5 years ago, Geoversiv published a piece on generative economics, titled ‘Uplift locally to solve globally‘. It focused on generative organic optimizing demand (GOOD) as an organizing principle for sustainable economic planning and development. We review that idea here, in light of the gathering storm of interconnected crises now threatening lives and livelihoods around the world.
Generating Better Outcomes
The underlying idea behind ‘GOOD economics’—generativity—goes back more than a decade. To be ‘generative’, an activity, investment, service or innovation must generate an overall expansion of value, beyond the narrow financial return it may generate for direct investors. In other words, generative economic activity chases, and values, positive externalities—what some like to call “co-benefits”.
Between 2015 and 2017, Geoversiv and partners worked to translate this approach to measuring value into a practical way of working with macrocritical forces. Macro-critical means a particular area of impact or influence can affect the overall size and dynamism of the economy—it is critical to the macroeconomy.
Not having a market price does not mean a natural system—the climate system, for instance, or a watershed that conditions an entire region to be able to grow food—does not have value in itself. Ecological economics demands that we account for those un-priced values without which no other value can exist.
As recently as the late 1990s, mainstream economics and finance treated this as a question of human value versus environmental value, as if the two were entirely discrete and distinct areas of concern. Over the last two decades, we have seen a rapidly increasing awareness that ecological economics is a more humanizing way of tracking and reporting on value. We can say “humanizing”, both because human wellbeing depends on the health of natural systems and because humanity is an “intangible”, not a market value—thankfully.
If we discount to zero what drives everyday wellbeing, we might end up with an economy that treats money, fuel, and profit as being worth more than health, safety, and resilience, at the human scale. This makes no sense, of course, since these other resources have value only insofar as they make conditions better for people, which must mean making the underlying natural conditions better as well. An industrial economy unconcerned with harm to the environment ends up working against the interests of human beings.
What is G.O.O.D.?
Generative organic optimizing demand (GOOD) is the tendency of any living system—including human beings, our societies, and the ecosystems we depend on—to organically demand that decisions of consequence generate a greater overall pool of value. GOOD suggests systems should continually optimize—not narrowly to enhance the profits of a few, but broadly to minimize destruction and leave people and nature in conditions of improved, sustainable good health.
Money and finance carry an inherent promise of an overall expansion of value. Expanding value for a few while destroying value broadly, and unaccountably, makes no sense. It is unjust, violates the implicit social contract, and ultimately leads to collapse.
Because money, finance, and the institutions that allow them to function, don’t tend to achieve that promise, a GOOD-focused economic development strategy would need to identify and invest in GOOD “reinforcements”. In the 2017 Uplift report, we listed these in layers of reinforcement:
- Biological—the living world and human health;
- Structural—the built environment and official incentives and aims;
- Intellectual—education and empowerment;
- Political—the translation of all of the above into political rights and liberties, and systems of open decision-making that make more progress toward generative outcomes possible;
- Community—a shared culture in which generative value creation is the everyday standard.
Each of these layers of reinforcement makes it easier to keep shifting new resource allocations, regardless of who is managing them, toward sustainable priorities and outcomes. By looking at these layers of GOOD reinforcement as everyday imperatives that affect outcomes for everyone, we can get a better sense of whether we are making sound decisions or behaving recklessly.
Understanding Planetary Boundaries
As human industry has advanced, we have come to understand there are boundaries to what we can do with what Earth provides—planetary boundaries. Analysis of planetary boundaries shows we are not only breaching them, but we are at risk of causing irreversible damage to systems we depend on for human life as we know it.
For most of human existence, atmospheric concentrations of the global heating compound carbon dioxide hovered around 280 parts per million (ppm). Now they are over 420 ppm. No human being has ever known an atmopshere with such high concentrations of carbon dioxide as we now live with.
That 50% increase since pre-industrial times means a warmer world with less stable climate patterns. If we continue to heat the atmosphere and ocean, we will destabilize global climate patterns and lose the ability to reliably produce food sufficient for human need. Civilization is based on agriculture; if agriculture fails, nations will fail.
The economist Kate Raworth has visualized the space within which sustainable prosperity can be achieved as a “doughnut”—circular, with all economic activity operating above the floor of human need and below the ceiling of planetary boundaries. If we breach the floor or the ceiling, our ability to sustainably generate value is degraded, so our aspirations for an increase of value should be oriented toward that ciruclar shape.
The circular shape is important as well. It effectively argues that generative activity should be regenerative. We value positive externalities, so we can continue to build value in a healthy and sustainable way. The most prominent rendering of the doughnut-shaped sustainable economy is the logo for the Sustainable Development Goals agreed by the 193 member states of the United Nations General Assembly, in September 2015.
What so many decision-makers miss about the SDGs is that they were agreed as universal human aspirations which all nations would work to honor both at home and in partnership with other nations. Degenerative investments and practices undermine our ability to eradicate poverty, achieve food security, and build a broad base of sustainable value that can support and uplift everyone.
If we use the SDGs as a map of better human instincts and aspirations, and the most sensible way of organizing healthy, prosperous, and capable societies, we can reach a more detailed—and dazzling—undersanding of fiscal health and resilience. Nations that fail on macrocritical indicators are less likely to succeed as nations and more likely to collapse into conflict and chaos.
A Critical Shift in Mindsets
There are now signals of a critical shift in mindsets, with major institutions and powerful economic actors focusing on how decisions they make now can create opportunities for shared sustainable prosperity over the long term.
- The Financial Stability Oversight Council—made up of the financial regulatory agencies of the United States—has begun to assess climate as a macrocritical fiscal constraint. If climate change continues unabated, FSOC found in 2021, it will could collapse the financial system and its ability to support the wider economy.
- Central banks have begun organizing to evaluate how macro-critical forces influence fiscal health and stability, and how they might influence those forces to yield better outcomes.
- 196 nations agreed last November in Glasgow that fiscal stability measures should be oriented to align with climate resilient outcomes and sustainable development.
- Deliberate and detailed cooperation between nations toward accelerated climate-related transformation is now ramping up, and could soon come to include incentives and investments at all levels.
- The need for addressing interconnected crises in ways that align with overall transformation of food, energy, and financial systems has been identified as a global priority.
- The “Group of 7” (G7) leading industrial democracies have agreed to form a “climate club“, establish a “global shield” for protecting climate-vulnerable countries and communities, and build a Global Alliance for Food Security.
- With the Inflation Reduction Act, the United States has now put forward a model for leveraging actions that create fiscal space to mobilize unprecedented resources for climate change mitigation, adaptation, resilience, and justice measures.
This fiscal space approach should serve as an example around which institutions align, to allow low- and middle-income countries (LMIC) to leverage fiscal stability and climate-smart debt policy to address impacts, reduce vulnerability and build resilience. Climate clauses (and other safeguards) in international borrowing arrangements should become standard, to support more just, equitable, sensible, and sustainable development for LMIC.
Achieving climate safety and full recovery from loss and damage will require far more sustained funding and support, but the mindset shift is clear. Whether national governents, international policy processes, and community-level economies can all find ways to mobilize the $130 trillion committed last year to science-based net-zero pathways by the 450 institutions of the Glasgow Financial Alliancewill depend on which tools are used, and how quickly, and how widely.
Investing to Maximize Wellbeing
All of this fits together into an increasingly clear picture of the financial transformation ahead. To reconfigure outdated incentives and reimagine everyday practices, so investing to maximize wellbeing is the mainstream standard, the following action insights will need dedicated follow-up:
- The financial transformation must be driven by institutions and investors that shape policy and finance flows, across the public, private, and multilateral sectors, investing to maximize wellbeing.
- Financial decision-making needs to use data and evidence to demonstrate deeper and more far-reaching resilience value.
- Policy and incentives need to support that smarter, more generative financial, commercial, and political decision-making.
- Capital flows need to reach people at the community level, while empowering communities to build assets and localize more resources for ongoing climate resilient development.
By investing to maximize wellbeing—even amid the pressures of a global cost-of-living crisis, maybe especially then—decision-makers across the public, private, and multilateral sectors can maximize the efficiency of their investments to reduce vulnerability, risk, and harm, and to better establish the foundation for successful, inclusive climate-resilient development.