Impact Investing | June 7, 2018

Toward a new economic paradigm: Jed Emerson on theory, practice and community

Jed Emerson
Guest Author

Jed Emerson

ImpactAlpha, June 6 – Recent discussions and reflections taking place within philanthropy and impact investing concern the seeming divide between those who act, those who envision and those stakeholder groups in the middle of both.

As ImpactAlpha’s David Bank reports, Bill Drayton, Larry Kramer and no doubt a growing number of others feel impact investing does not go far enough in transforming the current economic system. Their critique is that impact investing  is still embedded within that system even as we deploy capital to generate more than financial returns alone. The critics challenge us to enunciate a vision for a new economic order, something beyond neoliberalism, grounded,  I would offer, in an evolved understanding of the nature of value and the purpose of capital itself.

>>MORE: The Impact Alpha: Pushing impact investing ‘beyond neoliberalism’

Across from them, we hear the voices of those currently working to deploy capital in pursuit of various levels of financial return together with the generation of not simply incidental, but intentional impact.

Over recent decades impact investing has merged with sustainable and responsible investing to create a global impact capital market place in the many trillions of dollars. That’s hardly a “deal-by-deal” capital market but rather an integrated approach to the investment of all capital through what is called total portfolio management. The Ford Foundation’s Darren Walker, Heron’s Dana Bezerra and, again, an ever-growing number of managers of philanthropic assets have embraced a different view of how best to manage their capital in fulfillment of their institutions’ public mission. These actors seek to use much, if not all, of their capital—ranging from philanthropic to near-market and market-rate—in pursuit of their social-impact mission.

It’s great to see these historic discussions of how best to manage philanthropic capital moving to center stage, along with our diverse explorations of the nature of capital and its sustained value-creation potential.

What is also interesting to observe, however, is what appears to be a lack of recognition on the part of many actors that those who “do” are part of the same community as those who frame new paradigms. We are engaging in one and the same discussion. They are simply two sides of the same coin as opposed to two opponents with differing perspectives.

As Karl Marx said, philosophers have only interpreted the world in various ways; the point, however, is to change it. And, as Milton Friedman said, concentrated power is not rendered harmless by the good intentions of those who create it.

Paradigm and praxis

The time has indeed come when we must revisit the underlying assumptions regarding our most recent neoliberal economic order. We will evolve that new vision not simply by reflecting upon the elements of a potentially new paradigm or by executing our capital deployment strategies, but rather by engaging in a continued process of collaborative praxis; of our thoughts being informed by experience, which then leads to more enlightened insights and perspective, bringing us to yet better execution and on and on.

It is our action that addresses Marx’s interest in changing the world, while our focus on justice positions us to respond to Friedman and our larger community’s concerns regarding the dangers of an ever-greater concentration of wealth and power within increasingly smaller segments of our societies around the world.

The majority of foundations yet to embrace any investment of their non-grantmaking capital in pursuit of mission make themselves absent from the community of philanthropists deploying growing percentages of their portfolios in intentional impact strategies.

In doing so they remove their institutions from the experience of learning through practice what those who champion new paradigms seek to intuit through research or reflection. By viewing those focused on creating a new paradigm as standing separate and apart from those executing innovative capital investment strategies our community is simply affirming a dualistic framework for understanding what is at heart a single inquiry. In doing so we promote the illusion of separation that in this context would have us believe thought and action are not intrinsically intertwined.

It is as if we are promoting the notion we should think with half our brains or box with one arm tied behind our backs. If history shows us anything, it is that our potential future success rests in our shared experience and common knowledge evolving within an integrated, holistic approach to understanding what we should do, why we should do it and how we might create new conceptual and practice frameworks to assist us in advancing the societies and world we seek.

I would suggest we might be better served by engaging in fewer debates and spend more of our time in deeper, common and truly open dialogue combined with humble personal reflection. By pursuing this path of integrated inquiry, we may, in the end, actually find the mutual enlightenment and change we seek.

And furthermore…

Two additional points are worth our consideration:

First, I’d remind us that as we open our minds to embrace a new economic future, it is critical all members of our community be present and engaged in that exploration—not simply leading academics, foundation executives and impact investors, but those stakeholders we seek to ensure benefit from these deliberations and their economic innovations.

Foxworth, Burton, The Fund for Shared Insight and a host of others have already framed aspects of this important point. There are no doubt many whose voices we’ve not as yet heard, communities and individuals presently shut out from access to capital and opportunity.

Second, this is not a new discussion; many have been engaging in the exploration of this new paradigm for years. Indeed, as I argue in The Purpose of Capital (forthcoming in October 2018), this is an inquiry central to humanity’s journey for millennia.

More recently, there have been discussions regarding impact investing and systems change and a large number of organizations actively engaged in promoting the new paradigm to which we all now aspire (perhaps some of which have received philanthropic investments from the same foundations advancing this present conversation).

This group includes The Capital Institute, The New Economics Foundation, The New Economy Coalition, Transform Finance, A Whole Person Economy, The Natural Capital Project, The Buckminster Fuller Institute and no doubt others too numerous to list here. My own work on the nature of value was originally funded in part by the Hewlett Foundation nearly 20 years ago.

We may also benefit from the ideas and lessons of those areas of academic inquiry known as Social Economy and Social Economics, both growing bodies of academic research and reflection.

In truth, a great many in our community have concluded one of the most critical challenges we face is enunciating a new, global/local paradigm to guide the management of our species’ approach to economics. Today, in the Anthropocene, that approach determines not only our own future but that of the Earth itself.

Foundations interested in advancing new paradigms to guide the future of finance and economics would benefit from the experience of actually investing in the creation of new investment practices. Likewise, those that invest in new financial innovations will benefit from deeper reflection and philosophical inquiry to better see the links between capital deployment and the purpose of the capital we deploy.

As Larry Kramer himself observes in his framing memo, “Beyond Neoliberalism: Rethinking Political Economy”: Friedman, Keynes, Hayek and their various followers came to new understandings of capital markets and policy not by attending briefings and conferences alone, but through reflecting upon the application of their ideas and concepts in practice within real world capital markets and societies.

Our own community writ large will be best positioned to advance new ideas and thinking—new paradigms—if those ideas and thinking are grounded in the evolving and innovative investment practices of impact investing and whatever becomes of the future of finance and global economics.

It is all one journey, of which we are all a part.

Emerson is a former Senior Fellow with the William and Flora Hewlett Foundation (2001-2004) and a 2017 grant recipient of the Foundation. He serves as Senior Fellow with ImpactAssets, as well as Senior Fellow at the University of Heidelberg’s Center for Social Investment. He is strategic advisor to both family offices and investment firms. His next book, The Purpose of Capital: Elements of Impact, Financial Flows and Natural Being, will be released in a free e-book version in October of this year.