John Fullerton

Marjorie Kelly is right to elevate the social consequences of contemporary capitalism to at least parity with the planetary boundaries and the associated limits to investment. Ultimately, we need to understand the social and ecological imperatives as parts of the same whole system challenge. Although I agree that there are practical and ethical limits to both material throughput and inequality/unemployment, and that finance’s “capital bias” is at the root of both issues, they are not equivalent “limitations.” The social (shared human well-being) is dependent upon the biophysical, and not the other way around—unless we want to share equitably in an ecological catastrophe and call that success. Limitations on investment will make harmonizing the competing stakeholder interests much more challenging in the years to come—a constraint we have never faced in the past, and yet still failed to achieve a shared well-being. Like wasting water in the prosperous suburbs is different than wasting water in a lifeboat, this issue will create flash points of intense emotion and undoubtedly conflict. To take an optimistic view, perhaps when this reality sets in, we will have our greatest chance ever to realize that these are not in fact “competing” interests at all.

As Gar Alperovitz noted, we need more government intervention in markets as the early Chicago School economists predicted, and for a new reason they could not have imagined, namely the aggregate economic activity is breaking the planet. Yet we have a dysfunctional federal government in the United States, still the leading economy in the world. Certainly this leads us to conclude that fixing democracy is inextricably linked to resolving the limits to investment conundrum and any realistic shot at transition to what we like to call a regenerative economy. This is why the “new story” work of the new economy movement is so important. Without a new story, I do not see us creating a suitable prize for the political process to embrace and pull itself out of the current stalemate.

However, I have to disagree with his presumption regarding the “central dynamic” of a for-profit corporation that (a) it must go to Wall Street and (b) it must be driven by growth. While certainly understandable, this thinking is a reflection of our being trapped in the current speculative Wall Street paradigm. There is no reason that a mature business in a mature industry, for example, could not carry on profitably for a long time without growing. Such a mature stable business has the characteristics of a financial annuity, a highly attractive stream of cash flows for real investors like pension funds. And reconnecting true ownership and the responsibility that goes with it (impossible in today’s short-term capital markets) is a central objective. As I noted, the Evergreen Direct Investing method offers an example of a macro scale alternative that enables stewardship-minded investors to own profitable mature companies without forcing them to pursue exponential growth.

Regarding Hunter Lovins’s point, I have a love/hate relationship with the premise that business is the only institution capable of meeting the sustainability challenge. As a business person myself, I get it, but I do fear such a belief is a symptom of our twenty-first century ideological belief and a reflection of our justifiable distrust in government, at least in this country. One part of government that is “pretty effective” at its mission is the military. I am increasingly of the view that the “great transition” is so great that we need to think of it as a military challenge, not requiring weapons, but requiring mission-driven (not just profit-driven), rapid mobilization and deployment of resources—and, yes, some sacrifice—on an unprecedented scale. At the very least, it will require constructive partnership with government policy such as what we have seen in Germany and South Korea. There are simply too many constraints on businesses, first and foremost being “Wall Street,” for them to do it on their own.

I have no doubt that many corporations large and small are making material progress in reducing and at times even eliminating the unsustainable practices of business as usual. They deserve our applause and support. Similarly, I do not doubt that some senior executives are having existential crises as they recognize how challenging planetary boundaries are and will become to their business models. But these epiphanies are not frequent enough, nor deep enough, to transform much of the well-entrenched short-term bottom line business focus, particularly in a challenging economy. And such epiphanies remain largely absent from the dominant financial players in the economy.

I have pondered the practical possibilities of throughput limits as opposed to investment and consumption limits, the point raised by Herman Daly, but came up without anything remotely satisfying. My purpose here, however, is simply to illuminate the need to limit investment (qualitatively and, depending on these qualities, likely quantitatively as well), not just consumption. As I suggest, that investment triggers positive feedback loops (advertising) that make limiting consumption very difficult. Attacking the issue at the point of investment decision thus becomes important. From the perspective of political will, or just human will, I am not sure which way would be easier. However, if I accomplish only one thing, it is to put investment on the table and invite people to think about the implications and practical challenges of limits to investment.

Of course, as Daly notes, the credit creation process is also important, but I would contend that for the large-scale capital investment decisions which must be our primary focus, the equity investment comes before the credit creation. For example, if a company wants to build a factory or an airplane, or a building, or drill for oil offshore, before a bank will lend (credit creation) or a bond can be sold (not credit creation in this case), the equity capital of the sponsor comes first. This is generally true for small-scale credit creation as well, such as the need for a down payment before getting a mortgage. The equity investment, I would suggest, is the gating item and high leverage point of intervention.

With respect to the money system, the Chicago Plan, and 100% reserve requirements which would take away the credit creation function from the banks and leave them with the credit allocation function alone, I have chosen not to tackle that topic other than to flag it in this short paper. However, these are vital questions with intriguing possibilities, even more so when combined with the “Modern Monetary Theory” ideas of Randall Wray and Stephanie Kelton. My own thinking on these enormous questions is incomplete to say the least, but I would suggest that we need a monetary system that is less uniform than either the present system or a system of 100% reserve requirements, regardless of the particular context. For example, a local bank in rural Kansas (or rural Brazil) with limited local savings to recycle provides a vital benefit to its community by having the ability to create credit, if responsibly done. On the other hand, the unbridled capacity of JPMorgan or Goldman Sachs to supply credit to speculators directly through margin lending and indirectly via structured derivatives has become destabilizing to the global economy, as we have seen, with horrendous consequences. Less apparent, but more destructive in the long run, is the use of that same unbridled credit creation function to finance, for example, mountaintop removal coal mining (or any coal mining for that matter) or job-destroying leveraged buyouts that have no purpose beyond speculation for the benefit of equity sponsors. Context matters, and there are likely no one-size-fits-all solutions, including for the inadequate monetary system we have today.