Living Enterprise as the Foundation of a Generative Economy

“What kind of economy is consistent with living inside a living being?” This was a question posed to us under a leafy canopy, deep in the woods of southern England, not far from Schumacher College where I’d come as a teacher. I stood listening with a group of students as resident ecologist Stephan Harding posed what for me would become a pivotal question – the only question there is, really, as we negotiate the turn from the industrial age into an entirely new age of civilization.

I’d come to Schumacher to share my learnings from four years as co-founder of Corporation 20/20 at Tellus Institute in Boston, where I’d helped to lead hundreds of experts in business, law, government, labor, and civil society to explore what, at the time, seemed to me the most critical question of our day: How could corporations be redesigned to incorporate social and ecological aims as deeply as financial aims?

Over 20 years as co-founder and publisher of Business Ethics magazine, I had seen how corporations and financial markets had come to be the dominant institutions of society, and how their profit-maximizing operating system had become the operating system of the planet. That design lay at the root of many major ills facing our society. But if corporate design was the core problem, the question of redesigning corporations did not quite hit the mark as the solution. It was Stephan’s talk that helped me understand why.

You don’t start with the corporation and ask how to redesign it. You start with life, with human life and the life of the planet, and ask, how do we generate the conditions for life’s flourishing?

If you stand inside a large corporation and ask how to make our economy more sustainable, the answers are about incremental change from the existing model. The only way to start that conversation is to fit your concerns inside the frame of profit maximization. (“Here’s how you can make more money through sustainability practices.”) Asking corporations to change their fundamental frame is like asking a bear to change its DNA and become a swan.

The founding generation of America didn’t begin by telling the king how caring for the peasants would improve his return on investment. They articulated truths they held to be self-evident. That’s what Stephan did in that forest. He said simply:

“A thing is right when it enhances the stability and beauty of the total ecosystem. It is wrong when it damages it.”

The sustainability of the larger system comes first. Everything else has to fit itself within that frame.

Monks performing sacred rite in their community forest (photo courtesy of ARC via flickr)

From maximizing profits to sustaining life

If the dominant ownership designs of today are built around profit maximization, central to that imperative is the need to grow.  As Herman Daly and others have so eloquently articulated, the growth imperative threatens the living system of the Earth. When we take apart the system to see where this imperative resides, we find that what keeps it in overdrive are the demands of Wall Street for ever-higher profits and stock price. Corporations, and the capital markets where their ownership shares trade, are the internal combustion engine of the capitalist economy. They are where it hits the ground and goes. And where it spins out of control. As Fritjof Capra put it, “It’s an alarming thought that organizational systems are now the main driving force of ecological systems.”

In the short run, profit-maximizing companies can help in a rapid transition to an ecologically cleaner economy. But in the somewhat longer run, that transition might represent a brief moment in time. If human civilization and planetary ecosystems are still functioning well 50 years from now (not a small if), what about the next 50 years? And the next 100 or 200 or 1,000 years beyond that? What kind of economy will be suited for ongoing life inside the living earth? Will it be an economy dominated by massive corporations intent solely on earnings growth? That doesn’t seem likely. When you take the long view, the question turns itself about:

Can we sustain a low-growth or no-growth economy indefinitely without changing dominant ownership designs?

That seems unlikely. Probably impossible. How, then, do we make the turn? How can we design economic architectures that are self-organized not around profit maximization, but around serving the needs of life?

After my sojourn in England, this question set me on a journey in search of answers. I had seen, over many years, how extractive design – the quest for endless extraction of more and more financial wealth – was at the root of many of our ills. I began a quest to find alternative designs. And I was heartened to find they were everywhere, emerging in largely unsung, disconnected experiments all over the world.

I visited wind farms in Denmark that had been started and owned by wind guilds, groups of small investors who joined together to fund and own wind installations, with no corporate middleman. Denmark now generates one-fifth of its electric power from wind, more than any other nation. And this success is widely credited to the grassroots movement of the wind guilds. It’s an ecological success story made possible by the community-rooted ownership designs behind it.

I studied the community forests of Mexico, where the rights to govern and profit from the forest have often been granted to local communities, many of them indigenous tribal peoples – like the Zapotec Indians of Ixtlan de Juarez in southern Mexico. At Ixtlan, the problems that bedeviled other forests in Mexico, like deforestation and illegal logging, have become relatively unknown. The reason is community members have incentive to be stewards, because forest enterprises employ 300 people harvesting timber, making furniture, and caring for the forest. These are living forests, communities of trees and humans, where the purpose is to live well together. Worldwide, more than a quarter of forests in developing nations are managed by local communities. In Mexico, community forests represent more than 60 percent of all forests. Yet they remain virtually unknown, even in Mexico.

Photo courtesy of Stormsearch via flickr

On Martha’s Vineyard, off the coast of Massachusetts, I visited South Mountain Company, an employee-owned design and build firm specializing in sustainable construction, which has made a deliberate choice to slow down its growth. It was the first example I’d seen of a consciously post-growth company. As its president John Abrams had written, this company was “challenging the false gospel of unchecked growth.” After the crash of 2008, it had in fact opted to shrink – and to do so in the most humane way possible. Its ability to make that choice arose directly from the fact that the company was owned and controlled not by absentee owners, but by its own employees.

In Maine, I visited a lobster cooperative that supported more than 40 families, helping them by allowing lobstermen to collectively buy bait and sell their catch efficiently. It is a small-scale community ownership design that is part of a larger economic design – a state governing framework. That framework includes democratically elected lobster zone councils, as well as ecological rules prohibiting the taking of lobsters that are under-age, or carrying eggs. Most innovatively, the state rules prohibit corporate boats from operating in sensitive inshore waters, allowing only owner-operated boats there. In other words, only small, local, mom-and-pop type lobster operations are allowed to work the best waters. At a time when the vast majority of the world’s fish stocks are overexploited, the Maine lobster industry remains vibrant. It is often cited as an example of successful collective action in “common pool resource management.” Rules on ownership design are central to it all.

In Denmark, I visited the town of Kalundborg, where the major pharmaceutical Novo Nordisk produces 40 percent of the world’s insulin. The town is home to a famed example of “industrial symbiosis,” where this company’s waste becomes food for the ecosystem. Yeast from making insulin, for example, is treated and then passed to farmers to be used as food for pigs, or for fertilizer. That ecological design – which has been operating and stable for decades – is possible only because ownership of this major, publicly traded company is also stable. It is an example of a design that is common throughout northern Europe, which can be called the “mission-controlled corporation.” The aim of this company is to defeat diabetes. And the corporation is legally controlled by a foundation, intent on that social mission.

These various models embody a coherent school of design – a common form of organization that brings the living concerns of the human and ecological communities into the world of property rights and economic power. They can be called a family of generative ownership designs. They are aimed at creating the conditions where all life can thrive. Together, they potentially form the foundation for a generative economy – a living economy that might have a built-in tendency to be socially fair and ecologically sustainable.

In ownership design, there are five essential patterns that work together to create either extractive or generative design: purpose, membership, governance, capital, and networks. Extractive ownership has a Financial Purpose: maximizing profits. Generative ownership has a Living Purpose: creating the conditions for life. While corporations today have Absentee Membership, with owners disconnected from the life of enterprise, generative ownership has Rooted Membership, with ownership held in human hands. While extractive ownership involves Governance by Markets, with control by capital markets on autopilot, generative designs have Mission-Controlled Governance, with control by those focused on social mission. While extractive investments involve Casino Finance, alternative approaches involve Stakeholder Finance, where capital becomes a friend rather than a master. Instead of Commodity Networks, where goods are traded based solely on price, generative economic relations are supported by Ethical Networks, which offer collective support for social and ecological norms.

Ownership is the gravitational field that holds an economy in its orbit. Today, dominant ownership designs lock us into behaviors that lead to financial excess and ecological overshoot. But emerging, alternative ownership patterns – when properly designed – can have a tendency to lead to beneficial outcomes. It may be that these designs are the elements needed to form the foundation for a generative economy, a living economy – an economy that might at last be consistent with living inside a living being.

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Marjorie Kelly is a Fellow at Tellus Institute in Boston and author of The Divine Right of Capital and the more recent Owning Our Future: The Emerging Ownership Revolution. Learn more at www.OwningOurFuture.com.

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