The recent article on Regenerative Economics got a lot of reads (for this blog at least). It raised a lot of interesting questions, some of which I will address below. First, I need to re-iterate a few things. The first is the big take-away I was aiming for:
- for the capability of a nation to provide basic needs to everyone, a measure of the state of real capital and the performance of the aggregate of the organisations employing that capital are essential for informing policy.
- not all economy can come under this measurement. Definitely not the art market.
- the essence of the regenerative economy is to put in place measures, track and respond to the state of the Real Capital that is employed to provide the security of the basics.
- the focus must always be on stewarding and regenerating the capital needed to provide basic services.
Surely Human Capital and Social Capital are not Tangible assets?
Tangible means you can touch it, it is real. And Human (HC) and Social (SC) Capital are real to the extent that they can be employed in production of basic needs but not used up. An organisation (SC) can be engaged to deliver food to the hungry. A worker with good organisational abilities can be employed to organise the delivery. You can measure the status of this capital by working out % of daily needs of % of people it can serve.
For example: a railway company (SC) has the capability to service 50% of the perceived travel needs for 100% of people on a particular route.
Human capital can be measured in the same way. Do you have enough people and do they have the skills needed by the organisation?
Note that we are taking a sufficiency perspective. We are not asking the value of the capital in money, rather its level of sufficiency. We prefer to stick to basic needs as well. There are obviously other areas of the economy – like the art market – that allow price speculation to establish a market value of a painting. Art is tangible and certainly on your private balance sheet as an asset.
Then financial capital is real?
The present monetary system allows indoviduals to accumulate money – store wealth – and then use that money to buy things. It can buy companies, shares, land, objects etc.
Companies, shares, land etc are all Real Capital. You could say that money is a store of value that can be used as a medium of exchange to buy and sell Real Capital. Money is only a means to buy and sell Real Capital and cannot be confused with Real Capital itself. Remember: Real Capital is that which is used but not used up in the production of basic services.
Money, as my friend Marc Gauvin will explain, is a very confused beast. It has maybe five functions all rolled into one and you are never sure which function is being discussed. For policy, it is better to leave money out of the picture.
Did it come from Doughnut economics?
Regenerative Economics fits nicely with the Doughnut. To produce goods and services to meet basic needs you need (SC) an organisation (BC) equipment and premises, (NC) natural capital inputs from nature and the Earth and people (HC). Either a nation has the capability (the aggregate of all firms) or not. The next question is if the capability is there but the economy is performing to its capability. For example: it could be so that there are enough apartments for everyone but some people are still homeless. That is a distribution problem.
In the Doughnut economy, society serves basic needs within the limits of planetary boundaries. This is again a yes/no metric measured against the capability of the aggregated real capital at national level.
The regenerative economy works to regenerate Real Capital to a level where society can fulfill basic needs, so again, Social and Human Capital are Real and tangible and their absence is clearly felt.
Where does financial investment enter your model?
The Real Capital approach of Regenerative Economics reveals society’s investment needs. You might find all the capital is in place but not performing. This should give rise to investment in organisational effectiveness. It could be that ecosystems are degraded – investment will be needed to restore them.
Investment should come from fiduciary (investment entrusted by individuals to organisations to be invested responsibly) sources. Money in pension funds, insurance etc would be well placed in restoring Real Capital. With Real Capital in place, organisations should be producing and selling, and able to pay a dividend. Sufficient real capital regenerative capability is also an insurance against cost of poor health, natural disasters, etc.
Connection to the SDG’s
Finally I’d like to point out the connection to the SDGs. The Sustainable Development Goals call for an end to hunger , homelessness, poverty and inequality. A Real Capital approach can inform this work by identifying
- is the Real Capital in place that can deliver the goals?
- is it being employed to perform to the goals?
It is possible to identify Real Capital on the balance sheet in terms of the ability of a corporation to perform as part of a circular economy as well. For those interested in reporting see the article series here.