Marco Vangelisti came to a disturbing realization in the 1990’s as the manager of a quantitative investment fund. Noticing that the fund, whose algorithm he had helped write, had been beating the market for several years, he investigated.
“I was curious one year to find out how we achieved such an amazing return. Some of our best-performing stocks were palm oil companies that were destroying the rainforests.”
Marco grew up in the mountains of northern Italy and spent much of his childhood outdoors. This fostered a passion for nature and the environment that he carries to this day. He realized that the work he was doing was incompatible with his values.
“We were managing the money of environmental foundations tasked with preserving those habitats, and yet once they give the money to us we were helping to destroy the very things those foundations were created to protect,” he recalled.
Marco knew that he had to make a change. He divested all of his money and then set about a new task: re-investing all of his money in socially and environmentally responsible endeavors. He committed to become what he calls a “100% impact investor.”
Marco is an investor in my company, American Homeowner Preservation, and we are not an environmental company. But Marco draws no distinction between social and environmental impact:
"“Environmental issues are linked to social issues,” he said. “The most pollutive factories are in poor neighborhoods. We have got to stop extracting from poor communities and communities of color.”
It is this conviction that explains possibly the most surprising aspect of Marco’s beliefs about investing - he sees it as a way to build “an alternative to our current economic system.”
What is that economic system?
“We’re dealing with capitalism,” he said matter-of-factly. “Capitalism has a couple of key features: one is the commodification of labor and nature. In other words, you can buy and sell a local ecosystem, and because of private property rights, you can destroy it if you want to. And you can buy and sell labor, which means that as productivity increases you need less people and their worth as a commodity goes down. That’s why we have a lot of unemployed people and very low wages in this country.”
It may sound counter-intuitive, but it entirely depends on how you define capitalism. While many simply understand capitalism as “free enterprise,” Marco actually uses a more nuanced, specific definition that might not seem out of place in a piece of Marxist literature.
Basically, capitalism is an economic system based on private ownership of the “means of production.” The capitalist - the boss, the entrepreneur, the investor, the owner of capital - purchases labor-power from workers (paid in the form of wages or salary) in order to work these means of production, and then collects surplus value as profit.
Capitalism seeks to maximize profit, because profit can be utilized as additional capital. To maximize profit, expenses, such as labor, must be cut as much as possible. So under capitalism, wages and benefits will be driven down as much as possible, and society must maintain a labor surplus - the large numbers of unemployed people Marco was talking about - to do this.
When Marco brings up an alternative economic system, some people’s minds immediately jump to the 20th century’s most (in)famous example - Soviet-style socialism, where the government controls enterprise as opposed to private individuals. But that’s not what Marco is talking about.
Marco invests in enterprises that do not suffer from what he sees as the structural problems with capitalism. “When I see companies that don’t treat labor as a commodity - such as worker-owned cooperatives, where they’re never going to pay themselves as little as possible - that is a systemic example of a post-capitalist economy.”
In Marco’s mind, an alternative to the capitalism of 21st-century America does not mean the end of markets, free enterprise, or investing. He is advocating we as a society reconsider the concept that capital should be the dominant factor in business.
“We’re used to the idea that capital calls the shots, but it doesn’t have to,” Marco said. “When you invest in a co-op, capital comes in as a tool and not a master. When you invest in a co-op, you don’t have voting rights. Most investors in co-ops are a particular class of members with no voting rights, but get a preferred treatment when dividends are issued, capped at a certain percentage. The difference is, you bring the capital to see that economic activity thrive, but then you let the people running that activity make decisions.”
For most of the 20th century, the word “socialism” has scared many Americans away from even talking about the problems with capitalism. But those problems are becoming harder and harder to ignore.
“Capitalism, to work, needed a lot of restraint from very strong regulations and public programs,” Marco said. “You can moderate some of the excesses of capitalism by having regulations, taxes, redistribution, et cetera, but now I see that capitalism is so unmoored that it may destroy itself.”
That may sound dramatic, but Marco may be onto something: more and more people are coming to reject the notion that climate change can be effectively combatted through free-market solutions. And amidst an economic “recovery” that officially began in 2009, the wealth gap has only grown wider and wider.
“The powerful seem to be trapped in a sort of sickness of needing more and more, even though so many people have so very little,” Marco said.
Although he has soured on capitalism, Marco is still a believer in the power of capital to drive positive change through impact investing. To that end, he has founded Essential Knowledge For Transition, an organization which teaches investors how to “direct our money towards worthy and positive businesses.”
“Impact investing is building the world we want to live in, as opposed to destroying it in the name of financial returns,” he said. “We have to move our money in a direction that allows for a better society and a better world to emerge. That’s the first step.”