8 institutional innovations that could modernize the economic system | Guardian of sustainable business


Oe live in a time of profound upheaval. Global crises – financial, food, energy, natural resources, poverty – challenge almost every society. Yet over the coming decades, these disruptions will also create, and are already creating, opportunities for profound personal, societal, and global renewal.

Global crises represent three divisions: ecological, social and spiritual. The ecological divide manifests itself in symptoms such as the destruction of the environment and is experienced as a divide between oneself and nature. The social divide manifests itself in increasing rates of poverty, inequality, polarization and violence and is experienced as a divide between self and self. And the spiritual divide is experienced as a disconnection between self and self – the “current self” and the “emerging future self”.

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

What drives these three divisions?

The most important driving force is our outdated paradigms of economic thinking, which continue to represent a blind spot for measuring well-being.

The main flaws of conventional economic thinking can be summed up in two words: externalities and consciousness. Experts are well aware of externalities; but consciousness is seldom discussed, or even noticed.

Consciousness is not a category of economic thought. Yet the history of economics and modern economic thought is the product of an evolving human consciousness. The modern economy is based on the division of labor, which comes with the question: how to coordinate all individual activities into a coherent whole?

Historical responses to coordination activity

Centralized coordination saw people organize around hierarchies, and central planning gave rise to centralized economies – such as socialism and mercantilism – embodying traditional forms of values ​​and consciousness.

Decentralized coordination meant organizing around markets and competition giving rise to the “second” (private) sector, the laissez-faire, free market economy, embodying the system consciousness of the ego – concern for good – to be of oneself.

Coordination by interest groups was organized around dialogues and negotiations with stakeholders which gave rise to the “third” (social) sector and the social market economy, embodying the consciousness of stakeholders – the concern for the well-being of itself and its immediate stakeholders.

Finally, there is coordination around the commons. This organization around collective awareness-raising endeavors to forge co-creative relationships with stakeholders. It embodies the consciousness of the ecosystem – a concern for the well-being of all.

The problem with capitalism today, to paraphrase Einstein, is that we “try to solve problems with the same consciousness that created them”. Yet there is no greater waste of economic resources today than tackling 21st century issues such as climate change with thinking and mechanisms that reside in the societal context of previous centuries.

Rethinking the 21st century narrative

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 crises, societies responded with institutional innovations that opened the way to the next evolutionary stage of capitalism (unions, Federal Reserve Banks, legislation to protect labour, farmers and the environment).

This stage, the social market economy or 20th century stakeholder capitalism, is now coming up against the wall of global externalities as we move through the beginning of the 21st century. And again, like a century ago, we are challenged to come up with a new set of innovations that address these issues at a level commensurate with the challenge they pose.

There are eight institutional innovations that, taken together, could update the economic system to work smarter across silos and borders by shifting economic logic from ego-awareness to ecosystem-awareness:

1. Nature

Instead of treating nature’s gifts as commodities that we buy, use, and throw away, treat the natural world as an ecosystem that we must nurture.

2. Entrepreneurship

Reinvent our concept of work and rather than thinking of work as a “job”, think of it as passionate entrepreneurship.

3. Money

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

4. Technology

Reinventing the way we develop technologies. Allowing all to be makers and creators rather than passive recipients.

5. Leadership

Instead of individual supermonths, we need to develop the capacity to co-sense and co-shape the future on a system-wide level.

6. Consumption

Rather than promoting consumerism and using metrics like GDP, shift to sharing and collaborative consumption, and use well-being metrics like Gross National Happiness (GNH) and the Genuine Progress Indicator ( GPI).

7. Governance

Reinventing our way of coordinating. Going towards the complementarity of the three older mechanisms (hierarchies, markets and special interest groups) through a fourth mechanism: acting from a shared consciousness, from an overview.

8. Ownership

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

These eight “acupuncture points, taken together, could help us transform old, outmoded capitalism into a 21st century economy that creates well-being for all.

Otto Scharmer is an associate professor at MIT and founding president of the Presencing Institute. This article is adapted from his latest co-authored book (with K Kaufer), Leading from the Emerging Future: From Ego-system to Eco-system Economies.

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