In my last blog I described my personal journey from profit to value. We now have a firm conceptual foundation for the Universal Commons project, which is to transition the economy to “Mutualistic Capitalism”, where profit is aligned with value and businesses can only make a profit when they simultaneously advance the common good.
The reason this transition is crucial is that while our current economic system has generated great wealth, it is failing both people and the planet. This is because the engine of capitalism - profit - doesn’t reflect everything that we truly value, like clean air, safe communities and a stable climate. As such, much economic activity can end up harming people and degrading the environment.
When profit is not aligned with value, we end up with “Parasitic Capitalism”, where businesses can make a financial profit while harming people or the environment, effectively making them “parasites” on society. We don’t blame businesses for this; they’re just following the economic rules that society has set for them.
One of the main reasons that profit is misaligned with value is the problem of externalities, which are byproducts of business that positively or negatively affect society. We believe that we can internalise externalities by changing the economic “rules of the game,” thereby realigning profit and value and moving from Parasitic Capitalism to Mutualistic Capitalism.
We acknowledge that changing the economic rules of the game will be a slow, iterative, multidimensional and complex process. However, the rules of the game in relation to carbon emissions are rapidly changing so that innovative businesses can make a profit while combating climate change. This can serve as a case study and model for other externalities.
We have decided to build on these foundations and spend the next 12 months focussing on communications outreach and commercial ventures.
Our communications activities will share my personal journey and spread the message of the Universal Commons to the business, investment, philanthropic and Impact Investment communities.
The core message is that we need structural reform to the “rules of the game” so that we can enjoy prosperity without degrading the Universal Commons, upon which we all depend. Our first published article was a response to the recent US Business Roundtable statement that business should shift from generating only shareholder value to generating stakeholder value.
While we endorsed the idea that business should consider the impact it has on a wide range of stakeholders, we argued that there is a broader issue at stake, which is the way we think about profit itself. If the underlying “rules of the game” are left unchanged, and profit is not aligned with value, then businesses that invest in stakeholders at the expense of profit will be at a competitive disadvantage to those that continue to focus exclusively on generating a financial profit. You can read the editorial, and accompanying interview, here.
The for-profit arm of our family office, the Trawalla Group, will pursue opportunities to invest in purely commercial ventures in the rapidly emerging markets for carbon emission reductions and clean energy. This will serve as a case study and a proof of concept for how to internalise externalities and align profit and value.
It will demonstrate how increasing levels of public and investor pressure, the emergence of voluntary markets, improved measurement and the prospect of future regulatory change are inexorably changing the economic rules of society so that an externality like carbon emissions is being internalised, making it possible for businesses to profit by investing in its reduction.
By investing in carbon emission reductions and clean energy, and achieving market rates of return, we hope to encourage others to follow. We also hope our carefully targeted investment will be an exercise in market transformation, helping to close the gap between the market of today and a future market where profit is closely aligned with value. We even hope to see the day when we need to exit this market because it has become too competitive and profit margins are being squeezed!
This 12 month focus is in no way a reflection of diminished ambition. Our long term goal remains nothing less than achieving transformative change in the way our economy works. Our mission remains unchanged: to help realign profit and value, and thus shift our economy from Parasitic Capitalism to Mutualistic Capitalism.
In future blogs we will share the fruits of our communications efforts, and subject to commercial confidentiality, sharing our mutualistic profit seeking activities. As always, we welcome your feedback.