Regenerative Economics: Generating Systemic Wealth — Part 1

Written by Carol Sanford

In a capitalistic system, corporations are chartered by society to generate wealth. The corporation is an important means for making natural resources, including human energy, more valuable. Corporations are one expression of the innate human desire and capacity to organize to manifest a better future. Capitalism introduces the element of preserving some of the surplus and reinvesting it to drive the future creation process. It is in this context that the responsible corporation asks itself, “What future are we envisioning and how well does it harmonize with how living systems work?”

Wealth comes from the same root word as health, which speaks to wholeness and well being. Wealth is highly correlated with the idea of being better off, particularly at a material level. Abraham Maslow, the behavioral psychologist, offered a way to understand why wealth might be important to both well being and health. In his hierarchy of needs, he postulated that when human beings have their basic needs — food and shelter — met, it gives them space to be involved in companionship and other higher order pursuits, growing themselves and ultimately contributing something of significance. Building sufficient material wealth could be seen as a way to satisfy the lower needs in a stable and reliable way so that energy is freed up to pursue higher level needs.

In the majority of corporate mindsets, wealth is defined by the capacity to accumulate and then leverage a next round of financial return. Such excess financial return is measured in return on investment or return on price per share. Both of these measures are self-referential and fail to consider the larger effects of choices made in their pursuit. By contrast, many early corporations promised to the queens and kings who granted their charters that they would bring riches to a nation and improve the daily existence of its citizens.

The Pentad Framework

These might be considered single and double bottom line approaches, including financial returns and some focus on greater social benefits. Current triple bottom line approaches also include ecological concerns when weighing the wealth generated by a business. My approach expands the perspective further to include five groups of stakeholders. I refer to this quintuple bottom line as a pentad, a term borrowed from ancient Greek geometry to refer to a multidimensional figure with five dynamic and interactive aspects that move in tandem and can only be understood in terms of their relationships. The five stakeholders sets are: customers, co-creators, earth, community, and investors, as seen in the framework diagram below. I speak about the pentad much more deeply in my book, The Responsible Business, and you can also watch a short video introduction to the pentad framework here.

pentad.png

The desire to generate wealth provides the energy to spin the pentad, but how wealth generation is conceived determines whether it spins backward or forward. Even a company that wishes to help save the planet or create social justice will reverse the pentad and reduce wealth for all if it approaches its work from the wrong point of view.

A Paradigm for Generating True Wealth

Three distinct perspectives — that of closed systems, open systems, or living systems — have a strong effect on the nature, scope and level of wealth generation. From a closed systems view, stakeholders exist outside the business system — isolated from it and from one another. From an open systems view, stakeholders are seen as an extended part of the business system and reciprocal relationship is sought with each. However, the stakeholders are not seen as members, along with the business itself, of a larger whole. It is only with the living systems view that a business can participate in setting the direction for that larger whole, and can assist in developing the capacity of all members to contribute to its evolution. By being a member of the “family” of the whole, a business is able to play its full role in wealth generation.

Each point of view delivers a different level of return, for the business and its stakeholders. Each sets the pentad in motion, forward or backward.

A corporation that holds a closed systems view collapses its wealth generating focus onto itself (and by extension its investors, to whom it has a contractual obligation.) This perspective will allow the corporation to extract wealth from the systems it operates in. However, because it fails to directly feed the capacity of those systems to produce new wealth, it puts a ceiling on its own potential. A closed systems view inherently tends to drive the pentad backward.

A business that operates from an open systems view will tend to move the pentad forward. Such a business understands that it is in reciprocal relationship with at least some of its stakeholders and that its own health is dependent on the health of others. However, a business with an open systems view tends to limit its sense of responsibility to those partners with whom it sees the potential for beneficial exchange, making it blind to the greater system within which those partners operate. This limits the acceleration that is possible from the pentad, as well as the wealth generation possible from that larger system. In addition, such a business is always at risk of spinning the pentad backward — by failing to grow the capacity of the whole it is subject to failure by significant members with whom it is not in relationship. For example, in a global economy the most carefully constructed trade agreement among two or more nations can be undermined by collapse in the economy of an “unrelated” nation.

In the coming parts of this series, we’ll be reconsidering what constitutes true wealth and looking at how the living systems perspective works to grow wealth for all stakeholders in the pentad.

Originally published by Carol Sanford on Oct. 4, 2018 via Medium