the hashtag #DearFinance. Our aim is to revise the draft based on your input before publishing a final product by year-end.

    I sincerely hope this project will be worthy of your good energies and can be shared among your networks. Collectively we can begin to shift the conversation on Finance, an ideology that has come to hold a grip on us, and even absent bad behavior by financiers, threatens all we hold dear in the process.

  • Finding Prosperity

    May 8th, 2018 by ewalsh


    With the tenth anniversary of Lehman Brothers’ collapse around the corner, economists are talking again about a “Goldilocks” economy – just right. Employment statistics appear strong, reported inflation remains in check, and the stock market is near all-time highs.

    Yet America is in the grip of despair, with ever clear evidence of systematically widening inequality, entrenched racism, sexism and misogyny, unconscionable gun violence, a student debt crisis, accelerating health epidemics, and weather-induced disasters now the norm. A complex, war- and climate-triggered global refugee crisis has gripped Europe in fear, with no easy answers. In response to these cascading pressures, our politics have gone from uncivil to tribal, and collapse—social, economic, or political—must no longer be viewed as some remote possibility. Indeed, we may even be experiencing the unfolding of an early phase of collapse already.

    America’s past prosperity was derived from the dynamism of capitalism, but evidence of a dark underbelly reveals the truth about its expansionist and extractive core. Expansion has physical limits, and extraction has social limits. We have reached both and are now in desperate need of a new source of prosperity. Yet the mainstream public debate offers a false choice: a kinder, more communitarian capitalism with aggressive wealth redistribution and a stronger safety net from the left; or a competitive, nationalist, us-versus-them fight to the finish from the “freedom”-loving, self-reliant right. Both sides accept economic scarcity as the unquestioned basis of the debate. Both sides are blind to the source of our future prosperity.

    It is true, we have reached the end of a road. The half-century-old Modern Era, grounded on Cartesian logic and the brilliant advances of the Scientific Revolution, with its reductionist method of analysis in which we break down what’s complicated into understandable parts is reaching its inevitable limitations. The collapse of communism a quarter century ago and the collapse of finance a decade ago should be understood as the reinforcing evidence of the end of Modernity that it is. This next great era, the integral era, will force us to shed our human arrogance (equally shared on the left and the right) that says we can manage complex systems through objective analysis without creating ever greater problems with our solutions. Of course, this is not the popular view. Instead, to borrow from Vaclav Havel, “we are looking for an objective way out of the crisis of objectivism.”

    Our future prosperity lies in giving up the illusion of our separateness from one another and from our environment, and instead, reconnecting the now broken parts into the true wholes of reality, unleashing untold potential and prosperity in the process. Our bodies, our ecosystems, our businesses, our economies, our societies are far more than the sum of the parts we currently use to analyze and manage them, as true for cancer research as it is for equity research. And they are far more complex than we can objectively understand, much less manage. Instead, we must learn to work with the complexity, to understand how it works, and to discern its underlying patterns and principles.

    It is not, therefore, new technologies that will save us. It’s a new way to think!

    With more integrated, “integral” thinking, we will learn to see our economies through these universal patterns and principles. In the process, we will learn to unlock previously unseen potential, consistent with our true reality of abundance if we only had eyes to see it. We’ve been telling this story for years as we observe it unfolding on the ground in the particulars of place. It’s real, and it’s emergent, enabling us to see human economies as the diverse, complex, self-organizing, living systems that they are in reality and not according to some outdated economic theory built on flawed assumptions such as utility maximizing man, markets in equilibrium, and normal distributions for non-linear complex causes.

    Regenerative economies share common patterns and principles, such as the central role of relationships over transactions, the balance of efficiency with resiliency, and the source of new life and potential at the edges between sectors where there is more opportunity for diversity of exchange. The structure of regenerative economies follows a fractal pattern, facilitating healthy and complete circulation across all scales and regions of the system; their subsystems are all empowered to participate in the health of the entire system, for the sake of systemic health. Such principles are “universal” to all healthy living systems, yet they manifest in each context in their own unique and beautiful ways, informed by culture and geography.

    This integral approach to economies is ready to scale, but not through some top-down political mandate led by politicians on the left or the right with their bumper stickers. It will be led by us—ordinary citizens—if we accept the responsibilities our rights and freedom entail. “We are the ones we’ve been waiting for!” It is scaling through learning networks, from the bottom up, just as nature herself drives all systemic change at scale. I yearn for the day when politicians from the left and the right engage in productive, evidence-based debate around which creative policies will best support the emergence of regenerative economies while helping to ethically hospice the inevitable decline of Modern Era, extractive businesses, and economies.

    This is the beginning of a “new story” that will replace the old story of whence prosperity comes in what Thomas Berry called “The Great Work.” It will define the Integral Era.

  • 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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