Responsible Business Center | A Regenerative Economy: Capitalism 2.0

Faculty , Responsible Business Center | Oct 16, 2023 | Gabelli School of Business

The More Relevant Discussion

I was asked recently if “regeneration could save capitalism?” The more I thought about it, the more relevant question might be: Should capitalism, as currently defined, be saved? A corollary might be, ‘does it matter?’ ‘Are classic economic definitions relevant?’ To this last question, should we care if what we seize upon is an economy (I will argue a Regenerative One), that fosters better outcomes for people and the planet? Call it “Capitalism 2.0” if you’d like.

Leading with the Conclusion

With so much abundance, how is it there are people that lack food, clean water, adequate housing, healthcare and education? So can we not simply accept an obligation amongst us all to assure a social foundation for all people? Everywhere?

Similarly, can we not limit the extraction and use of finite planetary resources subject to their replacement? Business consumes 1.5x the Earth’s natural resources each year.

Finally, there’s products and their consumption. While propaganda may lay this issue at the feet of consumers, businesses can and must migrate toward more circular production and selling mechanisms to reduce the waste embedded in the commerce of replacement. Consumers will still buy products, and arguably prefer products that are less wasteful in production and have the prospect of multiple users.

A Regenerative Economy as We at Responsible Business Center Define It

A Regenerative Economy is one that runs for the benefit of all people and the planet. It is subject to a social foundation for all people and abides by the rational use of natural resources within our planetary boundaries.

The Regenerative Economy is one where business and consumers share in a belief in sustainable consumption and production policies. Within this, as Kate Raworth might describe as a ‘doughnut’, business and entrepreneurs can have at it! In the history of the humans on this planet, ingenuity has come to address past problems. Of course, this is possible with our current ones.

A Regenerative Economy is also one that marshals investment, with the support of business and government to foster and fund innovation and innovators. We can address our challenges with big thinking, grand ideas, audacious goals. We need exponential, not incremental outcomes.

If we can evolve from a profits-at-all-cost to a more sustainable economic system, a Regenerative Economy (and yes we can, it’s within our power and control as people), I’ll argue it’s Capitalism 2.0, but does it matter what we call it?

The Demise of Friedman’s ‘Shareholder Primacy’

In 2019, the Business Roundtable redefined a Corporation as one that equally optimizes for all stakeholders: employees, consumers, the communities where businesses operate, supply chain, and of course, shareholders. The demise of Milton Friedman’s doctrine that “the social responsibility of business is to increase its profits,” ushers in both business’s acknowledgement of this ‘social contract’ with all people, and government who technically affords companies the ‘license to operate’, and hastens people’s sense of agency by right: business (and lawmakers) don’t drive what’s acceptable. All people do.

As Profits Erode, Cronyism Interventions Can Protect Profits

Capitalism may be the cleanest shirt in the hamper, but we can do the laundry!

Business profits reduce overtime, given market forces, such as competition, the life-cycle of products, costs, and changing consumer tastes. Companies also find it increasingly difficult to continue to innovate. At some point, at the margin it becomes more profitable, to use the power of the state or industry collaboration, to extract resources from others or to protect those existing products from competition. This can be lobbying on tax policies (reduction, credits for activities), for other entitlements such as subsidies, relaxation of regulations that would add costs (such as labor, health or environmental).

This is the flaw in a model that suggests free markets and pursuit of profit, capitalism as a system, alone, is sufficient to assure ethical and moral behavior. Inexorably, without any limitations, profit protection motivates cronyism.

If the corporation is unconstrained, what curbs the motives of financial actors from seeking advantages? Their sense of right and wrong? Adam Smith’s ‘invisible hand’? Smith noted this plausible descent of later stage capitalism into cronyism – to seek immoral advantage, warning that government must wade in to assure businesses don’t form collectives or cartels, noting that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in conspiracy against the public, or in some contrivance to raise prices,” as he remarked in Wealth of Nations (1776).

Smith identified this natural flaw and saw protection in lawmakers providing moral oversight.

The Whiteboard, the Textbook, the Spreadsheet and the Real World

Capitalism in a laissez-faire influenced democracy, will have a tendency toward Crony Capitalism. Unchecked corporate freedoms, devoid of limits to protect people and planet inherently perverts capitalism.

Neither the strategists at their whiteboards, academics at their texts, nor economists with a spreadsheet should dissuade or distract us from the goal of assuring our stewards manage commerce for the best interests of people and planet.

Call it “Capitalism 2.0” if you like – whatever it’s called, it would be a big win.

Written by: Peter Lupoff who is the director of strategy for the Gabelli School of Business Responsible Business Center, which has a mission to inspire, inform, and activate industry professionals, academics, and students to collaboratively foster a more just and sustainable business ecosystem that serves all people and sustains our planet. He also teaches “Impact Investing” at the Gabelli School.

Lupoff is the founder and principal of Lupoff/Stevens Family Office, his family’s vehicle for impact investments, as well as other grant-making, advisory, research, teaching and writing activities.

He was formerly the CEO of Net Impact (2019-22), a 30-year-old nonprofit, 160,000+ member network with a mission to inspire, equip, and activate emerging leaders to make a positive impact for people and planet. He also was CEO of GOOD Institute (2021-2022), which addresses important issues, driving social action and reimagining the possibilities for our shared future by charting a new contract between business and society.