Entries in capitalism (4)


Trial run for sustainable capitalism?

The investment strategy behind Al Gore’s Generation Investment Management is a simple one centering on sustainability as the key to long-term success. Far from rejecting capitalism, the company is touting a new version of it; one where socially responsible practices enhance, rather than hinder, long-term prospects. 

The Atlantic’s James Fallows thus explains Generation’s philosophy in practical terms: “Warren Buffett considers Coca-Cola a wonderful long-term value proposition, because of its decades-long track record of worldwide success. By Generation’s standards, it is distinctly unsustainable, since obesity problems in all of its leading market countries will, in the firm’s view, inevitably do to the soda industry what public-health concerns have done to Big Tobacco.”

According to Gore, the sustainable-capitalism model not only reduces the environmental and social damages caused by modern capitalism, but it does so while yielding healthy profits.

That part of the equation is at odds with the conventional wisdom that “the highest returns go to those who are unencumbered by sustainability or other environmental and social constraints,” as Carlyle co-founder David Rubenstein puts it. Yet the numbers seem to be telling a different story: Generation’s 10-year average ranked as No. 2 in a Mercer survey of more than 200 global-equity managers, and its global-equity fund was found to be among the least volatile. Academic research is also lending credence to the model’s viability, with a large-scale Oxford University study recently concluding - based on its assessment of 190 academic studies and news reports - that “it is in the best economic interest for corporate managers and investors to incorporate sustainability considerations into decision-making processes.”

Where attention to long-term social and environmental outlook has traditionally been viewed as a strain to the bottom-line, the people at Generation contend that their approach actually works “in the service of long-term greed.” Or as Gore explains it: “Our goal is to show that sustainability is a ‘best practice’ for doing this, and thus for changing the culture of the investment marketplace. I know that sounds pretty grandiose, but it’s our aim.”

-- Clara Shen


Impact investing evolution?

Impact investing -- an investment approach that intentionally seeks to generate a measurable social impact as well as a financial return -- is gaining greater attention from "mainstream" investors, according a recent article by David Bank in Impact Alpha.

While the precise definition of "impact investing" may still be the subject of some debate, it's hard to argue against the statement that Goldman Sachs' acquisition of Imprint Capital "could signal that the impact investing market has graduated from the white-papers-and-conferences stage to become a core part of the banks’ client-retention strategies and asset-management offerings." Bank also points out that Goldman decided to buy an existing specialist asset manager rather than building up it's own in-house capability, suggesting that other smaller funds specializing in impact investment may become acquisition targets.

With these new dynamics, it's reasonable to ask what this might mean for the future direction of impact investing -- will managers' approach change? Will the mix of institutional vs. family investors shift at all? Will the number of funds and/or the amount of capital directed towards social businesses increase?

Finally, we will be interested to see how these issues play out where it matters most -- among the businesses striving to create a social impact, and the communities in which they operate.

Image source: Impact Alpha

-- Clara Shen



Holism, a new economic approach to address world issues

Image Source: Huffington PostA recent article in The Guardian explores a new report released by U.S. think tank Capital Institute, which we find to be very interesting. The report suggests that a holistic approach to the economy is vital in order to avoid social, environmental and economic collapse. The institute argues that the world needs to look beyond the standard views of capitalism or socialism, and explore the "hard science of holism" in order to debunk outdated views held by both the left and the right.

Holism, a term coined by author Jan Smuts in his 1926 book, Holism and Evolution, is defined as the tendency in nature to form wholes that are greater than the sum of parts. Under this theory, focusing too closely on the individual parts of an organism could get in the way of understanding the organism as a whole.

Capital Institute founder, former JP Morgan managing director John Fullerton, says:

Society's economic worldview has relied on breaking complex systems down into simpler parts in order to understand and manage them.

For example, a traditional economic view generally views automobile manufacturing separately from the mineral mining, petroleum production and workers on which it relies, relates The Guardian. This runs the risk of overlooking the impact that automobile manufacturing has on the environment, politics and economics in a region. Taking a holistic view, on the other hand, takes into account the entire chain of cause and effect leading both toward and away from automobile manufacturing.

The report warns that the consequences of the current economic worldview are boundless, creating a multitude of challenges ranging from climate change to political instability. The institute argues that what the world needs now is a new systems-based mindset built around the notion of a regenerative economy, focusing on the whole, not the parts.

According to The Guardian, this type of mindset could lead to close analysis of supply chains, investigations of the effects of water use, circular economy initiatives, community economic development work or a host of other sustainability efforts. It also turns long-held beliefs on their head. Rather than approaching global economics from a capitalism-or-socialism perspective, it would approach global economics from a capitalism-and-socialism perspective.

What are your thoughts on the current way of viewing economic systems, and this new notion of taking a holistic approach to the economy?

-- Bruno Roche


Capitalism, equality and questions about the sharing economy

In the opinion of OuiShare connector Arthur De Grave, the "sharing economy" is not really about sharing, altruism, or a moral revolution. Rather, it's one element of the "collaborative economy (which includes the distributed production, peer-to-peer finance, and open source movements), and it raises a number of interesting questions.

De Grave seems primarily concerned with the question of whether the sharing economy is part of the next evolution of capitalism.  Within that framework, he also explores two areas of emerging discontent with the sharing economy:

  • Is the sharing economy addressing inequality in ownership structures? And,
  • Will it destroy jobs (and the privileges and programs workers have fought hard to win over the decades)?

In a wide ranging essay that makes references figures from Thomas Hobbes to Eric Schmidt, De Grave covers a great deal of ground. While ultimately stopping short of making a prediction or conclusion, the piece does create a potential framework for a more thorough exploration of these important questions.

Image source: Forbes

-- Jia Yan Toh