Go long: The case for investing in long-termism

Volans has released “Go long: The case for investing in long-termism”—a new paper produced in partnership with EIT Climate-KIC’s Long-termism Deep Demonstration. Our global socio-economic system has shortsightedness built into it, resulting in quarterly returns concentrated in very few hands at the expense of both people and the planet. This paper explores why this is and how the system must change to foster the well-being of current and future generations of humans, as well as the greater living world.

“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, then suddenly.”

— Ernest Hemingway, The Sun Also Rises

In some ways, it would be easier if we weren’t wired to care about the long term. Climate change. Biodiversity loss. Social and racial inequality. Declining levels of trust. Inflation. Antimicrobial resistance. Soil degradation. Pandemics. Financial crises. Conflict. Never has our individual and collective well-being faced such a ‘wicked’ set of threats. All these issues have something important in common: They are problems that unfold “gradually, then suddenly.” Our ecological and social support systems have a remarkable capacity to absorb and adapt to the pressure we put on them until, suddenly, they can’t take any more. At that point, it is generally too late to avoid catastrophic consequences. It is the slowness of the build-up, combined with the suddenness of the breakdown, that makes these threats so difficult to manage.

 

Our dual nature

Humans are paradoxical creatures. We care about long-term outcomes—for ourselves and for others. We want to make it to old age and to enjoy health and happiness when we do. We want the same for our children and grandchildren—and for generations of future humans we will never meet. We are compassionate by nature. And yet, we behave as though the long-term future scarcely matters. We are prone to what behavioural economists call ‘hyperbolic discounting’—a tendency to assign almost no value to long-term effects in our decision making. And we have inadvertently hardwired this tendency into our political, financial and economic systems. This inconsistency in human nature—compassionate and long-sighted in our aspirations, irrational and short-sighted in our decision making—is a result of how our brains have evolved over millennia. There is, however, nothing inevitable about how this tension plays out across our political, financial and economic systems. We can choose to design systems that amplify our innate short-termism, or we can choose to design systems that favour our capacity for taking a long view.

 

How money thinks

This paper puts the financial sector in the spotlight for the simple reason that finance is both the lifeblood and the beating heart of capitalism. In a world where capitalism is unrivalled—‘the sole remaining mode of production’, as famous economist Branko Milanovic puts it—no sector is more important in determining the outcomes our economies and societies generate. Money may be unequally distributed, but the workings of the financial system affect all of us regardless. Understanding how money thinks—and why it thinks the way it does—is a crucial starting point for any effort to affect systemic change. This report tells the story of how short-termism came to be embedded in today’s financial system, charts the emergence of a different economic paradigm—one that recognises the reality of biophysical limits—and lays out a strategy for defeating short-termism and creating a resilient, regenerative economy.

 

“Go long: The case for investing in long-termism” is available online:

Read the full paper

 
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