Our Story: Introducing Arketa Institute for Post-Growth Finance
Arketa Institute Co-Founders Steve Rocco, Anastasia Linn and Matt Orsagh.
Each of the founders of Arketa Institute have taken a different path through a career in finance. However, we all ended up in the same place. We each understand that finance and economics as we know them today aren't fit for purpose, and we are committed to–and energized by–the idea of building something better.
The “Predicament”
The dominant economic system is doing just that: dominating all of us. It’s incentivising us to make harmful decisions and turn everything that we have–natural resources, human resources, and effectively all of life–into products and services that can be sold at a profit. Finance as an industry is all too often tasked with pushing those returns to be as high as they can be and then delivering them directly to the people that already have the most money to spare (investors).
This doesn’t seem like the economy we would have wanted for ourselves if given the choice.
Still, as things stand now, it operates with mind-boggling efficiency. And it’s threatening the wellbeing of all humanity. Instead of balancing our planetary budget to make sure the resources we have available can cover our total needs, we’re taking on heaps of environmental debt, and for what? We’re way over budget, and the payments are coming due.
We see this clearly in the breaching of planetary boundaries, and in the disregard for scientific consensus warning us that our way of life is compromising life itself.
We have a system so set on economic growth that it fails to see that the pursuit of GDP and financial returns at all costs is pushing the natural systems of Earth past the point where they can support our lives, much less our current way of living.
Nothing is meant to grow forever. Trees don’t grow infinitely, animal populations in nature usually stabilize (or overwhelm their environment and crash), and we as human beings stop growing physically after we have lived only about twenty percent of our lives. We then spend the rest of our lives growing in other ways, and maintaining our physical form as best we can.
Because of the real limits on economic growth, we should think about our economies the same way. Once we get to a certain level of development, we need to focus on maintaining the wellbeing of our societies, not on economic growth that is ultimately self-destructive.
The Backstory of GDP
For most of human history, the growth of an economy was not considered an adequate measure of human success. That changed nearly one-hundred years ago when an American economist, Simon Kuznets, was charged with creating a way to better track the performance of the economy in the mid-1930s. He came up with Gross Domestic Product (GDP) which simply adds up the market value of all products and services produced in an economy during a given period.
But even Kuznets himself warned that GDP should not be used to judge the total economic prosperity of a country. GDP only measures economic output, ignoring all the factors that went into that economic output and erasing large swaths of activity that make that output possible.
If you bring your child to daycare, it counts towards GDP, but when your child is cared for by friends and family, it doesn’t. Turning trees into paper and lumber counts towards GDP, but leaving them as a forest doesn’t. Losing your house and everything in it in a natural disaster? Great for GDP, because all of those things have to be purchased and built again. But obviously not so good for you…
Currently, GDP and the limited activities and exchanges it estimates are a large part of how we measure our success as a society. Politicians promise growth. CEOs get fired if they don’t deliver growth. If investors or their intermediaries don’t realize growth in the form of returns, they’re considered unsuccessful or as breaching fiduciary duty, and liable to lose their jobs.
But pursuing those growth metrics has pushed our planetary boundaries–which measure the health of our life support system–into the red. The science shows that the natural world that supports us is crumbling and will turn from our defender to our destroyer if we continue on our unsustainable path.
Acknowledging this reality is still the exception in the world of finance. And for good reason. Accepting it goes against the logic of how our economies are currently organized, how our nations measure their success, and quite possibly our very identity.
Breaking down, then building up: What this process looked like for us
Recognizing the role of economic growth in natural and social degradation, and finance’s role in perpetuating our dependence on economic growth, is not easy when your life so far has been built around exactly that.
We didn’t aspire to pursue this new path, but after weighing the preponderance of the evidence, we didn’t see any other choice. None of the other options were sufficient.
Sustainable finance, impact investing, blended finance and other attempts by our industry to address these issues all fell short of the actions that needed to be taken to address the environmental, social and economic problems we saw.
When each of us was eventually confronted with this, we felt overwhelmed, alone, and full of questions. Can I still do my job? Is my whole career irrelevant? If I start talking about this publicly, will my colleagues reject me? Is this totally crazy?
These ideas are so different from the economics we learned in university and the practices we’ve been applying our whole careers that we hesitated to even speak that out loud.
We felt afraid–especially for our children–and guilty about the roles we’ve played within this system so far. It can be terrifying, but doing nothing was not an option.
As we searched for answers, we slowly but surely discovered others with the same concerns as us. We found many of these people among those who studied and practiced ecological economics.
Ecological economics reminds us that “the economy” lies within society, and that both the economy and society sit within and depend upon our environment. It emphasizes the dependency of our economy on the natural world, making clear the damage we do to ourselves by damaging our environment. Ecological economics recognizes that an economy that grows forever simply is not possible on a finite planet, and it shifts the focus instead to ask what the optimal scale of the economy might be.
The idea of limits was actually liberating. By framing economics and finance as disciplines that had to operate within boundaries, we now had the basis we needed to start building a world that could truly be sustainable.
We have a foundation for a financial system that could work better, we just need to put the pieces together and find the courage to do something different.
Moving beyond the familiar is hard, especially when we all have so much invested in the current system. Our entire lives and careers have been built around some fundamental assumptions that are at best incomplete. Taking the next step forced us to admit that much of what we had learned about economics and finance was incorrect. That was a painfully difficult process that started with denial, but eventually led to acceptance.
Ultimately, making these foundational changes will make our work easier. And take it from us, it’s a lot less frustrating than banging our heads against the wall trying to make “sustainable finance” or impact investing work when their assumptions are flawed from the start.
By starting with new economic foundations, we can go further faster, and given how late in the game it is for these issues, that’s exactly what we need.
Our next steps: Why Arketa Institute exists
We started Arketa Institute for Post-Growth Finance to help normalize the conversation about the limits to growth and what finance needs to do to move to a growth-independent model in which humanity is served by finance, and finance no longer indulges in the fantasy of infinite growth. We don’t want others to feel as frustrated and alone as we were when confronting all these issues. We want to give our peers a space to learn, ask questions, raise doubts and generally discuss these existential issues with others, without the pressure and implications that this can have for our jobs.
This is what we mean by “engaging financial professionals in the just transition”: welcoming these conversations, finding a meaningful role for each of us in a changing economy and supporting each other along the way.
Our mission is to invite financial professionals–as well as sustainability professionals, companies, policymakers and the public at large–into this discussion, so that we can move away from a financial and economic paradigm that makes destruction profitable, and towards one that prioritizes wellbeing.
Finance is an engine that drives the world. It has outsized power, whether we acknowledge it or not. More than scientists, more than international organizations, more even than many aspects of our democracies, because we as investment professionals can (semi-)independently decide which projects get realized and which don’t. As such, we shape the future. And currently, we make those decisions based primarily on ROI. Not whether or not these investments solve pressing problems or relieve genuine suffering, but whether they deliver more money to our already relatively wealthy clients. And this holds true even if we’re operating in so-called “sustainable finance”.
Currently, our mindless pursuit of growth is driving us toward a cliff at high speed. There is time to change course. But it will take leadership from all of us. We financial professionals must step up and act as stewards of the financial world, accepting our responsibility to steer away from the abyss before it is too late.
We invite our peers in finance to join us in finding better ways to organize our economy and practice finance in ways that help us preserve what is important and move beyond what is not. There is so much to gain by doing so.
Interested in getting involved, learning more, or supporting us? Write to us with your questions, sign up for our newsletter and follow us on Linkedin. You can also support us financially. We look forward to hearing from you.