Regenerative capitalism: a new era of economics

Ingredients for re-wiring the spirit of capitalism

The power of place

Liberal market orthodoxy, at its extremities, operates “place blind”, on the assumption wealth and technologies will trickle down from top to bottom. In San Francisco, a hub of innovation, technology and entrepreneurship, the city placed a big bet on tech giants. The enormous success and wealth generated by this hub of entrepreneurship has not, however, improved the social infrastructure enabling poorer communities to thrive: affordable housing, education, transit, healthcare, and public benefits. Companies have operated as walled gardens, not communal green spaces.

In 2017, at a time when we were supporting an Inclusive Growth Coalition in Chicago, cities across the US were in bidding wars to host Amazon's headquarters. This “hunting strategy” for wooing corporates with incentives is now falling out of fashion. Instead, we are seeing cities take on “regenerative” approaches to local development that focus on nurturing home-grown companies and local wealth building, honouring the culture, spirit, skills and heritage of a place.

The increasing localism or regionalism of supply chains is something financial journalist Rana Foroohar has brilliantly traced in her book Homecoming. At our Prosperity in a post-global world event in March 2023, she sketched out how the triumph of globalisation - the free movement of people, goods, and capital - meant that place no longer mattered. For Foroohar, we are entering a new era of more “human-centred” and “place-based economies”.

As part of our mission, we are running the UK Urban Futures Commission. This involves working with 11 core cities across the UK to unlock their potential, especially among people and within communities that have not benefitted from the economics of agglomeration. This means looking at new models of governance of urban spaces, straddling the public, private and civil society sectors. And it means exploring new means of financing city regeneration, with greater local ownership.

The quality of growth matters

As we concluded our Inclusive Growth Commission and published the final report, we identified a need to rethink the measures of economic progress and societal success. Not all economic growth is good when viewed through a social and environmental lens. Good growth is sustainable environmentally and inclusive societally. This means it is important to measure the quality, as well as quantity, of growth. For example, inclusive growth confers economic opportunity and security by design rather than by redistribution. That may mean focusing on the quality of jobs being created, at least as much as their number.

When it comes to sustainable growth, the key is to avoid stimulating economic activity which comes at the expense of an erosion of natural capital and the environment. Such a strategy cannot be sustained over the medium term. Indeed, given the extent of the loss of natural capital over a number of decades, the focus now should be on regenerative growth – that is to say, economic activity that replenishes, rather than diminishes, natural capital.

Broadening the definition of capital

There is growing recognition that even high-quality - sustainable, inclusive - economic growth may be far from sufficient for societal success. In a world of nested systems, societal and environmental metrics are equally important. While the focus of capitalism so far has been the accretion of physical and financial capital, the meaning of “capital” needs now to be broadened.

This includes human capital (the education and skills of people), social capital (trust and relationships) and natural capital (our climate and biosphere). These three forms of capital – and how we manage them – are increasingly being recognised as core ingredients of prosperity, wellbeing and health, human and planetary.

A study, for example, found that none of the world's top industries would be profitable if they paid for the natural capital they use. The total value of unpriced natural capital costs US $7.3 trillion or roughly 12% of all economic output.

Or look at social capital. At our event How our social connections impact our economic mobility in November 2022, economist Raj Chetty demonstrated the importance of social connections and social capital in driving levels of social mobility in the US. Yet social capital and connectivity tend to be far less focused on, measured and nurtured, policy-wise, than other economic capitals. We are filling this gap, working to develop measures of social capital and reimagine social networks as part of our Design for Life mission.

Stakeholders rather than shareholders

The traditional model of companies gave shareholders a position of primacy in shaping the decisions of a company. They were the “owners”. In fact, shareholders are only one of many possible “owners” of a company. A company is ultimately a social phenomenon, not a legal one. And the sets of social stakeholders with an interest in the performance of a company include a myriad of other stakeholders, from workers to customers and clients to wider society and the environment. Just as the economy is embedded in these wider systems, so too is a company.

The recognition of businesses’ wider role, and wider stakeholders, leads to a different model of stakeholder capitalism. Just as with the economy, it calls for different performance metrics beyond the bottom line when judging how well a business is serving its wider stakeholders. This is a growing movement of purposeful businesses seeking to make good on this different model of corporate governance.

For example, in the world of startups and entrepreneurship, there is a growing movement of ‘zebra’ companies that aim to maximise sustainable prosperity. These stand in contrast to venture capital-oriented companies, such as tech ‘unicorns’, looking simply for exponential growth in revenues and profits. Zebra companies are characterised by profit sharing, collaboration, dedication to societal advancement, and a deep commitment to serving customers and their communities.

The growing B corporation movement is another example of this shift in business practices. These models of stakeholder capitalism re-balance decision-making powers away from shareholders and corporate managers and towards a wider set of stakeholders (customers, workers, suppliers and the broader public). Part of the motivation here is to ensure wealth and jobs recirculate locally to support local economies and businesses in the supply chain.

Further afield is the emergence of the “rights of nature” doctrine meaning that natural ecosystems are entitled to legal personhood status, a policy innovation allowing the environment to be defended in court and extended the “rights to exist, thrive and regenerate,” which effectively strengthens nature as a key stakeholder.

By working in partnership with businesses through our Design for Life mission, we will be playing a prominent role in helping embed this model of purposeful business that respects broader stakeholder interests. One way we are doing so is by playing a prominent role in nurturing both the creative industries sector and, crucially, the role of creativity within all businesses. This includes us co-hosting the UK’s Creative Policy and Evidence Centre.

Creativity capabilities

The sets of skills that have made a success of the first three industrial revolutions will not be those that make a success of the fourth. Doing so will require a root and branch rethink and reform of our lifelong education and learning systems. These will need to become more granular, digital, experiential and team-based to nurture the new set of skills needed in the 21st century and to unlock the potential of those currently lost to learning due to the rigidity and homogeneity of the education system.

This new model of learning and skill-building forms a core part of our Design for Life mission. This includes a set of practical interventions to nurture creative skills in young people, from early years to entrepreneurs, recognised through digital badging – the Design for Life Awards. It also includes our Regenerative business enquiry; a programme working with businesses to nurture the capabilities of their staff, preparing them for the economic, social and environmental challenges of the 21st century. Today 78% of business leaders now view capability building as very or extremely critical to an organisation’s long-term growth. Again, human capital matters.

New flavour of capitalism

We are committed to fostering a regenerative capitalism that puts people, place and planet first. This means putting in place practical interventions, through our Design for Life mission, that is true to the core principles set out above and which contribute to the rising tide of thinking and practice towards regenerative economies. This is not an abandonment of capitalism. It is a recognition that capitalism always had many flavours and, given the challenges we now face economically, socially and environmentally, this is the moment to migrate to a new flavour of capitalism, a regenerative model.