Tuesday, May 29, 2012

Respecting the Authenticity of the Capital Markets

In Economics today there is a growing movement to shift thinking away from inertial systems towards adaptive processes.  See, for example, The Institute for New Economic Thinking, and biomimicry.org.

The search for scientific predictability and precision engineering is seen as driving Economics in what is seen as a vain pursuit to investigate and illuminate the patterns and paradigms that can guide us in perpetuating our prosperity through the construction of mathematical models that do not and cannot capture the real dynamics of economic activity.

Instead, it is argued that reference should be had to life sciences to model human actors in an evolutionary process of adaptation to changing circumstances.

Paralleling this debate among economic thinkers about the right way to look for economic truth is a practical debate among economic activists about the right way to legislate for prosperity.

Unifying both debates is a shared sense that the Capital Markets are not working quite the way we need them to.  Misaligning the two debates is a difference in method.  Economic thinkers are asking, "what is wrong with Economics?".  Economic activists are asking, "what is wrong with People?"

In my view, both are the wrong question.

Better results will be obtained if we respect the authenticity of the Capital Markets as an ecosystem for value creation, capital formation and wealth distribution that is built on place-based technologies for invention, innovation, information and communication.

These place-based solutions for driving the flow of money through the economy were first adapted in America, in the 19th Century, to meet the needs of Industrial Expansion into a Western Frontier that was so large as to appear limitless.  There always was a limit.  We knew that.  We had reached and mapped it.  It was just that the open spaces within those limits were so vast, that the limit was not really that important.  The vastness was.

Scale is what was needed, and the invented, innovated and adapted the Capital Markets to achieve Scale.

Today, for the most part, the challenges of Scale have been met and mastered.  We live today in an economy that already operates on a global scale.  But it also operates within global limits.  We have traveled to the ends of the Earth, and discovered that they fold back in upon themselves.  We have ventured out into Space and found that there is nothing really out there for us.

We have the Earth, and it is well and truly ours, but it is all we have.

This is a new experience, not only for us, but for all Mankind.  Always, until now, there has been a Physical Frontier, a place beyond the bounds of what is known into which we could expand, endlessly, as our fathers and our forefathers have expanded for time beyond memory.  Today, there is no place to go.  We are here, and this is where we must be.

Scale is still important, but it must be scale within limits.  The Capital Markets were not built for this.  The Capital Markets were built for scale without limit.  Increasingly, as we encounter this new reality of global scale within global limits, we also encounter the limits of the design criteria for the Capital Markets: they are not built to see the limit.  So, the only way they ever find it, is to go beyond it, driving choice and action that is not sustainable.

The Capital Markets are losing their integrity, but it is not because we are not using them correctly.  It is because, increasingly, we are not using authentically.

If we think with those economic thinkers who want to define economic truth as an adaptive process, we can imagine the limits of choice available to actors within any given set of circumstances.  These circumstances can be imagined as six related domains for choice and action.

There is a domain of technology, and the technical capacity to shape things as we find them to arrange them the way we want them.

There is a domain of economy, and the commercial capacity to exchange artifacts of our technology with artifacts of other technology, to increase the wealth of choices we have available to us, overall, as a group.

There is a domain of society, and the emotions of caring and concern that bind us together as a community of shared interest, with a common commitment to the completion of the same work.

There is a domain of politics, and the ability to agree to rules for resolving conflicts over the personal use of shared spaces.

There is a domain of integrity, and the unity of action, expression and intention.

There is a domain of authenticity, and the ground that is both the source and the limit of experience.

The authenticity of the Capital Markets is as a pattern or paradigm for prosperity within an experience of scale without limit.  When applied to perpetuate our prosperity within the new experience of scale within limits, the pattern loses its ground.  It becomes unstable and unreliable.  It's not that it is wrong, so much as that it just is no longer a good fit.

The symptoms of this inauthenticity appear as lack of integrity.  Without a solid ground, the pattern slips and cracks.  Instead of the promised prosperity of open-ended expansion, we get booms that always, eventually, go bust.

Many economic activists are interpreting this lack of integrity in the Capital Markets as the symptom of a social problem.  Such movements as Investor Activism, Socially Responsible Investing, EGS, Impact Investing and Social Entrepreneurship see the problem as bad behavior, and the solution in reprimanding and restraining miscreant actors.  This problem certainly does have social consequences, but the problem itself is not social.  The real problem is one of authenticity.

We need to build a more authentic solution.

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