Bringing the cash crunch back down to earth.
Thursday, January 15, 2009
It is good, it is appropriate that we use the left side of our brain to study markets and industry segments and capital flows, to measure risk and return, to mete out liquidity and diversification and various instruments designed to intermediate efficiently between producers, consumers, and the natural systems on which all life depends.
But it is even better, at this moment in history, to use the right side of our brain and our whole heart, and whatever portion of our spirit can be brought to the task, to take the first steps, new steps, imperfectly charted steps, toward the realm of slow money.
We need to steer money, in its primary applications, that is, in those functions toward which it is deployed in the making of money, toward life, toward enterprises that enhance the quality of life, that preserve and restore fertility, biodiversity, and the health of bioregions and communities and the households that live in them, and away from enterprises that degrade quality in the name of quantity. This use of money, of investment capital as an antidote to the disease of excessive quantification is, in the words of a veteran McKinsey consultant, “tricky.”
There is something of financial homeopathy in it. A drop of slow money under the tongue of the body economic: What will its effect be on the health of the whole system? We cannot know, but we can assert and affirm our hope, our intimation that its effect will be salutary.
“We need to stop thinking about money as lubrication for a machine that is everywhere and nowhere at no given moment, and to start thinking about money as irrigation for the field of our intentions, which are expressed right here, right now, where we live and where we work. We need to stop giving priority to the imperatives of money’s explosive self-propagation and start giving priority to the imperatives of social implosion and impending ecological collapse.
FAST MONEY DOES VIOLENCE TO THE WEB OF RELATIONS ON WHICH THE HEALTH OF COMMUNITIES DEPENDS.
Much of what the social investment initiatives of recent years are aiming at can be more directly, more fundamentally understood as a problem of the speed of money. Screened portfolios and shareholder advocacy work to heal the wounds caused by globalization and industrialization and corporatization. As critical as these means of redress are, most of their benefits are achieved not by slowing the economic speedboat down, but rather by minimizing some of its impacts as it speeds through the harbor.
Environmental degradation, a throwaway consumer culture, cheapened food (rich in empty calories and chemical additives), media programmers who live by ratings, nightly news reports that cover daily fluctuations of market indices – these are inevitable byproducts of an economy whose decision making is driven first and foremost by the imperatives of financial markets, an economy in which money, unleashed through the power of technology and unfettered by either connection to place or the human face of exchange, has taken on a life of its own, a speed of its own.
Fast money does violence to the web of relations on which the health of communities and bioregions depends.
It is not enough to steer money in new directions. We must slow money down.
We are surrounded by the explosive creation of wealth that drives venture capital.
Since its IPO in August 2005, Google’s stock price has shot up from $95 to more than $600, representing an increase in market capitalization from $25 billion to more than $200 billion. Google is the prototypical venture capital deal, the epitome of a process that bets billions of dollars per year on a few thousand technology companies. It is a symbol of virtually limitless upside. A Google search weighs nothing, is silent, and has, to its user, no immediate ecological footprint or cost – an apparently perfect manifestation of the Invisible Hand at work. Although it is possible to imagine a fiduciary asking, “How many McDonald’s are too many? Can the world sustain 50,000 McDonald’s and a trillion hamburgers?” it is impossible to imagine a fiduciary ever asking, “Would a trillion Google searches a day be ‘too many’?” Google is a portal to the world of unlimited upside, the world of unlimited information and entertainment, the world of unlimited shareholder entitlement.
It is deeply disturbing to stand at the edges of such extreme wealth, such extreme speculation – even when successful – and peer into the expanses of such unrelenting poverty: poverty of abandoned building and abandoned village and field abandoned to mall, poverty of slum and ghetto, poverty of pollution, poverty of congestion and sprawl, poverty of cheapness and impermanence, poverty of gated community and security system, poverty as if ordained by an invisible hand, poverty of the devalued and the overvalued, poverty of entire populations who produce little but consume much, poverty of the near and the real overtaken by the distant and the virtual, poverty of empty calorie and long shelf life, poverty of plastic, poverty of divorce and displacement, poverty of erosion, poverty of proliferating portfolios, poverty of market mania, poverty of irrational exuberance, poverty of affluence.
Our ability to redress this poverty in the 21st century will depend on our ability to look beyond wealth creation of the venture capital kind, to look across the boundary of for-profit and nonprofit, to look past market indices, and to discover more integral, truer, more beautiful measures of progress and well-being.
With appropriate vision, we will come to see each transaction, each investment not only as a tiny moment of truth, but also as a small but critical opportunity to choose beauty over convenience, beauty over competitiveness, beauty over uniformity, beauty over control, beauty over making a killing, beauty over caveat emptor, beauty over commodification. Experiments in slow money are experiments in beauty and nonviolence.
Beauty was good enough for the title of E. F. Schumacher’s seminal work, and it should be good enough for us. He could have chosen Small Is Appropriate, or Small Is Good, or Small Is the Key to Health and Happiness. He chose the word beautiful; his attention focused on issues of scale, nonviolence, self-sufficiency and a “meta-economic” understanding of man’s place: “Divergent problems, as it were, force man to strain himself to a level above himself; they demand, and thus provoke the supply of, forces from a higher level, thus bringing love, beauty, goodness, and truth into our lives. It is only with the help of these higher forces that the opposites can be reconciled in the living situation.”
The unrelenting exercise of the calculus of economics has facilitated the slide toward one-dimensional management decision making, ugly commercial landscapes, horribly littered media spaces, and dumbed-down public discourse. We have noted, and debated with varying degrees of heat, the Death of God. Some have even noted what they have called the Death of Money, as currency shifted from gold to paper to bits of information. It is the Death of Beauty that concerns us here.
Products produced cheaply create ugly work lives and ugly households and ugly communities. Profits produced quickly cannot purchase patience and care. Patience is beautiful. Restraint and care are beautiful. Peace is beautiful. A small, diversified organic farm is beautiful.
There is nothing beautiful in the idea that we will only do no harm if we can, in so doing, make as much money as is generated in the doing of harm.
Pioneering companies like Stonyfield Farm seek to capture increasing amounts of Wal-Mart shelf space for organics and responsibly produced consumer goods. Pioneering venture funds like Greenmont Capital provide venture capital to organic food companies.
These important enterprises redirect capital away from destructive industrial activity and toward restorative economic activity. However, they do not influence directly the speed of money or redefine directly the role of investors in the evolution of capital markets.
Despite the commercial success of a number of small socially responsible companies, such as Ben & Jerry’s, Aveda, and Stonyfield, along with the dramatic growth of the organics and LOHAS markets, as evidenced by Whole Foods’ rapid approach to the threshold of the Fortune 500, fundamental questions remain unanswered:
• How is mission inexorably compromised when a company goes public or is acquired?
• What happens to “local” when a company scales?
• Can alternatives to the traditional corporate charter be designed, creating ownership and governance structures that embed a “stakeholder accountability” culture that cannot be diluted as a company grows?
• Would the food system, in particular, and the economy, as a whole, be safer and healthier if tens of thousands of small, independent, mission-driven companies were supported by capital that prioritized local control?
These questions go to the fundamental imperatives of an economic transformation that started with the Jeffersonian ideal of a small farmer and ends with Twinkies, TV dinners, nutraceuticals, and a bunch of eco-farmers who don’t know whether they are a movement or an industry.
Investors who invest in organic food companies without addressing these fundamental questions are too much like organic gardeners who use organic fertilizers and organic pest control, but who know nothing of the joys of composting and the mysteries of soil health. The result is a system that produces organic food companies and puts organic food products on the shelves, but leaves the soil of the community less fertile, less full of life, and less capable of supporting future generations.
PRODUCTS PRODUCED CHEAPLY CREATE UGLY WORK LIVES AND UGLY HOUSEHOLDS AND UGLY COMMUNITIES.
Entrepreneurs and farmers are the poets of the economy. They are holders of ambiguity and risk. They continuously test the boundaries of quality and quantity, as a poet tests the boundaries of denotation and connotation. Ideas in a business plan; seeds in potting soil; rhymes in search of new reasons.
The rules and objectives of the Industrial Revolution and industrial finance, which have made possible everything from space travel and Velcro to the Internet and Pizza Hut, cannot be extended forever in a straight line. One kind of corporation is not going to serve all the needs of an evolving planet. One definition of profit is not going to be appropriate for all stages of economic maturity.
The urge to simplify and its paradoxical cousins, befuddlement and monoculture, are culprits that have led modern economic man astray. We have cut everything up into tiny buy-low/sell-high pieces. We have sliced and diced risk into a zillion securitized fragments. We have traded baguettes for Twinkies. We have traded freshness for shelf life.
Fast money made sense when corporations were small and the world was big, when resources and places to dispose of waste seemed infinite, when mass production was first being tapped to fuel higher standards of living, when 100 million shares was a big day on Wall Street and the idea of a $350 billion Wal-Mart or of a $200 billion CalPERS (California Public Employees’ Retirement System) or of a venture capitalist whose fees are calculated as percentages of billions of dollars would have seemed preposterous. Buy Low/Sell High made sense as a cornerstone of fiscal responsibility when the Depression and World War II still cast their shadows over the soul of America, and building suburbs and building superhighways and building cars and building skyscrapers and building stockpiles were understood to be synonymous with building national character. The Invisible Hand provided a useful mythology for an age that was moving away from monarchy and toward democracy and had yet to imagine child labor laws or the minimum wage. Wealth Now/Philanthropy Later made sense in the era before the terms ecology and bioregion and smog and ozone hole and eutrophication and Evian and Desert Storm and Farm Aid and McWorld and organic and ultrapasteurized had entered the vernacular.
We do not have time, any more, to chase speed. We must find new ways to mark our progress.
We do not have time, any more, to rest comfortably in the false securities of specialization. We do not have time, any more, to limit our discourse to the lexicon of unlimited economic growth.
Slow money is not for venture capitalists. It will not even be for those patient capitalists whose convictions remain centered in the creation of a socially responsible venture capital marketplace that can compete for market share with traditional venture capital.
Slow money is for nurture capitalists.
The task of the nurture capitalist is to integrate knowledge about fertility, farming, and food into new, deeper definitions of fiduciary responsibility and entrepreneurship.
How do we put such a vision into practice?
We must be in the business of convening and connecting.
Management practices must reflect a commitment to principles of “appropriate finance,” perhaps through capped returns for investors, with returns above a certain threshold shared by the investors and other stakeholders.
What we are after is not the creation of a fund-management entity that will benefit a tiny group of general partners and a slightly larger group of institutional limited partners, but rather a permanent intermediary organization that can build capacity over time and benefit generations of small investors, agricultural producers, and food consumers.
From the standpoint of investment strategy and portfolio management, we must explore combining direct investments in early-stage food enterprises with a high degree of diversification. A capital market for investing in small organic farms does not exist. More than 1 million acres of farmland is lost each year to development. Land trusts typically focus on wilderness and open space, and those that do buy development rights from farmers are usually unable to take ownership of the land. In collaboration with sustainable-agriculture NGOs, it may be possible to manage an investment activity that would typically be impossible for a “venture capital fund”: Buy small farms that are on the market, identify new farmers who want to farm organically, lease the farm to them for three to five years, and then sell them the farm.
Institutional investors have been and will continue to be slow adopters in terms of food investing. (Although we might expect a few early-adopter institutional funders, primarily foundations, to provide seed capital, the ultimate market for slow money is individual investors: Investors’ Circle types (angel investors interested in sustainability), shoppers at Whole Foods, local co-ops and farmers markets, Prius owners, parents of Waldorf school students and a much larger number of smaller investors. Many social investors are frustrated by the diluted impact of screened mutual funds. Despite its fiduciary complexities, from the point of view of an individual investor who appreciates the value of a healthy local food system, slow money offers a kind of “pure play,” targeting investment tangibly and directly at root drivers of sustainability.
It may also be possible and necessary to utilize charitable donations from individuals as part of slow money finance. We must be agnostic, at this early stage of design, as to sources of capital, types of securities, strips of financing. We have yet to fully affirm and define, with requisite particularity, our target.
In Puebla, Mexico, this past November, at Slow Food’s Fifth International Congress, Carlo Petrini spoke, playfully, of engundia, or sacred passion. Let us dare to imagine an investor who has the sacred passion of an earthworm, slowly making his or her way through the soil of commerce and culture, playing a small, vital role in the maintenance of fertility.
Now, whether such notions have any practical import to the task of creating this new entity called Slow Money seems, at first, implausible. But it isn’t so. The success of Slow Money will depend on a vision that dares to be playful; that dares to assert a connection between human and humus and humility and humor; that dares to push back against the dismal science of economics and the hegemony of market mind; that dares to put money in its place, that calms money, in much the same way that “traffic calming” is becoming part of the agenda for “smart growth” in progressive communities, so that healthy relationships can once again begin to flourish; that dares to put “taste” and “flavor” back into investing, moving from the Big Mac school of fatty and salty buy-low/sell-high investing to the Coleman Carrot school of investing that celebrates the subtle joys of terroir and authenticity.
The investor as earthworm versus the investor as Master of the Universe.
Somewhere on our way from Hiroshima to An Inconvenient Truth, some of us began to sense that the Invisible Hand no longer had clothes. It began to dawn on us that in a world that is heating up and speeding up, the health of future generations is no longer synonymous with the efficiency of capital markets, or, even, with the power of technology.
Seeing the Invisible Hand without its veils of protective ideology is as unnerving as seeing a naked emperor or a naked arbitrageur. We are going to need spiritual and emotional sustenance on this journey.
Reprinted by permission from Inquiries Into The Nature Of Slow Money – Investing as if Food, Farms, and Fertility Mattered, by Woody Tasch, foreword by Carlo Petrini. (Chelsea Green Publishing, $21.95).
WOODY TASCH is the the chairman of Investors’ Circle, a nonprofit network of investors, venture capitalists and foundations that has facilitated the flow of $130 million to 200 companies and venture funds dedicated to sustainability.
He is one of the keynote speakers at this year’s Eco-Farm conference taking place at Asilomar Conference Grounds in Pacific Grove Jan. 21-24. The theme of this year’s conference is “United We Grow.” (See story, pg. 15.) Tasch and Raj Patel, author of Stuffed and Starved, The Hidden Battle for the World Food System, will speak at the conference’s plenary session on Wednesday, from 8-9:30pm Information: www.eco-farm.org or 763-2111.