Regenerative capitalism is coming: A conversation with former J.P. Morgan Managing Director John Fullerton

Regenerative capitalism is coming: A conversation with former J.P. Morgan Managing Director John Fullerton

In 2001, John B. Fullerton decided to leave his high-paying, prestigious job on Wall Street. For almost 18 years, he had worked for the large American investment bank J.P. Morgan, including a long stint as Managing Director responsible for various aspects of the company’s global capital markets and derivatives businesses, and then ran the investment arm of LabMorgan. 

Today, John Fullerton still works with finance, but in a completely different way. He’s the founder and president of Capital Institute which is “a collaborative working to explore and effect economic transition to a more just, regenerative, and thus sustainable way of living on this earth through the transformation of finance.”

Among other things, Fullerton has put out a vision or framework for a new economic system, entitled “Regenerative Capitalism: How Universal Principles and Patterns Will Shape Our New Economy” (2015).

“In many ways, our problem is that the finance system behaves and believes that it’s on top of the economic system, driving it, when it needs to see itself underneath it, in service of it,” he has said.

That’s quite a shift from the derivatives market in the late 90s.

So, as part of my interview series, I caught up with him to learn more about his thinking and his vision for a new economy. And why he left Wall Street in the first place.

Below is an edited transcript of our conversation.

* * *


Jonathan: Why did you leave Wall Street?

John: A lot of people probably think, particularly given the 2008 crisis and what not, that I kind of woke up one day and was tired of working for the bad guys and needed to redeem my soul. But the truth is that, first of all, I worked on Wall Street from 1982 to 2001 and left long before the financial crisis. Also, I had been itching to leave for years and it had much more to do with me personally and questioning what I was doing with my life than with all the bad behavior that we associate with Wall Street. And to be honest, when the financial crisis happened eight years after I left I was just as shocked by the behavior as pretty much everyone else. Both the scale and the audacity of it.

When I left Wall Street in 2001, I honestly I had no idea what I was going to do other than I was tired of doing what I was doing. And so I took the summer off.

A few months later, I had a meeting with the CEO of a charter school management company. Having invested Morgan’s money in charter school pioneer Edison Schools, I was intrigued with the education problem and thinking about starting a nonprofit charter school management company myself. The company’s office was on lower Broadway, in downtown Manhattan, and the meeting happened to be at 9:30 in the morning on September 11th. I was on my way in the subway and got to City Hall and the train stopped, and when I got to the street the second plane had literally just hit. It took me all day to get home before embracing my wife and three young children in the driveway.

I was already “unemployed” and trying to figure out what to do with my life and then that happened…

Jonathan: Where did all of this leave you?

John: It really put me into a pretty deep introspective period of my life, and I spent the next 6 or 7 years dabbling in various for-profit enterprises, in what we now call ”impact investing” and in the asset management business. But really, I was trying to figure out what the hell was going on and I was reading tons and tons of books. And it was in that period that I discovered the environmental crisis as a systemic issue. And I discovered that there was such a thing as system science.

One of the very profound books I read is a book called The Limits to Growth by a team of MIT system scientists. Lead author was Donella Meadows. It had been published in the 1972 and it was ridiculed at the time. But it essentially raised the question if exponential growth on a finite planet is possible. And that question is really at the heart of our environmental crises right now.

So for whatever reason, better or worse, I kind of got hooked on these very profound fundamental existential questions about how our economic system operates and the conflict between the assumptions of economics and the physical realities of physics, chemistry, ecology and the biosphere systems.

So, I think about climate change as a symptom of a problem itself.

* * *


Jonathan: You mentioned systems science and the environmental crisis as a systemic issue. I know that’s very much part of your thinking today. And you also talk about the transition to a regenerative economy. How does all of this work?

John: I haven’t written an actual book on this, but I am working on one. However, I do have this long paper out (“Regenerative Capitalism”, ed.) which we often refer to as our source code, and which is kind of my cumulative learning and articulation of a regenerative system, a regenerative approach to economics.  But it’s a work in progress.

At the core of it is the idea that all living systems – if they’re still around – have learned how to sustain themselves over long periods of time. In the biomimicry field they like to say that nature has practised for 3.8 billion years. I think the challenge with the human economy is that ever since the beginning of the modern age we’ve seen ourselves as separate from nature, not embedded in nature. And so there’s unquestioned assumptions about how economics can work that presume that the human economy is separate from the biosphere, leading to ideas like natural resources are simply “inputs” to the economic system.

My simple idea is that unless we rethink our economics and align them with these well understood patterns and principles of how living systems work, then we’re going to be constantly experiencing these unintended consequences or symptoms of a system that is fundamentally unsustainable over the long term.

Our current economic system is designed to, in my old language, optimize risk adjusted return on capital. So we’ve now got this massive accumulation of financial capital, but it has come at the expense of an ever-increasing erosion of our natural capital and increasingly, our social capital as well as inequality rises to levels not seen since the Gilded Age. And the better we are at executing the system we’ve designed, the more it undermines the viability of the system itself.

Jonathan: One of the business historians I spoke to, Geoffrey Jones from Harvard Business School, he talked about how when reading through all the deans on record speaking to the classes it was very clear that the idea of sustainability or at least business behaving in a responsible way is not new at all. They all spoke about it up until the 1970s – and then it went away. But now it’s back again. It coincides with the rise of the financial markets from the 70s and onwards…

John: Yes, but this idea about shareholder value… I don’t think it was designed to be an evil thing. It was designed to make business more efficient. But it was a misconceived purpose of business which is to maximize shareholder wealth as opposed to stakeholder wealth broadly defined inclusive of the resiliency of the natural world upon which all living beings depend. But you’re absolutely right, this is not a new idea.

I was asked to give a talk at a Deming Institute conference a few years ago, and W. Edwards Deming was this great business consultant, or business philosopher if you will, and he was talking about the same systems approach to business back in the 50s and 60s.

So it’s really a relatively temporal challenge, but unfortunately the finance ideology has so dominated even our unquestioned assumptions that we’re kind of lost in this trap of believing that unless your decisions are driven by short-term financial optimization you are inefficient and will lose in the competitive battle of business.

That’s another aspect of my own personal journey where I had this sort of a rolling epiphany where I woke up and realized that I was now this young derivatives whippersnapper hotshot. And I realized it was people like me who think they’re so smart who are actually the root cause of the problem.

* * *


Jonathan: Let’s go back to the systems science and your regenerative approach to economics. How is this different from sustainable business as we know it?

John: If you could summarize the past 25 years of sustainable business and sustainable finance, it would be centered around this quest for transparency, ESG, SRI, multiple capitals and essentially having business be accountable to report their environmental footprint and their social behavior.

What I say is that of course transparency is good, and of course raising these issues and having management and boards of directors wrestling with these hard questions is a positive. But in living systems there are a number of first principles, and if we look at it that way, then the first principle that has been in a sense violated in the way public corporations operate is the principle that I call “In right relationship”.

There’s no sort of hierarchy of principles in living systems. But if you would had to pick one that’s at the top or near the top it would be the idea that all the component parts in a system need to be in a healthy symbiotic “right” relationship with each other, making the ”whole” greater than sum of the parts. 

This is true at a molecular level like the relationship between hydrogen and oxygen. That symbiotic right relationship creates water and water unlocks the potential for all life.  It’s true of a sports team, and of course of a human body.  And it goes all the way out to the relationship between our planet and the Sun. It’s just exactly right or we wouldn’t be able to have this conversation. And it also goes for everything in between.

Now if you go to our modern financial system, one of the things we’re most proud of is our liquid capital markets. The trading on stock exchanges and the financialization of everything from commodities to future salaries of baseball stars… We thought that would be good as the economists argue that efficiency is good for economic growth because it lowers the cost of capital. But what we’ve missed is that it has created a much more fundamental problem.

If we go back to the basic business enterprise and the critical relationships of any business, then one relationship obviously is the relationship between the customer and the company. One is between management and employees. One is between the board of directors and the management. But one really critical relationship is between the owners of the company and the company. And just like a house with an absentee owner tend to not be taken care of, what capital markets have done is systematically severed the relationship between their true owners of the business and the business itself.

And now instead of any true sense of responsible ownership, then what happens in the vast majority of public companies today is that they have abdicated that ownership role to intermediaries who largely speculate in stocks as opposed to take on that long-term ownership role with the genuine responsibility that goes with it. And even if they vote their proxies and do all the “good things” they should do, they only own tiny pieces of lots and lots of companies. So they can’t possibly behave as true owners.

I would say that that lack of relationship between real investors and real enterprises is at the heart of why it’s so difficult for business to get off this short-term stock price bandwagon that they’re on. And all the transparency in the world can’t solve that problem.

Jonathan: But how can companies who want to pursue longterm visions get it right then? Do they need to leave the stock market all together?

John: I’m not suggesting there’s any easy answers to this. But in general, I would argue that they could remain on the public market if they had three to five large institutional investors who collectively owned a third to a half of the business. Then these investors would effectively have control over the long-term decision making, and then you would have a public company with a “right relationship” with some core owners.  And then you would have a chance of responsible decision-making.  But certainly no guarantee!

Certainly, being a private company would be an alternative way to solve it, but it doesn’t need to be private.  And we know plenty of private companies that don’t behave responsibly. 

* * *


Jonathan: So you’ve developed this framework or source code for a regenerative approach to economics. What is the framework about?

John: The core of the framework is the principles, and importantly, a shift from reductionist thinking to holistic thinking – that is, seeing the system as a whole.  And I’m not at all suggesting these principles are the correct or “right” answers. There’s lots of ways to describe a complex system. This is just one person’s best attempt to reduce the principles to a manageable number and yet have enough granularity that it actually means something.

There’s lots of different ways you could describe the principles of a living system and have it be applicable to a human economy. It’s just the way I’ve done it, and people seem to resonate with it. So I’ve not changed it. We literally just say we don’t know anything other than these principles seem to describe how living systems that sustain themselves work, so let’s see if we can align our human economies with them and what potential might emerge that we currently miss.

The 8 first principles as listed in Fullerton’s “Regenerative Capitalism”

Jonathan: But how does this set of principles solve the underlying problem of the finance system striving for unlimited growth on a limited planet? How does it become more than just a nice theory?

John: In terms of how to implement a regenerative economy in the real world, then the first thing that leaps out is that one of the principles is that the regenerative systems manifest themselves first and foremost at a local or regional level. So we start by saying that the right unit of analysis for an economy is place or bioregion scale, and that’s in conflict with the way we’ve organized the economy.

Most people think about corporations and nation-states as the unit of analysis. But if you start by thinking about it in the context of a bio-region or a place, where companies and governments and nonprofits and hospitals and schools are all part of that place-based economy, then you start thinking about economy in an entirely new way. You start to see it as a system, a place-based system.

For years, we’ve been telling the stories of regenerative projects popping up in the real world in our Field Guide.  These are happening organically, in response to the very real pressures we face if only we have fresh eyes to see them. 

And recently we’ve developed a network of regenerative communities who are working to implement regenerative economies in their region.  Just recently, we put out a call and said if this resonates with you let us know and we’d like to work with you to help you make this reality in your place. And we’ve now got seven of what we call hubs around the world – and a pipeline of over 50 additional places form five continents expressing interest in joining the network.  They’re essentially saying “we get it, this is how we want to do this, we want to be part of this”.

Jonathan: So who’s reaching out to you? Who are you working with on this?

John: So for example, one bio-regional hub is Denver-Boulder in Colorado.  Another is in Buffalo New York.  Another is Mexico City. And we’re working on local and nation-level with Costa Rica.  These initiatives are locally lead from the grass roots up, building on the trust that exists in each place.  If you look at them with the principles in mind, you see the principles showing up there, although always expressed uniquely in the local context.  I like to say that every snow flake is unique, but every snowflake looks like a snow flake.

As our science advisor Sally Gorner taught us, the big idea here is that systems only change in response to pressure. If you put water on the stove nothing happens until you turn the heat up, and then it starts to boil. And so, I believe our economic system is responding to the pressure and these more regenerative approaches are emerging naturally, all over the world, first around regenerative agriculture and land management, and now increasingly inseparable from communities themselves. Our Buffalo hub is even focused on the regenerative manufacturing plant of the future!  And this natural emergence is the way living systems take change to scale.

We believe – and we do in fact see – that the regenerative approach is actually bubbling up all over the world. It’s just that no one has language or the principles to see what it is. We believe that by creating this network of place-based, place-driven projects we help the people in those places to manifest what’s natural for that place. It’s really very exciting and we’re starting to see that happening in all the hubs, and in de facto hubs that long pre-existed our network.

Each of these hubs will have a unique expression of the regenerative economy and yet they can each learn from each other because they’re applying similar approaches and principles that can be borrowed and shared from some other hubs. And so that’s what we’re hoping will occur, and what we’re starting to see occur in the network.  Learning to learn together.

Jonathan: So emergence is how all of this happens?

John: Yes, very much so. Emergence is the best way to describe how this happens. But we also see clustering potentials. For example, we thought we were just launching one hub in a region in Costa Rica, but it spread very quickly.  There are 29 territorial regions in the country that are all now being exposed to the approach, so now even a national strategy is a real possibility. Once this takes off in one place, it sort of spreads next door. Which by the way is also a first principle in systems science.

* * *


Jonathan: This is all very exciting to learn about. And it’s an interesting take on the whole debate about sustainable business and financial markets. Now, I just have one more question, and it’s a very big one: In your view, how should the world work? What needs to happen?

John: Boy, let me think… There’s sort of an act-with-urgency-on-the-crises-of-the-moment part, and then there’s this longer-term evolutionary change. What I say to people is that if I could have one wish it would be that the world would adopt a meaningful and accelerating carbon tax. Someone has to figure out how to implement a serious carbon tax would that would radically shift our energy system off fossil fuels in a short period of time.  At the same time, we need a massive effort to accelerate regenerative approaches to agriculture to rebuild the natural carbon sinks in the soil.  A well structured and effective carbon tax would accelerate both of these priorities. 

Jonathan: How big tax on carbon are we talking about?

John: I don’t know the exact answer to that. But I was at a sustainability conference and there was this panel of energy executives and they were sort of proudly standing up and saying “we support a carbon tax”. Then I stood up and said that the carbon tax we’re talking about is a tax that’s high enough to essentially make their products un-economic. And they didn’t like that. But that is what we’re talking about really. If the tax doesn’t stop us from burning fossil fuels, then it’s not high enough. It has to be scaled in within what’s physically feasible in a global economy that’s currently addicted to fossil fuels without causing the global economy to collapse. It ought to be as high as possible and accelerate as fast as possible, just short of causing serious economic collapse. The purpose of it is to stop burning fossil fuels.  It’s really a quota disguised as a tax.  And the second purspose is to stimulate natural carbon sequestion on a massive scale in our soils – crop lands and grasslands, and in our forests.

Jonathan: So what you say is fix the urgent issue now with a big carbon tax. And then the regenerative economy on the long term?

John: Yes, exactly. And where I think the regenerative communities’ network comes in is that we know we’re already in some variation of an economic transition – some would say collapse – and so building from the bottom up at a bio-regional scale a healthy economy aligned with the principles of living systems seems to me to be what needs to happen simultaneously with dealing with these much more macro top-down challenges. So you sort of build the resiliency in the future while you’re dealing with the undoing of what’s untenable.

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