8 institutional innovations that could update the economic system

By Otto Scharmer

We live in an age of profound disruption. Global crises – financial, food, fuel, natural resources, poverty – challenge almost all societies. Yet over the coming decades these disruptions will also create, and are already creating, opportunities for profound personal, societal, and global renewal.

The world's crises represent three divides: ecological, social, and spiritual. The ecological divide manifests in symptoms such as environmental destruction, and is experienced as a divide between self and nature. The social divide manifests in increasing rates of poverty, inequity, polarisation, and violence and is experienced as a divide between self and self. And the spiritual divide is experienced as a disconnect between self and self — the “current self” and the “emerging future self”.

A disconnect between these two selves manifests as burnout, depression, and suicide. In 2010, more people died from suicide than from murder, war, and natural disasters combined. Another symptom of this disconnect is the decoupling of GDP from the actual well-being of people: we produce more, consume more, and are busier than ever before but our happiness and wellbeing are declining.

What are the driving forces behind these three divides?

The most important driving force lies in our outdated paradigms of economic thought, which continue to represent a blind spot to measuring wellbeing.

The main shortcomings of conventional economic thought can be summarised in two words: externalities and consciousness. Experts are well aware of externalities; but consciousness is rarely discussed, or even noticed.

Consciousness is not a category of economic thought. Still, the history of the economy and of modern economic thought is the product of an evolving human consciousness. The modern economy is based on the division of labour, which comes with the question: how do we coordinate all individual activity to make a coherent whole?

Historical responses to coordinating activity

Centralised coordination saw people organising around hierarchies and central planning gave rise to centralised economies – such as socialism and mercantilism – embodying traditional forms of values and awareness.

Decentralised coordination meant organising around markets and competition giving rise to the “second” (private) sector, the free, laissez-faire market economy, embodying ego-system awareness - a concern for the wellbeing of oneself.

Interest group–driven coordination saw organisation around stakeholder dialogues and negotiations which gave rise to the “third” (social) sector and the social market economy, embodying stakeholder awareness – concern for the wellbeing of oneself and one's immediate stakeholders.

Finally there is coordination around the commons. This organisation around awareness-based collective action focuses on forming co-creative stakeholder relationships. It embodies eco-system awareness – a concern for the wellbeing of all.

The problem with today's capitalism, to paraphrase Einstein, is that we are “trying to solve problems with the same consciousness that created them”. Yet there is no bigger waste of economic resources today than addressing 21st-century problems such as climate change with thinking and mechanisms that reside in the societal context of earlier centuries.

Rethinking the narrative of the 21st century

When the laissez-faire capitalism of the late 19th and early 20th centuries hit the wall in the form of poverty, inequality, pollution, and financial breakdowns, societies responded with institutional innovations that set the stage for the next evolutionary stage of capitalism (unions, federal reserve banks, legislation to protect labour, farmers, and the environment).

That stage, the 20th-century social market economy or stakeholder capitalism, is now hitting the wall of global externalities, as we move through the early 21st century. And again, as a century ago, we are challenged to come up with a new set of innovations that respond to these issues on a level commensurate with the challenge they pose.

There are eight institutional innovations that, as a set, could update the economic system to operate more intelligently across silos and boundaries by shifting the economic logic from ego-to eco-system awareness:

1. Nature

Instead of treating nature's gifts as commodities that we buy, use, and throw away, treat the natural world as an eco-system that we need to cultivate.

2. Entrepreneurship

Reinvent our concept of labour and rather than thinking of work as a “job” think about it as passion-led entrepreneurship.

3. Money

Reinvent our concept of money. Instead of extractive, capital should be intentional, serving rather than harming the real economy.

4. Technology

Reinvent how we develop technologies. Empower all people to be makers and creators rather than passive recipients.

5. Leadership

Instead of individual super-egos, we need to build the capacity to co-sense and co-shape the future on the level of the whole system.

6. Consumption

Rather than promoting consumerism and using metrics like GDP, move towards sharing and collaborative consumption, and using measurements of well-being such as Gross National Happiness (GNH) and the Genuine Progress Indicator (GPI).

7. Governance

Reinvent how we coordinate. Move toward complementing the three older mechanisms (hierarchies, markets, and special interest groups) through a fourth mechanism: acting from shared awareness, from seeing the whole.

8. Ownership

Advance the old forms of state and private ownership by creating a third category of ownership rights: commons-based ownership that better protects the interests of future generations.

These eight “acupuncture points”, as a set, could help us to shift the old outdated capitalism into a 21st-century economy that creates wellbeing for all.

Otto Scharmer is a senior lecturer at MIT and founding chair of the Presencing Institute. This article is is adapted from his most recently co-authored book (with K Kaufer), Leading from the Emerging Future: From Ego-system to Eco-system Economies.

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Friday 26 september 2014