Woody Tasch and the Slow Money Revolution
The venture capitalist talked to Plenty Magazine about his new book on “slow money,” building natural and social capital along with economic capital, how to measure abstractions, and what's wrong with the market today
By Ragan Sutterfield
We have been learning all about fast money. From the mortgage-backed securities with little grounding in reality to Bernard Madoff's Ponzi scheme, fast money has been showing its true self recently. Woody Tasch believes it's time to pull the reins back on fast money and create a market that values the environment, local communities, and the natural world as much as it does financial growth. His new book, Inquiries into the Nature of Slow Money: Investing as if Food, Farms, and Fertility Mattered articulates this vision. A long-time venture capitalist and entrepreneur, Tasch knows Wall Street. He is putting that experience to work to create a different model of venture capital through a newly formed NGO called Slow Money, which will invest in companies that build natural and social capital as well as financial capital. Plenty spoke with Tasch by phone from his home in the mountains outside of Santa Fe, NM to talk about Slow Money, his new book, and his ideas for a new kind of economy.
PLENTYMAG.COM: What is "Slow Money"?
WOODY TASCH: Slow Money is an effort to create a new way of steering capital in support of local food systems. It is in part a reference to Slow Food, and it is also a reference to slow money as opposed to fast money—everyone is beginning to understand what that is.
As an organization we have two parts of our brain that we are trying to hold together. One is the NGO part, where we are holding a series of workshops around the country called Slow Money Institutes. We bring together stakeholders in the region—meaning food entrepreneurs, NGO leaders, farmers, and investors to talk about how we would invest slow money in that region. We are building up key stakeholders in eight regions of the country through the first six months of this year. This is in preparation for the deployment of the capital.
On the fund side, we are going to go to market early in 2009 to try to raise $50-to-100 million to deploy in a series of regional Slow Money venture funds as well as in a portfolio of some other leading sustainable food enterprises across the United States. It is a movement trying to build social capital in a region and a vision of what that can be, and then bringing in financial capital. So we are trying to do things in a different way by bringing in social capital before we bring in financial capital.
Part of the problem with the money economy has been its inability to value things that aren't easily measured or monetized, such as clean air, diverse small business, etc. How does Slow Money give value to market externalities?
E.F. Schumacher said that economics is a tool not an end, but we live in a time when economics has been made an end. In order to make it a means again we have to reassert meta-economic values. So you ask what are those values? Well they aren’t that hard to articulate. 99 out of 100 people would agree to what they are: It’s like motherhood and apple pie, it is healthy communities, healthy families, a better world for future generations, ethical behavior, moral responsibility.
So how you bring those things into financial life and capital markets is extremely tricky because capital markets were designed to screen all of that out. Why do we have the capital markets we have? We created these markets because of the particular historical juncture we were at the time. Capital markets and our version of modern corporations and shareholder entitlement and fiduciary responsibility all came from the same mindset that started around 1500, picked up steam during the Industrial Revolution, and took off in the last half of the 20th century. And it’s all about conquest and exploration and exploitation, extraction and consumption and economic growth and standards of living—all of those things together. We created a financial system that optimized for the flow of capital, reduced the risk to capital, and created ways for capital to flow quickly. At every stage we tried to optimize for faster and faster capital, so we could have more and more economic growth and more and more technological innovation, more risk taking, and more “progress” as defined by the economy.
Now we're at a new juncture, and we have to create a different set of capital markets. The current collapse is a warning sign that we can’t continue that historical model anymore. The words "restoration" and "preservation" for me capture the values proposition that you raised. We need to move from capital markets based on consumption and extraction to capital markets based on restoration and preservation. You can call the new markets values-driven, but I would say that they are just getting down-right practical. It’s just recognizing that where we are in history, we have to behave differently if we want to survive—much less live by higher ethical standards. The crucible of global warming and environmental degradation and terrorism and all of these nested issues basically collapses, in my opinion, survival instincts and ethics. I don’t think these things are different anymore. We just have to start acting differently for all kinds of reasons at the same time.
We are at the beginning of that invention process. How would we have a stock market that wasn’t built around maximum shareholder profits over the short term? How would we have companies that more explicitly gave away more of their profits to stakeholders rather than just to shareholders? I think these things are going to happen. There is a lot of energy out there for fundamentally realigning things.
You had a revelation when you heard Adam Werbach, the "sustainability consultant," talk about his work with Wal-Mart.
I was once at a meeting where I heard Adam Werbach talking about how he was working with Wal-Mart as a consultant to green Wal-Mart and how important this was, and someone in the audience stood up and said, “If Wal-Mart really wants to be so green why does it have to keep growing as a company? I don’t understand how a company can be green if it is pursuing unlimited growth.” And that prompted Adam Werbach to answer, “The market demands growth.” That was his answer!
There was something about that exchange that made me act differently from how I had acted before when I had heard exchanges like that. I went home and I said, "Damn it, then we have to create a different kind of market." It’s very obvious. The old market—the market we inherited from the industrial revolution and from the robber barons—demands growth. So let’s create another market and the new market doesn’t have to be against growth, it’s just against unlimited growth that goes beyond the limits of natural and social capital.
In certain communities at certain times, growth is synonymous with progress. At other times, it’s synonymous with congestion and sprawl and overheating and speculation. The idea that the market demands growth is just a blank check for every investor and every company to go out and pursue maximum growth; it's patently absurd. So we need to create another market where other factors are valued by the investors and entrepreneurs who want to play in that market.
This new kind of market is where the Patagonias of the world would live: The thousands of values-driven companies out there that would love to have liquidity and more access to capital, but don’t want to become a multinational company and don’t want to put themselves on the block for acquisition by global corporations. So we have to create a way for them to connect with the many millions of investors who would love to invest in a company like that. And I assert that over time there will be lots of investors who want to play there, and whether they will make as much money as companies that are mining and making armaments and making cars—these investors and entrepreneurs won’t care. They’ll be happy to put some of their time, money, and energy into this market, knowing that it is a lower financial return, because they’ll know it is the right thing to do.
Another theme in the book was the need for a nonviolent economy. You wrote that agriculture can provide the ground for that. What did you mean?
In a recent interview on TV, Bill Gates talked about what a miracle modern agriculture is because only one or two million Americans can feed the whole country. Modern agriculture is often called a miracle because of that, and because of the fact that our supermarkets are filled with a zillion products that didn’t exist a generation ago and seem to last a long time on the shelf and are pretty cheap in general. So people say, "What’s the problem? We have lots of food, lots of variety, and not very many people producing it—it’s a miracle!"
But the modern agricultural system has had enormously violent consequences when measured in things like the destruction of rural economies, the destruction of rural culture, the loss of biodiversity, soil erosion, and unsustainable patterns of rural-to-urban migration. When you look at all of these things, the miracle of modern agriculture doesn’t seem to be such a miracle anymore. We have to look at all of these factors when we assess modern agriculture’s successes.
The process that led to modern agriculture was about 10,000 years in the making. During all that process we have never had sustainable agriculture. We’ve sort of hopscotched our way to greater amounts of food and more material wealth. We kept borrowing from the future each step of the way; we just got much cleverer at our borrowing—using petrochemicals and technology. Now we are experiencing the limits of all of that on a global level.
But the next question would be: Can we really feed everyone without industrial agriculture? I don’t know the answer to that, but I do know that we have to get away from petrochemicals and synthetic fertilizers that destroy soil fertility. That’s part of the answer. Another part is that the majority of the grain in this country is fed to animals. It takes many pounds of grain for that animal to gain a pound of meat, and that process is also incredibly water-intensive. So it's obvious that there is more than enough capacity to grow food. We are just using it in an enormously wasteful way.
The burden doesn’t need to be on those of us who are saying we need more local and sustainable agriculture. Clearly the industrial agricultural system can’t solve all of our problems. The first attempts aren’t perfect, it’s hard, but we have to acknowledge that we have to do things differently now in the face of the global environmental, financial, and social crises we face.
PLENTYMAG.COM: What is "Slow Money"?
WOODY TASCH: Slow Money is an effort to create a new way of steering capital in support of local food systems. It is in part a reference to Slow Food, and it is also a reference to slow money as opposed to fast money—everyone is beginning to understand what that is.
As an organization we have two parts of our brain that we are trying to hold together. One is the NGO part, where we are holding a series of workshops around the country called Slow Money Institutes. We bring together stakeholders in the region—meaning food entrepreneurs, NGO leaders, farmers, and investors to talk about how we would invest slow money in that region. We are building up key stakeholders in eight regions of the country through the first six months of this year. This is in preparation for the deployment of the capital.
On the fund side, we are going to go to market early in 2009 to try to raise $50-to-100 million to deploy in a series of regional Slow Money venture funds as well as in a portfolio of some other leading sustainable food enterprises across the United States. It is a movement trying to build social capital in a region and a vision of what that can be, and then bringing in financial capital. So we are trying to do things in a different way by bringing in social capital before we bring in financial capital.
Part of the problem with the money economy has been its inability to value things that aren't easily measured or monetized, such as clean air, diverse small business, etc. How does Slow Money give value to market externalities?
E.F. Schumacher said that economics is a tool not an end, but we live in a time when economics has been made an end. In order to make it a means again we have to reassert meta-economic values. So you ask what are those values? Well they aren’t that hard to articulate. 99 out of 100 people would agree to what they are: It’s like motherhood and apple pie, it is healthy communities, healthy families, a better world for future generations, ethical behavior, moral responsibility.
So how you bring those things into financial life and capital markets is extremely tricky because capital markets were designed to screen all of that out. Why do we have the capital markets we have? We created these markets because of the particular historical juncture we were at the time. Capital markets and our version of modern corporations and shareholder entitlement and fiduciary responsibility all came from the same mindset that started around 1500, picked up steam during the Industrial Revolution, and took off in the last half of the 20th century. And it’s all about conquest and exploration and exploitation, extraction and consumption and economic growth and standards of living—all of those things together. We created a financial system that optimized for the flow of capital, reduced the risk to capital, and created ways for capital to flow quickly. At every stage we tried to optimize for faster and faster capital, so we could have more and more economic growth and more and more technological innovation, more risk taking, and more “progress” as defined by the economy.
Now we're at a new juncture, and we have to create a different set of capital markets. The current collapse is a warning sign that we can’t continue that historical model anymore. The words "restoration" and "preservation" for me capture the values proposition that you raised. We need to move from capital markets based on consumption and extraction to capital markets based on restoration and preservation. You can call the new markets values-driven, but I would say that they are just getting down-right practical. It’s just recognizing that where we are in history, we have to behave differently if we want to survive—much less live by higher ethical standards. The crucible of global warming and environmental degradation and terrorism and all of these nested issues basically collapses, in my opinion, survival instincts and ethics. I don’t think these things are different anymore. We just have to start acting differently for all kinds of reasons at the same time.
We are at the beginning of that invention process. How would we have a stock market that wasn’t built around maximum shareholder profits over the short term? How would we have companies that more explicitly gave away more of their profits to stakeholders rather than just to shareholders? I think these things are going to happen. There is a lot of energy out there for fundamentally realigning things.
You had a revelation when you heard Adam Werbach, the "sustainability consultant," talk about his work with Wal-Mart.
I was once at a meeting where I heard Adam Werbach talking about how he was working with Wal-Mart as a consultant to green Wal-Mart and how important this was, and someone in the audience stood up and said, “If Wal-Mart really wants to be so green why does it have to keep growing as a company? I don’t understand how a company can be green if it is pursuing unlimited growth.” And that prompted Adam Werbach to answer, “The market demands growth.” That was his answer!
There was something about that exchange that made me act differently from how I had acted before when I had heard exchanges like that. I went home and I said, "Damn it, then we have to create a different kind of market." It’s very obvious. The old market—the market we inherited from the industrial revolution and from the robber barons—demands growth. So let’s create another market and the new market doesn’t have to be against growth, it’s just against unlimited growth that goes beyond the limits of natural and social capital.
In certain communities at certain times, growth is synonymous with progress. At other times, it’s synonymous with congestion and sprawl and overheating and speculation. The idea that the market demands growth is just a blank check for every investor and every company to go out and pursue maximum growth; it's patently absurd. So we need to create another market where other factors are valued by the investors and entrepreneurs who want to play in that market.
This new kind of market is where the Patagonias of the world would live: The thousands of values-driven companies out there that would love to have liquidity and more access to capital, but don’t want to become a multinational company and don’t want to put themselves on the block for acquisition by global corporations. So we have to create a way for them to connect with the many millions of investors who would love to invest in a company like that. And I assert that over time there will be lots of investors who want to play there, and whether they will make as much money as companies that are mining and making armaments and making cars—these investors and entrepreneurs won’t care. They’ll be happy to put some of their time, money, and energy into this market, knowing that it is a lower financial return, because they’ll know it is the right thing to do.
Another theme in the book was the need for a nonviolent economy. You wrote that agriculture can provide the ground for that. What did you mean?
In a recent interview on TV, Bill Gates talked about what a miracle modern agriculture is because only one or two million Americans can feed the whole country. Modern agriculture is often called a miracle because of that, and because of the fact that our supermarkets are filled with a zillion products that didn’t exist a generation ago and seem to last a long time on the shelf and are pretty cheap in general. So people say, "What’s the problem? We have lots of food, lots of variety, and not very many people producing it—it’s a miracle!"
But the modern agricultural system has had enormously violent consequences when measured in things like the destruction of rural economies, the destruction of rural culture, the loss of biodiversity, soil erosion, and unsustainable patterns of rural-to-urban migration. When you look at all of these things, the miracle of modern agriculture doesn’t seem to be such a miracle anymore. We have to look at all of these factors when we assess modern agriculture’s successes.
The process that led to modern agriculture was about 10,000 years in the making. During all that process we have never had sustainable agriculture. We’ve sort of hopscotched our way to greater amounts of food and more material wealth. We kept borrowing from the future each step of the way; we just got much cleverer at our borrowing—using petrochemicals and technology. Now we are experiencing the limits of all of that on a global level.
But the next question would be: Can we really feed everyone without industrial agriculture? I don’t know the answer to that, but I do know that we have to get away from petrochemicals and synthetic fertilizers that destroy soil fertility. That’s part of the answer. Another part is that the majority of the grain in this country is fed to animals. It takes many pounds of grain for that animal to gain a pound of meat, and that process is also incredibly water-intensive. So it's obvious that there is more than enough capacity to grow food. We are just using it in an enormously wasteful way.
The burden doesn’t need to be on those of us who are saying we need more local and sustainable agriculture. Clearly the industrial agricultural system can’t solve all of our problems. The first attempts aren’t perfect, it’s hard, but we have to acknowledge that we have to do things differently now in the face of the global environmental, financial, and social crises we face.
