Capitalism 2.0: How natural laws can create a more equal economy | John Fullerton | Big Think

Capitalism 2.0: How natural laws can create a more equal economy

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The modern economy is an example of an unhealthy hierarchy, says John Fullerton, founder and president of Capital Institute. Unlike all other living systems, its design is not sustainable.

The laws of nature show how hierarchies can be healthy: "The lion is at the top of the food chain, but the lion sits around sleeping most the day rather than eating and killing all day," says Fullerton. All nature is hierarchical, but sustainable; look at the similar branching patterns of tree roots, river systems, lightning bolts, and our own cardiovascular system.

How can we modify capitalism to become self-sustaining? Financial incentives and disincentives could create a regenerative economy that reduces inequality. If we do not design a better kind of capitalism, "we will increase inequality to the point that we have civil strife and civil wars."

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JOHN FULLERTON:

John Fullerton is the founder and president of Capital Institute, a non-partisan organization working to create a more just and sustainable way of living on earth through the implementation of a Regenerative Economy.

After spending years immersed in the sustainability challenge of our age following his Wall Street career, John is now a globally-recognized thought leader in the New Economy space. The architect of the concept of Regenerative Capitalism, John is the author of Regenerative Capitalism: How Universal Principles and Patterns Will Shape the New Economy and the Future of Finance blog.

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TRANSCRIPT:

JOHN FULLERTON: So living systems have—one of my teachers is Sally Goerner. She was our science advisor until she retired and we still draw on her work extensively. She taught us that living systems have what are called healthy hierarchies. So it's not that hierarchy is bad; it's that hierarchy where the top extracts from below is definitely bad and unsustainable.

So, take the lion in the forest or in the jungle; the lion is at the top of the food chain, but the lion sits around sleeping most the day rather than eating and killing all day, and the lion, therefore, serves a very healthy purpose, hierarchical purpose, in the food chain, keeping the balance between smaller animals and large animals. But when the king of the jungle decides to extract as much as possible for its own benefit you have a very unhealthy system, and unfortunately that pretty well describes how the modern capitalist system works where there are benefits of scale, the bigger get bigger, they get more powerful, they get more political influence, but their intention is to maximize shareholder value because that's what we do. So the cycle of growing inequality is sort of locked into the system design.

Now how we deal with that in a human economy is not trivial: the oak tree "knows" in a forest that it serves to support a lot of life. I suspect the only answer in the short-term we have in a human economy is an enlightened regulatory regime that understands these principles and has incentives and disincentives that cause the market players to move toward a more healthy hierarchy. So, for example, in the banking sector—and this actually exists post-financial crisis, it's just not extreme enough—there are disincentives to becoming big and complex, they're just not strong enough. They should, in my opinion, be strong enough that it would force the J.P. Morgans and the Goldman Sachs' of the world to, of their own the volition, become smaller and less complex and become more in alignment in service of the economy. So things they do that are extractive should get penalized and the things they do that are in service of the real economy, which they do do, should get incentivized. So you don't need to "break up the banks", you need to create an incentive system that causes them to behave in such a way that they would be aligned with the principles of living systems—which by the way are fractal.

Every living system, again going back to your body, your cardiovascular system is fractal. You have a few large veins, a lot of medium-sized veins and tons and tons of the capillaries. That fractal system exists in oak trees and in humans and in river systems and in lightning bolts. So it's a strong argument in favor of not allowing the banking system or any sector of the economy to be so concentrated with a few massive firms that then end up undermining the health of the small ones, which is essentially what's happened across our entire economy...

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