I. The Nature of the Journey: A True Paradigm Shift

The media paint a gloomy picture of an embattled, struggling Western civilization – not enough time, too much to do, crime, stress, environmental disaster, breakdown of family values, war. Indeed, as the world becomes ever more complex, some fear that humanity will not keep pace. Thomas Homer-Dixon, author of The Ingenuity Gap, warns of “a chasm that…looms between our ever more difficult problems and our lagging ability to solve them.” Vaclav Havel, former President of Czechoslovakia, told the US Congress that, “Without a global revolution in the sphere of human consciousness, nothing will change for the better... and the catastrophe towards which this world is headed – the ecological, social demographic or general breakdown of civilization – will be unavoidable.” Even H.G. Wells warned 60 years ago that humanity is in a race between education and disaster. “We have to make a new world for ourselves,” he warned, “or we shall suffer and perish amidst the downfall of the decaying old."

But it will take more than education, at least of the current variety, to save us from our current predicaments. As the following chapters will show, the industrialized world has reached levels of complexity that call for a fundamentally new paradigm. What once was a simple society with limited and predictable interconnections now grows daily in interdependence and unpredictability. Like a map designed to navigate the landscape of the town we just left, the prevailing understanding of how things function has become outdated as the landscape of our reality evolves into a murky, shifting maze.

It is easy to assume that such lofty concepts as “paradigms” and questions about the “nature of reality” have little to do with our own actions. “I’m just trying to earn a living/manage a team/run a company,” most of us think. “All this philosophical abstraction has nothing to do with me and the daily choices I make.”

But it has everything to do with you. The way in which you choose to earn your living, how you order and execute your daily priorities, the way you interact with your family and co-workers, your perceptions about success, how you discern right from wrong, and the way you live your life moment by moment – all of these are shaped and guided by lofty philosophical concepts that have been handed down to you implicitly from generations past. For example, it is widely accepted in the West that the goal of human existence is to ensure the succession of genes in competition with others and that every action can be framed within this purpose. This belief shapes the way we think about ourselves and it guides the choices we make. Imagine how differently we might behave if we believed instead that humans existed to pursue spiritual enlightenment, or to preserve and protect natural resources – each plausible alternative beliefs.

These inherited philosophical concepts form a filter through which we see the world. The degree to which this filter is clear and broad is the degree to which we are able to comprehend the world and act accordingly. Any shortcoming in our view of reality will make it more challenging to prosper. Unless we recognize and question the filters of our reality, we cannot be sure that we are choosing the most effective tactics for our businesses or for our lives. And, indeed, the current filter is proving increasingly insufficient for our evolving purposes and context.

The challenge for much of the Western world, then, and for business leaders in particular, is not just to improve teaching methodologies, not simply to stay ahead of technological advances and not only to adopt someone else’s “best practices.” It is to navigate through a seismic shift in the consciousness that governs our economies, our communities, and our own perceptions about the world. It is to envision unimagined alternatives, more powerful in completely different ways. It is to make a fundamental change in our collective understanding of how the world works.

For these reasons, this book does not offer a new management theory. It contains no “secrets of success,” no checklists. Such simple tactics are useless as we move into uncharted territory. Instead, it offers a new way of knowing, a new filter for interpreting reality. And on this basis, it outlines a new concept of business and economics. Only armed with these things can you make new choices and select new tactics. Anything less would be ineffective and limited in its value. Anything else would fall short of helpful guidance in making the transition into the new evolutionary era.

To move across this era-level chasm, we must first recognize objectively our current worldview and then conceive of an alternative and more appropriate understanding of the world. We have to be aware of our assumptions before we can test and evolve them. But, by definition, this task is exceedingly difficult. As one prominent economic and political philosopher explains: 

• The current paradigm appears to be natural, "according to the order of things."

• It appears to be the logical conclusion to a historical development.

• There is an assumption that now that this (natural) state of affairs has been reached, things will always be that way, barring regression.

Thus, we assume that ours is the worldview best suited to the nature and aspirations of humans.

Yet, in contrast to our assumptions, scientists have failed to agree on any set of beliefs about human nature beyond the most basic traits such as language use and reproductive patterns. Studies of thousands of cultures have shown that there have been many based on vastly different values – each believing just as strongly that theirs was based on true “human nature.” Darwin himself constructed a strong scientific argument that humans have no set nature. Even in today’s highly global community, Eastern and Western cultures operate from vastly different assumptions about what is natural and right. What is more, biologists have shown that humanity has much evolutionary potential left, which points to future belief systems even more advanced than the current one. Thus, while we acknowledge that the current worldview has value, we must also recognize that it is not indisputable, unchanging fact. It is one interpretation of reality, anchored heavily by this time and social context.

As we learn in the famous fable of the three blind men who were asked to describe an elephant by touching it, the perspective on the elephant depended on what part of the elephant each of the blind men was touching. At this juncture in human history, the evidence suggests that our perceptual framework is undergoing dramatic transition, as we are able to recognize more and more of the full nature of reality. And with this broadening of our perceptual framework comes a transition from one era of human civilization to another.

The good news is that there are clues to guide us into the emerging worldview. Chapter 4 presents clear evidence of a steady migration from a linear, mechanical understanding to a complex, systems consciousness.

First, though, Chapter 2 describes the foundations and framework of the outgoing socio-economic ideology. And while this worldview has served us well, resulting in tremendous advances in the human condition, Chapter 3 will show that our reality is evolving beyond the explanations of this ideology. The result in recent decades has been a disturbing series of “System Overloads” – the stresses, crimes and crises mentioned briefly at the beginning of this chapter.

In all, the goal of Section 1 of this book is to help you recognize and challenge the filters that control your vision and to reveal the broad patterns in the many changes around you. On this basis, Section 2 then outlines the emerging alternative view of our economic reality. Only armed with these insights can you be sure to choose the proper tools and methods for engaging employees and customers (in Section 3). And only then can you steadfastly embark on the journey (in Section 4).

 

II. What We’re Moving Away From: The Era of Divergence

 

Journalists and business writers have broadly heralded the end (or impending end) of the Industrial Era. Whether it has already ended or is still rattling to a close, there is value in examining our roots. With full knowledge and understanding of our origins, we can decide what to take forward and what to leave behind.

The two-hundred year Industrial period that began with the invention of the steam engine can actually be considered a continuation and culmination of a longer period in history called the Modern Era. This era is characterized by its recognition of and interest in division, linearity and mechanical process, which contrasted sharply with the previous era's focus on interconnectedness and cyclical continuity. The earliest known evidence of Modern Era consciousness can be found in Ancient Greece. Aristotle introduced the empirical method and inductive reasoning. The Sophists celebrated personal autonomy. Epicurus argued for freedom of the will. Each of these challenged the authority of the gods and of the institutions of society. The result was the world’s first democracy (evidence, by the way, that a new philosophy has the power to change how we live our lives).

But with the collapse of Ancient Greece and Rome, this worldview was pushed back to secondary importance for the next 1500 years. It continued to percolate beneath the surface, though. And by about 500 years ago, the divergent perspective had risen to clear dominance with several pivotal events, each of which nudged the popular perceptual framework markedly.

First, Copernicus revealed in the 1500s that people and the Earth were not at the center of the universe, shattering the belief that humans and our planet were special and significant. To worsen the moral blow, he also showed that the motions of the planets (including our own inconsequential one) could be mapped and predicted mathematically. Our understanding of our role within reality went from one of divine dominion and connection to one of insignificant parts spinning within a massive and impersonal mechanism.

In the early 17^th century, French mathematician, philosopher and physiologist Rene Descartes added to our disenchantment with his immortal words, “I think, therefore I am.” With this simple statement, he proposed an autonomous self, separate from the external physical world. The person became subject and all else object of his or her perception. In this way, not only did we come to understand ourselves as separate from the rest of reality, we came to understand the rest to be unthinking and automated.

Even our thinking selves were reduced by eighteenth-century British philosopher John Locke, who proposed that all true knowledge is learned from sensory experience.

Let us suppose the mind to be, as we say, a blank slate (tabula rasa) of white paper, void of all characteristics, without any ideas; how comes it to be furnished? …To this I answer on one word, from experience: in that all our knowledge is founded and from what it ultimately derives itself.

With this belief came our exclusive reliance on objective, empirical evidence – only those things that could be experienced and observed externally were considered true. “Subjective” views – originating from ourselves as subject – became suspect and unreliable. Again, our role in the universe ratcheted downward to mere catalog-keepers of external events within a mathematically predictable mechanism.

The 18th century saw the Age of Enlightenment, which continued to advocate reason and empiricism. This was exemplified in the late 1700s by Isaac Newton, who introduced the idea that the world could be understood by examining and controlling its smallest parts, each of which interacts only with its immediate neighbors in a linear progression. Every action has an equal and opposite reaction, Newton assured us. And all the world could be mapped and predicted according to a limited number of mathematical principles.

The worldview based on this collection of interpretations was marked by determinism and reductionism, the belief that “every act is determined by past events (we can predict the changes that will occur in the clock - likewise in the universe - and ultimately in the body). Since a clock could be disassembled to see how it operated, it was thought the universe and ultimately human nature could be reduced to its simplest parts.” And in all these external observations, we saw that there could be only one right answer to any question. Things could be observed to be in one state or another. Life was understood to be either black or white, but never both.

Only with this trend toward a philosophy of division and mechanical linearity – the combination of reductionist analysis and the belief in individual achievement and sovereignty – was this era’s vast human and technological progress enabled, with its advances in lifespan, comfort, and individual accomplishment.

And it was on the basis of this worldview that modern economics – what I call Mechanistic Economics – was born. The economy was believed to operate predictably and linearly – like clockwork. As the “scientific study of choices made in regard to the alternative uses of scarce resources,” economics mirrors the Newtonian concept of physical limits and direct cause-and-effect. Under this view, wealth is based on scarce resources – which have value because they are scarce. These resources are exploited until they inevitably wear out, or reach a point of diminishing return – a central and recurring rule of a paradigm based solely on the physical.

And despite the rational rejection of religion and spirituality, the Protestant (especially Calvinist) values of America’s early founders conveniently coincided with many Modern Era views. Within the Protestant work ethic, obedience to God's will demanded energetic and enterprising work in one's occupation. Profits were not only morally justified as the reward for this hard work, they were considered an indication of being chosen by God for salvation. Further, the Calvinist work ethic asserted an impersonal brotherly love, opening the way for the capitalist hallmark of self-interest. The guiding message, grossly simplified, was: work as the means to salvation, profit as the means of keeping score.

Carrying on the Protestant ethic of productive enterprise and impersonal brotherly love, Scottish economist and philosopher Adam Smith asserted that “by pursuing his own interest…[man] frequently promotes that of the society more effectively than when he intends to promote it.” Thus was born the inviolable belief in the virtue of self-interest and in the “invisible hand” of the market. Smith and his colleagues proposed a rational system of competitive acquisition of scarce resources, in which the core sources of competitive advantage were scarcity, scale and barriers to entry.

The company was considered a discrete, non-human (machine-like) entity that exists to make money by the most efficient means possible. This matched the guiding Protestant belief in profit as an indication of God’s blessing, and it coincided with the Modern Era's reverence for observable experience and quantification.

Consumption was considered to be the sole end and purpose of all economic activity, with the material factors of production -- land, labor, and capital -- as the means. According to the central tenets of this ideology, economic value revolved primarily around price and availability (scarcity) of goods and was dictated by the producer (supply-driven). Buyers were expected to act predictably: for example, as prices rose, demand was expected to decline in a directly responsive fashion. Labor was also expected to act predictably.

These are the founding premises of modern Mechanistic Economics.

What set the Industrial Era apart within the broader Modern Era was the application of mass-production methods to the basic linear, reductionist principles. The artifacts were factories and later cubicles, but the underlying ideology remained the same.

Thus, evolving value came to be achieved by increasing production efficiency -- building bigger factories with diminishing variance in the production line in order to achieve cheaper production costs per unit. Variance was the enemy. Henry Ford said famously of his Model T, “You can paint it any color, so long as it's black.” In this system, the physical was maximized. Quality was quantitative. If it couldn’t be measured, it didn’t exist (or, at least, it didn’t matter).

To these ends, in 1911 Frederick Taylor applied mechanistic theories to human endeavor with his Principles of Scientific Management. “In the past the man has been first,” he pronounced. “In the future the system must be first.” People were a factor of production to be employed, a cost to be reduced or eliminated. Inherently variable, they were seen as expendable, interchangeable, and, most of all, to be standardized as much as possible. People were organized into different departments with physical separation into tasks or cubicles. Tasks were further divided into standardized skills and competencies. And standardized education and testing were introduced across the population.

A small, intelligent body of leadership ruled over information and decision-making, while a mute labor force simply implemented. This was viewed as a maximally efficient distribution of tasks, particularly as the labor force was assumed not to have the capability to contribute otherwise.

By its nature, mechanistic economic analysis was concerned with material issues. The system existed to maximize consumption by the optimal pattern of productive effort. The "standard of living" of those within this system was measured by the amount of annual consumption, with the assumption that a person who consumes more has a higher standard of living than one who consumes less. Social, ethical, and spiritual issues were excluded, by definition.

Because of the ideology’s linear orientation, the past was presumed to be determinant of the future. Strategy had a short-term focus and was determined by breaking options into their smallest parts and prioritizing among them.

This, then, is the core of the Western business paradigm that we have inherited: maximize scale and minimize variance (and therefore production cost) in order to secure incremental growth in consumption and thereby growth of the enterprise. And above all else, it is profit which is to be maximized.

What is interesting (though not coincidental) is that science’s explanation of the origins and evolution of all life came to coincide with the Modern Era worldview. Charles Darwin introduced the concept of life as a random competition, in which only the strongest individual genes or species survive over time. The goal and activity of all life was the competitive struggle to pass on genes. Evolution was seen to be in direct cause-and-effect correspondence with chance changes to the environment. As environmental changes occurred, random genetic mutations proved more advantageous and so were naturally selected. Along this path, each individual was merely a “gene machine,” struggling to compete with others to pass on his or her genes, and achieving progress as an evolving means to this end. Adding to Darwin’s theories, Richard Dawkins coined the term “selfish gene” to represent the defining struggle for perpetuation. According to a BBC account:

Darwin showed that individual struggle will generate progress (or at least better adaptation). …[T]his idea of "progress through struggle" would be just what the middle classes were looking for in their search for an ideology stressing the benefits of effort and initiative.

Of the belief system that had become dominant in the past several hundred years, economist and historian John Kenneth Galbraith commented that, “Self-interest and freedom of enterprise were a secular faith in the old world. In the new world, they emerged as a religion.” Indeed, it might be called the Religion of Industry. The ROI.

The Religion of Industry’s all-seeing, all-knowing deity is The Market. Its bible is the economics textbook, supplying this faith’s “myths of origin, legends of the fall, and doctrines of sin and redemption.” Its gospel is efficiency. Its founding prophets and wise men are Adam Smith, David Ricardo and Isaac Newton. Investment analysts and stockbrokers are the priests of this religion, interpreting The Market’s moods and mysteries, passing judgment and meting out punishment – but rarely offering dispensation of sins. United States Federal Reserve Chairman Ben Bernanke is the high priest of our day, encouraging true faith in the wisdom and omnipotence of The Market. The book of the saved and the damned shifts and changes according to quarterly earnings. Consumption is our worship, and shopping malls our churches. According to the Word of the ROI, everything in creation operates according to a predictable path beyond our intellectual grasp. The world and all our actions within it could be graphed mathematically in linear equations, like clockwork, if only we could develop sufficiently sophisticated algorithms.

With this flight of fancy, we begin to appreciate that the impact of the prevailing mechanistic, material-focused economic theory extends far beyond the boardroom and the factory floor. As John Maynard Keynes put it: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than commonly understood. Indeed the world is ruled by little else.” Paul Hawken and the co-authors of Natural Capitalism observe that, “For all their power and vitality, markets are only tools. They make a good servant but a bad master and a worse religion.” And economic historian Richard Ronner further expands the point:

The spread of the capitalist world system has been accompanied by the creation of distinctive patterns of social relations, ways of viewing the world, patterns of food production, distinctive diets, patterns of health and disease, relationships to the environment, and so on.… The emergence of the culture of capitalism has left little in our lives untouched—it has affected our material, spiritual, and intellectual life; it has reshaped our values; and, as we shall see, it has largely dictated the direction that every institution in our society would take.

In this way, we see that these interpretations of reality have shaped our very consciousness – the way in which we perceive the world, the way we make decisions and choices, the way we relate to each other, the way we live our lives. They guide and determine every choice and decision – external and internal -- of our life experience:

• The way we are born – into an impersonal hospital in a production-line procedure that is maximally efficient and cost-effective.

• The way we manage our health and illness – separating care into rigid specializations, overlooking the individual’s role in health and trusting only observable phenomena.

• The way we are educated – in a setting replicating factory life, with emphasis on rote memorization of data and socialization into an obedient system that is standardized and focused on individual output.

• The things that we learn – practical, tangible skills and the natural laws of the physical world; things that can be applied directly in a factory setting; with only one right answer possible.

• Where and how we live – in cities where we can achieve the best jobs, in sprawling houses that demonstrate our economic wealth (defined by consumption); separate from each other.

• The words we use – subject-object, action orientation, reflecting linear thinking.

• Whether we believe ourselves to be happy or unhappy – according to our perception of our economic wealth in comparison to our neighbors’.

• The way we judge success and failure – according to external, material measures like wealth and title.

• How we work – in cubicles, according to segregated job descriptions, with supervisors judging our performance according to physical output.

• How we govern and are governed -- in a system of two opposing parties (in the US) in which the statistical majority of people is assumed to have the right view and the minority the wrong view.

• How we die – in a maximally efficient and cost-effective nursing home, with our bodies submitted into a corpse-processing system.

These are the choices and assumptions we make based on the perceptual filter through which most North and South Americans and many Europeans see the world. These are the origins and the underlying conceptual framework of the current Western worldview. Like the law of gravity, they are the laws and limits that we accept unchallenged as total and final – and for good reasons, for there is truth within each of these assumed borders and guidelines. And we’ve done well within them.

But, as the next chapter will highlight, fundamental cracks and inconsistencies are starting to appear in the socio-economic system based on these boundaries. There is increasing pressure to look for a way to transcend the heavy structure of Mechanistic Economics. And as later chapters will show, while we cannot deny these laws and principles, we can defy them, taking inspiration from Daniel Bernoulli.

 

III. Why We Can’t Stay: System Overloads

But wait a minute. As Bugs Bunny says: “What’s all the hubub, bub?”

First, this seems like old news. We've all heard that the Industrial Era is long dead and it has been established that we are well into the next era…whatever it might be called. Why rehash the origins and shortcomings of an outdated system?

To embrace fully the value and features of the emerging paradigm, we must first recognize the shortcomings of the current one. As it stands, while we acknowledge that the days of a factory-driven economy are over, it is not as clear that we have let go of its underlying principles. Is this new era simply the Industrial system with computers instead of production lines? The evidence would indicate so. A look around shows that the prevailing socioeconomic system still operates on familiar principles. The underlying programming has not yet been upgraded.

And is that so bad? Every American was raised on the inherent wisdom of our economic system. It has worked well for decades – with a better track record than alternatives like Communism, for sure. And humanity has made impressive progress on the foundation of this system: we live longer and more comfortably than ever before, more people have access to education, and each of us has unprecedented opportunity for individual accomplishment.

Yet, despite all the positive attributes and advancements of the Era of Divergence’s value system, it has outgrown itself. The complexity of our reality has outpaced the current ideology’s ability to deal with it. As a result, we seem to be a planet on the verge of a nervous breakdown. For most of us, the growing complexity of business – and of our lives -- is reaching overwhelming levels. Just as one strategy or process is mastered, the playing field shifts. We work harder, faster and longer, but we still can’t catch up -- and there is a growing sense that we can’t keep up this pace much longer.

And despite the growing multitude of leadership books and management theories, it has never been less clear what the new rules are for this suddenly complex reality. Do we focus on the basics… or on driving innovation? Should we empower and motivate employees… or cut the workforce by 20%? Do we chase the market-of-the-moment… or build our core competencies? Do we plow and plunder to ensure the double-digit growth that Wall Street rewards…or do we act in the environmentally responsible manner that our customers say they want (and that our conscience nudges us toward)? The one right answer -- that the Era of Divergence tells us must be there -- seems always out of reach.

To offer a computer analogy, the message flashing on our collective mental monitors is: System Overload!

The System Overloads listed below reveals that we still cling to the mechanistic value system, and each is indication of the need to move on. They represent the writing on the wall for the outgoing worldview and offer valuable clues about the incoming paradigm.

[Note: If you've already recognized the need for major change, then this chapter won't be particularly useful for you. By all means, skip ahead to the next chapter. But if you're not quite convinced that the current system is truly deficient, then this chapter might hold some valuable insight.] 

System Overload #1: Now What, Fred?

In the early 19^th century, Thomas Carlyle called economics the "dismal science," referring to the discipline’s assertion that a society of abundance without conflict is impossible. He might also have been referring to the banes of Mechanistic Economics, the theories of Perfect Competition and the Product Life Cycle.

The goal of economic activity is believed to be equilibrium – and equilibrium is always achieved as “prices are lowered for goods with…excess supply; and as prices are raised for goods with excess demand, so that the amount demanded matches perfectly with the amount supplied.” Perfect competition is to be achieved in production activities through each company’s incremental improvement of existing processes.

This sounds fine, except that this view necessarily carries us in a straight line to commoditization: steady progress toward uniform access to uniform resources to create uniform products, which the consumer chooses based only on lowest price. Along the way, scale is progressively maximized and costs progressively reduced, and in this way lower and lower marginal profit is achieved. Products inevitably spiral downward toward valueless commodity status – valueless to both producer and consumer. Price wars are the only possible outcome. There is no other way.

This is the equivalent of gravity among economic laws. It’s a dead-end strategy… but only over time. Until an industry reaches the point of Perfect Competition – highly unlikely in what historically has been a vastly inefficient market – there is plenty of money to be made. That inefficiency has been the system’s salvation.

And then, along came Frederick Taylor. His principles of Scientific Management have proven incredibly effective, resulting in “more productive capacity for stuff than there is need for stuff,” according to Ernst & Young Cap Gemini. The world's automakers, for example, can make about 30% more vehicles than current demand levels, pushing cars and other goods in fast-forward to commodity status.

This is not a new scenario, it turns out. As Richard Robbins, author of The Global Culture of Capitalism, reminds us:

"By the late 1890s, the early days of the industrial system, so many goods were already being produced that businesspeople and government officials feared overproduction, panic, and the severe economic depression that marked that decade. Out of these fears came what William Leach called "a steady stream of enticements" designed to encourage people to consume and to awaken Americans, as Emily Fogg Mead, the mother of anthropologist Margaret Mead, said, to "the ability to want and choose".... The consumer was necessary to save industrial capitalism from its own efficiency.^"

This steady stream of enticements held the system together for decades. But in recent years, several fundamental things shifted. Global competition, increased access to capital, and production and market efficiencies have reduced barriers to entry. Newer offerings travel through the product life cycle much more quickly than they did in the past. “Mainframe services took 30 years to reach commodity status,” say Chris Disher and Roger Walters at Booz, Allen & Hamilton. “But Internet browsers needed only a few years to enter the market in the early '90s and become firmly entrenched in the mainstream market.”

With this accelerating life cycle, it is getting harder to make a living – even with a steady stream of consumer enticements. As maturity cycles speed up, the Product Life Cycle keeps coming back to haunt us, like Freddie from a Friday the 13^th horror movie.

With this realization, economists are beginning to question whether it is possible to build a thriving economy on an ideology founded on a perpetual death spiral. And (as we will see in a few pages), consumers are beginning to say: Enough! Mechanistic Economics and Scientific Management alone prove to be a dead-end strategy over time.

System Overload #2: Market Myopia

The two core ethics of our current value system are: (1) act in self-interest; and (2) collect more scarce resources than others. On this basis, Wall Street, in all its self-interest and rabid resource collection, has become a vicious master. It wants and rewards only short-term return, often with a nudge and a wink at questionable paths taken to get there.

At the same time, the complex market reality increasingly requires quite the opposite approach -- long-term vision, strategy and trust.  

The fall of corporate icons like Enron, Andersen, Worldcom, and Global Crossing and scandals at Merrill Lynch are high profile evidence of this precarious paradox. The problem at each of these firms was not (only) the excessive greed or duplicity of the top executives involved. Each of them did what he was supposed to according to the rules of the prevailing value system: they acted in self-interest in order to accumulate more scarce resources than others could. Of course, there were the rules that they broke and the ethics policies that they stretched. But in a dog-eat-dog, live-or-die-by-the-quarterly-report world, who’s to judge which rules can be broken and which can’t? After all, as Eli Goldratt, author of The Goal, observes: "Tell me how you'll measure me, and I'll tell you how I'll behave."

The real problem has been that all the players involved in our economic system have not been able to act in their self-interest. Employees, investors (particularly those outside Wall Street), and the communities that house these companies lacked access to all the information about what was really going on inside these companies. What’s more, they lacked the economic power to push for their own interests – particularly their own long-term interests. But as both of these things change – thanks to growing efficiencies in media and fundamental shifts to our economic structure -- we will continue to see a tumultuous shake-up of the financial power structure. And we will see that our concept of self-interest is shifting as we recognize our interdependencies with each other and with the biosphere.

Returning to the introductory chapter’s food pyramid metaphor, the bout of recent scandals demonstrates that satisfying an immediate craving at the expense of long-term nourishment can only last for so long.

System Overload #3: Business is Fine…Except for the Customers

These days, a company’s customers have greater economic power than ever before. They now have far more choice about what they buy and from whom. Customers can choose from products made all over the world, delivered to their door. They have access to information about services around the globe. And thanks to Industrial Era efficiencies, they have the purchasing power, education and time available to be selective. In one study, 86% of consumers (94% in the 25-34 age group) said they expect better service and 56% complain more than they did five years ago; 82% would switch suppliers if not satisfied.

The result? As customers demand ever-evolving value (and competitors and the global market add to the push), increasing urgency is created to find the new and improved. And companies are finding that innovation cannot be achieved with Industrial Era tactics like production scale and efficiency. Production efficiency by its nature is about minimizing and eliminating deviance, change and uncertainty. In contrast, innovation is achieved only by nurturing relationship, change and uncertainty – by increasing variance. This is a directly contradictory approach.

At the same time, despite a steady stream of enticements, customers are rejecting soulless mass production in favor of products and services that carry meaning and relationship. They are demanding individualized products and services, sending the message that Henry Ford can go jump off a bridge – and take his black Model T with him. Companies have no sustainable alternative but to respond to this call for meaning and relationship by incorporating human values from production through to the marketplace.

System Overload #4: “Our Employees Are Our Greatest Assets”

Both innovation and meaningful relationship with customers stem from employees engaged, not as assets or factors of production, but as thinking, feeling people, applying their energy, creativity and attention. Frederick Taylor’s assertion that the system comes first and the people second may no longer hold universally true.

And, as the economic contribution of employees has risen in value, so has their ability to choose where to invest their time, inspiration and connections. They are a true market unto themselves, with their own demands for innovation and relationship. Again, company leaders have no sustainable alternative but to appeal to this market’s demands. And like external customers, it’s not about the money or the scale. It’s about intangible, qualitative factors like passion, meaning and creativity.

Yet, despite broad recognition of this trend, out of 80,000 US employees surveyed by the Gallup organization, only 26% of workers were loyal and productive (engaged); 55% were just putting in their time (not engaged), and 19% were unhappy and spreading their discontent (actively disengaged). That’s three-quarters of the workforce: checked out, but still on the job. This is clearly a tremendous missed opportunity and an expensive example of wasted resources. Add to this the severely disgruntled employees who decide to take action: since 1993, there has been a 2,000% increase in employment litigation, and almost 75% of all business litigation today involves employee disputes.

Across the board, whether people are camped out in counterproductive disenchantment, quitting their jobs, or suing their employers, the number one cause is interpersonal conflict with a manager. In other words, they think that their boss is a jerk. Who are all these unbearable people? Surely, it isn’t you, or me. It seems safe to assume that we each think we’re nice, reasonable people, and that none of us heads in to work each morning to make another’s life miserable. So what causes perfectly nice people to drive away their employees in droves? And what lies behind employee expectations that differ so dramatically from reality?

Like the executives at WorldCom, Enron and Global Crossing, each of us is acting according to the values of an outdated paradigm -- a value system whose signals indicate that people are less important than physical productivity… and one that is blind to the connection between the two.

System Overload #5: Cubicle Nation

Following the principles of Newtonian physics and Scientific Management, jobs are broken down into their smallest components in a system of narrow specialization. Our school system initiates this, and the job market reinforces it.

The problem with this is two-fold.

First, though work segmentation functioned nicely when manufacturers ruled the economy at their bloated leisure, now customers have the economic power to demand relationship, responsiveness and novelty. Disconnected cubicle and factory workers can’t deliver relationship or responsiveness. And employees wearing title- or task-related blinders are simply not equipped to achieve meaningful innovation.  

Second, complexity demands collective decision-making and response. Employees unaware of the organization’s overall objectives cannot contribute effectively to those goals, particularly as they grow increasingly intricate. Employees cannot be trusted to make responsive decisions in the best interests of the company if they don’t know how their actions impact the interests of the company. Lack of trust causes disgruntlement. It’s another vicious cycle that stems directly from the reductionist, mechanistic worldview. 

System Overload #6: The Land of One-Hit Wonders

True to the Protestant ethic of our nation’s origins, the Industrial Era promoted a “work for work’s sake” ethic. This devolved into “Work for the sake of immediate survival of the work,” with near-exclusive focus on short-term and incremental financial growth. Today’s lofty mission statements are often a thin lacquer over the real mission of the day: Just make it to the next quarter, even if it kills us.

Perhaps as a result, the average life span of a company in the S&P 500 has shrunk from roughly 35 years in 1975 to less than 20 years today. Over the next 25 years no more than a third of today's major corporations will survive in an economically important way, assert Richard Foster and Sarah Kaplan in their best-selling book Creative Destruction. Using their research on the performance of more than 1,000 corporations in 15 industries during a 36-year period, the authors argue that managing for control and survival, even among the best and most revered corporations, doesn't guarantee long-term performance for shareholders.

Similarly, a 1983 Royal Dutch/Shell survey found that one-third of the firms in the Fortune 500 in 1970 had vanished. “Shell estimated that the average lifetime of the largest industrial enterprises is less than forty years, roughly half the lifetime of a human being. In most companies that fail, there is abundant evidence in advance that the firm is in trouble. …The organization as a whole cannot recognize impending threats, understand the implications of those threats, or come up with alternatives.”

In other words, our economic system – whose core focus and objectives are control and survival – achieves neither goal.

System Overload #7: Our Love/Hate Relationship With Creativity

A 1998 study of Fortune 500 CEOs asked them to cite the most important factor in their company’s success. The overwhelming majority answered: Innovation. But only 5% felt that they did this well.

The disparity is not surprising. Prevailing economic theory excludes innovation and considers it external to the economy. Mechanistic Economics is based on the march toward perfect competition, which is to be achieved by improving current production activities – not by inventing new ones. Everything about a linear, mechanical paradigm is about control and predictability.

Opening up our companies to innovation is exactly counter-intuitive. On the one hand, we demand accurate and linear plans, controlled data, and minimization of risk and uncertainty; on the other, we expect wild-card creativity, exponential growth in unexpected territories, and risk-taking behavior. “It is problematic to assume,” corporate poet David Whyte explains in The Heart Aroused, “that you can ask people to create and also to behave.” Some fundamental assumptions must be rethought.

System Overload #8: The Numbers Do Lie

In a system that lives or dies according to quantitative measurement, traditional market economics still ignores a vast number of costs and revenue sources, leaving the system inefficient without our awareness.

For example, our system of accounting for national economic activity measures and values only production growth, focusing exclusively on Gross National Product (GNP) and its derivative, Gross Domestic Product (GDP) and ignoring the associated costs. It ignores or miscalculates the costs of some of our most critical resources, particularly the environment, considering them “market externalities.” "Without prices being set, nature becomes an all-you-can-eat buffet," says Chicago financier Richard Sandor. "And I don't know anyone who doesn't overeat at a buffet." In another example, a certified public accountant and professor at the University of the District of Columbia estimated at $2.6 trillion the cost that corporations imposed on US society in 1994 through defective products, unsafe working conditions and environmental discharges. This was five times total corporate profit and constituted 37% of US GDP. As it stands, these costs are simply absorbed unaccounted.

In addition to ignoring important costs, some of them are actually accounted for as production growth. According to Tom Tietenberg in his book, Environmental And Natural Resource Economics:

An ever greater proportion of each new round of production growth consists of negative economy: compensation and repairs, processing of waste and controlling of complexity, in other words expenditure that is taken to be income. The contemporary example par excellence is in those countries which today suffer from war, guerrillas, and dictatorship, and where the arms industry is earning masses of money and, when one day there is peace, so will the demolition companies, the clear-up gangs, the contractors, the international consultancy agencies, the whole redevelopment business.

Not only does our system ignore important costs, it also ignores important inputs. There is little mention in economic accounting of creativity, trust and knowledge. And yet these factors increasingly drive our companies and our economies.

Our current system of national accounts is also blind to the long term. Scientist and sustainability activist Robert Gilman observes that:

Normal accounting attempts to include long term effects through such things as depreciation and discounted cash flow analysis, but rarely does the time line extend beyond 20 years. Such a system has no way to compare the value of a building that will last hundreds of years with one that will need to be replaced in 20. And where in our accounting do we include the cost of cancers that develop 20 years from now due to today's high levels of air/water/soil pollution?

And in their 1989 book, For the Common Good: Redirecting the Economy toward Community, the Environment and a Sustainable Future, Herman Daly and John Cobb, Jr., deal a final blow to the supremacy of GDP as a measure of wealth and welfare:

"By processing U.S. statistical data on some twelve so-called welfare indicators, they drew the conclusion that for the last twenty years the link between production growth and the creation of welfare has become progressively weaker; prior to that date, production growth had achieved exactly what Adam Smith foresaw in 1752: the addition of value so as to indeed create the "Wealth of Nations." In the 1970s this link began to be lost, however, and this process is proceeding at such an accelerating pace that we are now confronted with the curious phenomenon of production growth leading to a decline in welfare; stated differently, the limits to growth have been reached without us even noticing it, because we have been interpreting the figures wrongly."

System Overload #9: Two Wrongs Still Don’t Make a Right

We cling devotedly to scope, scale and price reduction as a total solution, even as our value system shifts to embrace speed, flexibility and customization. Our predilection for mergers – despite their consistently dismal record -- is one unfortunate result. And the merger of Hewlett-Packard and Compaq is a classic case. These two companies came together for the stated purpose of increasing scale and decreasing cost – when neither had yet been able to engage their customers satisfactorily. The merger achieved its immediate goal of eliminating departments and assets (and therefore costs), but to many, it gave insufficient consideration to intangibles. HP was famous for its culture of employee engagement. But in the name of this merger, it set about damaging that organizational capital with a vengeance, laying off thousands (for the first time in the company’s history) and acting against the publicly stated wishes of the much-revered founders and their families. Wall Street, in all its focus on incremental results, applauded the undertaking.

When value is only in the physical, we’ll always get caught in the vicious pull of the Product Life Cycle, increasing scale and decreasing cost until we’re left with a valueless commodity. At that point, our only recourse is to try to lump mega-companies together to increase scale and reduce cost further and faster. As a core strategy, it’s a losing scheme based on an outdated value proposition.

System Overload #10: Factory Prep Schools

Our educational system is designed to reinforce the structure and order of the Industrial Era paradigm, even as creativity and integrative thinking are increasingly in demand.

Dr. Roger Sperry, who first discovered the Left Brain/Right Brain division of skills, noted that, “[T]here appear to be two modes of thinking, verbal and nonverbal, represented rather separately in left and right hemispheres, respectively. …[O]ur educational system…tends to neglect the nonverbal form of intellect.” This nonverbal form of intellect is responsible for synthesis and creativity – which were not needed in factories but are increasingly important to our knowledge-based economy.

The renowned National Training Laboratories of Bethel, Maine, ranked a number of learning systems on the basis of how much the learners remembered. The primary method of education is lecture and reading – the two least effective of the teaching methodologies. While these methods prepare students for the simple and rote tasks of factory life, they do not provide adequate training for a complex reality.

As a result, according to one study in the UK, two-thirds of graduate recruits do not have essential interpersonal skills (oral and written communication, team work, listening and problem solving). And within our current educational system, students fail to learn the skills of creativity, reflection, critical reasoning and systems thinking. Harvard University’s Chris Argyris points out that schools train us never to admit that we do not know the answer. We are taught that there is always only one right answer. But life is often much more complex and multi-faceted.

System Overload #11: The ROI of Family

Marriage and parenting are long-term propositions with no tangible market-based output or monetary gain. In a system that values only productivity and short-term measurable return, family relationships will always lose out.

As a result, the US national divorce rate stands at 43%. And we’re spending less time with our children than ever. According to Stanford University economist Victor Fuchs:  

In 1965, American parents on average spent approximately thirty hours a week with their kids. By 1985, parent-child interaction had dropped to just seventeen hours a week. By 1990, parents were, on average, available ten hours less per week to their children than they were in 1980 and forty percent less than they were in 1965.

Now, suicide is the number one cause of death among teenagers. The US is number one in the likelihood of children under the age of fifteen to die from gunfire. And US students have the lowest eighth-grade math scores globally.

This has nothing to do with moral preaching about “family values.” These are serious, self-destructive patterns that threaten the consumer and employee base that businesses rely on. As Pearl S. Buck observed, "If our American way of life fails the child, it fails us all."

System Overload #12: The Incredible Shrinking Planet

Ultimately, this is the most important and most pressing system overload. But it’s also the hardest for us to recognize because its effects are at a higher system level.

The Industrial paradigm’s relentless focus on growth and its failure to account for extended system-wide costs is dangerously depleting the resources – including human resources -- needed to power our economy and our society. And this same limited value system keeps us blind to long-term implications, with disastrous results.

According to Ronald Wright in A Short History of Progress, “Since the early 1990s, the world’s population has multiplied by four and its economy – a rough measure of the human load on nature – by more than forty.” He warns that, “if we blow up or degrade the biosphere so it can no longer sustain us – nature will merely shrug and conclude that letting apes run the laboratory was fun for a while but in the end a bad idea."

In their Warning to Humanity, a group of international scientists asserted that the biosphere is being “irretrievably mutilated.” And a majority of US biologists are convinced that a mass extinction is underway, on the same order as that of the dinosaurs, according to a survey of 400 scientists commissioned by New York's American Museum of Natural History. Furthermore, they believe “that this dramatic loss of species poses a major threat to human existence in the next century.” To put this into perspective, consider the fact that twenty-five thousand species are going extinct every year. Almost a quarter of all mammals face extinction within 30 years, according to a United Nations report. If humans were not present on the planet, the number of species going extinct would be one every five years.

Frighteningly, it appears as if humans might be on that list. Headlines focus on the “Asian brown cloud,” an industry-driven cloud of smog that threatens to kill millions of workers and consumers and to reduce crop productivity. The increasing hole in the ozone layer has been linked to an increasing incidence of cancer. Indeed, cancer and other diseases are on the rise around the globe. Each of these patterns is clearly bad for business – and for life on the planet.

What is more, the interests of the economic engine often override even obvious common sense where the environment and human health are concerned. According to PBS documentary Trading Democracy, the Ethyl Corporation, an American gasoline additive company, successfully sued the Canadian federal government when it banned MMT in gasoline, even though the dangerous additive is illegal in the USA. According to the terms of the North American Free Trade Agreement, Canada was forced to allow the additive and paid $14 million for the short time the ban was in effect. Also under NAFTA provisions, Metalclad, an American company, successfully sued the federal government of Mexico for $17 million when local Mexican governments refused them a permit to expand a toxic waste dump until they had cleaned it up. After winning its case, Metalclad expanded the toxic dump without any cleanup.

The pattern in each of these instances is to subordinate the interests of people and our planetary life support system – the only one we have -- to the interests of profit.

System Overload #13: The Human Spirit Fights Back

We’re in a rat race. As Lily Tomlin points out, the problem is that even if you win, you’re still a rat. The race has fed the market machine, but it has left us spent and looking around for alternatives.

In The Overworked American and The Overspent American, economist Juliet Schor showed that, in 1975, Americans defined the "good life" as "happy marriage, one or more children, interesting job." Twenty years later, the same survey found the definition had changed to "vacation home, swimming pool, second color TV, nice clothes, second car, job that pays above average, and lots of money." Surprisingly, the more we have, the more we feel we need -- as a percentage. Nearly four times as many people making over $75,000 per year feel they need at least 50% more income to meet their needs than those making less than $30,000. A March survey of professionals ("How much do you need to be comfortable?") found less than one-third happy with under $5 million (most needed at least $10 million). "People 50 years ago made less than half of what we make today," according to Dr. Ed Diener, a professor of psychology at the University of Illinois at Urbana-Champaign, "but they were about as happy as we are."

Researchers are starting to identify counterbalancing trends. And the population seems to be realizing that the mantra of “consumption as meaning” has offered no purely objective measure of “enough.” Robert Gilman noted:

Conventional economics (both as a formal theory and in business practice) assumes that human desires for economic goods and services are unlimited, and that we work primarily for external (outer-directed) reasons, e.g. to get paid so that we can consume. Psychologists like Abraham Maslow suggest instead that people operate on the basis of a hierarchy of needs, starting from survival, going up through security, esteem and love, to self-actualization. The consumption needs of each level are limited, and when they are truly met, attention tends to shift to the next level up until one reaches the level of self-actualization which is a creative need, focused on intrinsic rewards, rather than a deficiency need. In this model, as one becomes more skilled in satisfying various levels of needs, one's demand for goods and services may actually decline.

Similarly, the Values and Life Style study by Stanford Research Institute describes the U.S. population as being divided into three major groups: those who are focused on survival needs (about 10%), those who are focused on status and approval needs - the "outerdirected" - (about 60%), and those who are focused on personal growth and experience needs - the "innerdirected" - (about 30%). The percentage in the "innerdirected" group had grown rapidly during the 1970's and showed every indication of continuing to grow. In searching for “something more,” we’ve come to the conclusion that it’s not about having more, it’s about being more.

This spells trouble for a system which relies for its survival on higher and higher levels of physical consumption.

As our appetite as consumers is showing signs of decline, our mood as employees is also shifting. A 2002 National Survey Institute survey found that 84% of adult Americans are ready to make a career change (34%), find a new job in their industry (29%), or start a new business (21%). Along these lines, sociologist Daniel Yankelovich has noted a shift in people’s orientation toward work – from an “instrumental” view of work, where work is a means to an end, to a more “sacred” view, in which people seek the intrinsic benefits of work. The baby boomers started to challenge the dominant belief system in the sixties. The Millennium prompted many to think about what more there is to life than soulless work. And ongoing terrorist threats have heightened this awareness.

No wonder: it should be a sign of trouble that the Japanese have a word for death by overwork – karoshi. Researchers have linked job strain -- defined as being in a job with high demands but low control over working conditions -- with higher rates of heart disease and other physical ailments and are exploring the psychological effects of working long hours or being disenchanted with a job. In the USA, for example, expenditure on health care is nearly 50% greater for workers who report high levels of stress at work. Globally, the International Labor Organization has estimated that work stress costs employers more than $200 billion a year, and the World Health Organization has reported that about three-quarters of people who seek psychiatric help have symptoms that relate either to lack of job satisfaction or to the inability to relax.

In Civilization and its Discontents, Freud challenges us to consider, "Why have men created a culture in which they live with such discomfort?" The Industrial Era convinced us that our only purpose was to pass on our genes, that only physical productivity and consumption mattered, and that the human spirit had no valid role. But the human spirit is proving to be a feisty thing. Increasingly a chorus is rising, demanding a different arrangement. And increasingly, those doing the demanding have the power to effect change.

 

Each of these System Overloads is like a programming glitch, causing the system to shut down or falter. As with our own computers, we can live with bugs and errors now and then, but when it starts to become a regular occurrence, it’s time to upgrade the system. Each of these is an indication that the prevailing worldview no longer serves our full purposes.

What does this mean for you, just a squirrel trying to get a nut? It means that these are some of the reasons it’s gotten harder to get that nut – or that the nut seems so much less satisfying than you thought it would be. And it means that you’ll have to change your perceptions about nuts and nut-gathering if you want to get ahead of the game. Big – and positive -- changes are looming large on the horizon (if not, then we’re facing the unthinkably catastrophic). The goal of this book is to help you understand the patterns within the chaos and to give you the confidence and courage to move toward a better alternative.

What does it mean for your business? Global competition is driving the need for innovation and relationship, which drives the need to move beyond the limitations of our mechanistic paradigm. Our business reality is pushing for flexibility, adaptability, innovation, diversity – but these things can only emerge if we can transcend, but include and evolve, the current worldview.

 

IV. What We’re Moving Toward: Evidence of an Emerging Worldview

Fortunately, there are signs that we are not doomed to repeat these troubling patterns. There is abundant evidence that humanity is several steps into a perceptual framework that will help us resolve many of these System Overloads.

There are also signs that this new framework holds more than meets the eye. Journalists and business pundits have been quick to pronounce the death of the Industrial Era. But there has been no such consensus on what has replaced it. Contenders have included The Computer Age, The Information Age, The Internet Era, The Knowledge Age, The Network Age, the New Economy, and the obvious, though less original “Post-Industrial Era.”

The reason that each of these monikers fails to stick – or to inspire -- is that each is incomplete. The origins of this dramatically new worldview stem from more than new technologies or even new strategies for survival. The emerging perceptual framework is based on much broader -- and more exciting -- developments in human civilization. Indeed, the new era is an indication of profound changes in the way that we see and explain life.

In the final scenes of the movie Matrix, the main character, Neo, can finally see the software code in the walls around him. At this moment, he understands that this code creates the surrounding virtual reality, and he recognizes his own power to change the code. Our own scene is not so different from his. In the case of Western civilization, the four “walls” that shape our understanding of reality are:

1. Science’s explanation of life.

2. Our social context.

3. The way our brains operate.

4. Individual consciousness, or interpretations of reality.

The first two of these “walls” represent the external and internal determinants of our collective reality. Science tells us about life and reality “out there.” And each of us then constructs our personal reality in our patterns of interactions with the world.

The second two walls shape the external and internal versions of our individual reality. Though the brain is located inside our bodies, its functioning can be observed and studied empirically, while consciousness exists only internally; my thoughts and feelings cannot be observed or studied without my sharing them.

Like Neo, humanity is getting better at seeing and interpreting the four walls that shape our reality – and even at reprogramming their coding. As the following pages will show, inspection of each of these four walls reveals distinct and recognizable signposts, pointing the way toward a very different way of operating. Each reveals life as not solely mechanistic and separate but also inherently adaptive, interrelated and generative.

V. The Terrain: The Integral Economy

The goal of this chapter is to show that a new macroeconomic theory, based on the emerging integral worldview, is steadily coalescing and rising to dominance. And it stands to change everything.

This new economic theory is predicated on a major shift in thinking and behavior among the general population. And though such a mass change of behavior seems monumental, it is not unprecedented. Think, for example, about the relatively rapid shift from the view of slavery as the natural and necessary underpinning of a thriving economy to the belief that it is morally wrong and anathema. In 1801, if you had asked someone from the American South if they could imagine a thriving economy without slavery, they would have answered with a resounding no. Ask again in 1901, and the economy would already have been reshaped without slavery. In The Problem of Slavery in Western Culture, David Brion Davis explains that such a change in thinking and behavior was part of a transition toward valuing personal liberty (or divergence, in the language of the Living Systems Model).

Admittedly, that change in thinking was given a decisive shove in the United States by Abraham Lincoln and a bloody civil war, and the subsequent transformation of economic behavior was far from easy. Nevertheless, the example is encouraging for our times. As previous chapters asserted, there is much evidence that a new worldview is emerging, shaped by broad recognition of integrality – the understanding that we are all distinct, but not truly separate, parts within an unbroken living whole. It stands to reason that this shift will have a similarly dramatic impact on economic theories and behaviors. This era's full transition may or may not require the nudge of a modern-day Lincoln (or, more likely, a global coalition of them), but the early indications are that it is unfolding rapidly.

Despite all this talk of dramatic change, the emerging economic concept does not dispute current economic theory; instead, it includes and also goes beyond existing thought. Unlike popular declarations from the 1990s of a fundamentally New Economy, this view represents a new-found awareness of principles that have existed all along outside of our perception. British Nobel laureate economist John Hicks explains this well in his 1983 essay on “revolutions” in economics.

Our theories, regarded as tools of analysis, are…rays of light, which illuminate a part of the target, leaving the rest in the dark. As we use them, we avert our eyes from things that may be relevant. …Since it is a changing world that we are studying, a theory which illumines the right things now may illumine the wrong things another time. This may happen because of changes in the world (the things neglected may have grown relative to the things considered) or because of changes in our sources of information (the sorts of facts that are readily accessible to us may have changed) or because of changes in ourselves (the things in which we are interested may have changed). There is, there can be, no economic theory which will do for us everything we want all the time.

Thus, like Bernoulli’s principle of lift, ours is a search for unseen principles that will enable us to transcend the known rules while still acknowledging their validity. And it is just such a new set of principles that seems to be coming into view.

Though there is not yet complete consensus about what this new vision is, this chapter presents the pattern that seems to be emerging from many different theories. What they all have in common is a desire to breathe new life into the field of economics – literally and figuratively. Each seeks to reconcile the machine metaphor of mainstream economics with the living, breathing, integral reality within which we actually exist.

And indeed, we can easily recognize the five defining aspects of living systems in our economies:

• They have divergent parts (communities, governments, institutions, companies, individual people, and myriad resources).

• These parts come together to form a convergent whole (an economy) with defining properties of its own.

• Economies exhibit open interaction and responsiveness both internally and with their surrounding context (the natural environment, cultures, neighboring economies).

• There is an unseen and intelligent property (Adam Smith’s “invisible hand” comes to mind, as does Friedrich Hayek’s “spontaneous order”) that integrates parts into a coherent, connected and transcendent whole.

• The fundamental nature of economies is regenerative and creative.

Shopping inside air conditioned malls or making purchases online, it is easy to believe that the natural world exists only as an “externality” and that its rules do not apply to our economic activities, as Mechanistic Economics would have us believe. But the new theories help us recognize that the economy is a living subsystem of the ecosystem, an embedded and integral part of the natural world. Thus, ecological economists focus on a society's metabolism, which they define as “the flows of energy and materials that enter and exit the system.” And evolutionary biologist Stuart Kauffman talks about the “econosphere,” noting that the economy exhibits biological tendencies because it literally is a biological entity. These should be very appealing views: nature is inherently creative, adaptive, self-regulating and sustainable – highly desirable qualities in our economies and organizations.

In fact, it may be that we are now able to see those life-giving characteristics because the economic system has only recently evolved to the point that all its facets are clearly visible, as earlier chapters revealed about other aspects of life. A look at the history of economic activity shows a familiar pattern:

• Within hunter/gatherer cultures past and present, individuals define themselves and their economic activities within the convergent context of their tribes and all of nature. In other words, they perceive no separation from each other or from all of nature, and that view fundamentally shapes their economic activity. In Stone Age Economics, economic anthropologist Marshall Sahlins explains that these cultures “trust in the abundance of nature's resources” and share resources freely without expectation of reciprocity, in what may be called a “gift economy.” He calls them “the original affluent society,” in which “human material wants are finite and few, and technical means unchanging but on the whole adequate." Indeed, Sahlins refers to this way of life as "the Zen road to affluence” noting their happiness, high ratio of work-to-leisure time, and ease in fulfilling their needs and desires.

• Agrarian economic activity was reciprocal and redistributive in nature in order to serve the relationship needs of families and communities.  Transactions and exchange existed only as a sub-set of social activity. In The Great Transformation, economist Karl Polyani cites historical and anthropological evidence that the Agrarian man's economic activity “is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end.” It was during this developmental phase that the beginnings of commerce blossomed, encouraging openness, tolerance, sharing of knowledge, responsibility and trustworthiness.

• Roughly 300 years ago, the market economy was born, eventually ushering in high levels of individual divergence, with capital, laws and institutions to support it and large populations of intelligent, informed, empowered participants to enact it.

• Now, it seems that we’re experiencing a powerful wave of integration, as economic activity becomes more globally interconnected, as individual actors are able to make ever more significant contributions to the whole economy, and as there is increasing recognition of the economy's integral role within society and the environment. Importantly, we're also witnessing a resurgence and integration of earlier economic concepts. Affluence, rather than scarcity, is being reconsidered as the natural economic state; for example, economist Mark White asserts that we are moving “from a capital shortage and labor surplus -- more people than useful things to do and tools to do them with -- to a capital surplus and labor shortage -- more useful things to do and tools to do them with than people.”  The concept of the convergent context is being further reintroduced with the peer-to-peer and open source movements and growing talk of a gift economy. For the first time since the Industrial Era, environmental and social needs are being included in our economic conversations. And relationship is gaining recognition with things like systems thinking, emotional intelligence, and social networking.

• This surge of integration is leading to ever more transcendent outcomes, with higher than ever levels of innovation, a record number of new companies being born, and an emergent global economy.

What is responsible for such a wave of integration? The Living Systems Model suggests that Smith's “invisible hand” – which enables each person's pursuit of their own self-interest to result in the greatest good for society – is none other than the animating, integrative spark of life. What is new since Smith's day is that:

• We increasingly recognize that our self-interest cannot be separated completely from the interests of the whole.

• We have more complete information than ever before about the needs of the parts and the whole, giving us an expanded definition of self-interest.

• More and more of us are able to hold the seeming paradox of acting in individual self-interest and also in the interest of the whole.

• And our understanding of what constitutes the “whole” has broadened to include the environment and all of humanity.

What has also changed is that we are faced with rising social, financial and environmental crises that can no longer be ignored, forcing us to evolve our thinking in search of new solutions.

What, then, might be the defining principles of such a new economic theory? A review of the alternative hypotheses, together with a glance at the Living Systems Model, suggests the following tenets:

• Integral Economics views an economy as an open, dynamic living system whose natural and ongoing outcome – given the proper conditions and the absence of barriers – is transcendence (that is to say: creation, adaptation, innovation, evolution and regeneration).

• Integral Economics defines an economy as any interaction between two or more people, in which one has a valuable contribution to offer the other and a mutually beneficial exchange is enacted. National and global economies have become vast and infinitely complex, but the simple interpersonal transaction remains their basic unit. Integral Economics, then, is concerned with the nature and goals of such interactions, individually and in their aggregate patterns.

• Integral Economics recognizes that, as people come together in interaction and exchange, a new higher level form of life emerges. Two or more parts (people, organizations) come together to create a whole (a living economy). If the proper conditions are in place, the core essence of life flourishes within this whole and it then takes on properties of self-organization and transcendence, exhibiting behavior that cannot be understood solely by studying the behavior of the parts.

• Integral Economics recognizes that humans, like all living things, are driven to create and transcend. This is only possible through connecting with others to make a life-enhancing contribution that may then be integrated into the whole. Thus, Integral Economics views the purpose of economic activity at any level (global, national, regional, organizational or individual) as (1) enabling connection and contribution (2) in order to engage the integrative and innovative power of the unifying spark of life as fully as possible (3) in the ongoing pursuit of transcendence.

• In summary, Integral Economics is the study and support of the dynamic patterns of interactions between individuals, organizations, communities and the natural environment in the continuous and iterative pursuit of life's enduring urge to transcend itself.

This is a tremendous departure from Mechanistic Economics.

And yet, at the beginning of the last century, Harvard economist Joseph Schumpeter foresaw much of this thinking. Instead of incremental improvements to existing processes, as Mechanistic Economics proposed, he emphasized the creation of new processes. “Entrepreneurs regularly introduce innovations that upend the established order, unleashing a 'gale of creative destruction' that forces incumbents to adapt or die.” This "process of industrial mutation," he explained, "incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." In his view, this is how economies evolve – a decidedly biological concept.

With this in mind, the emerging theory grants the option of adapting within an unpredictable, ever changing environment, and also of integrating novelty in contribution to the convergent whole. In Mechanistic Economics, our only means of progress was to go bigger. Integral Economics gives us the option of becoming different, better and special.

What, then, are the practical implications of this new set of views and the new interpretations of reality they seem to be ushering in?

Though the discipline has not quite coalesced enough at this point to present a detailed, definitive set of principles and practices, it seems clear that the rise of Integral Economics will alter:

• The goals of economists and economic activity.

• The measurement of economic activity.

• The ways we encourage the economic system to work better.

These three topics will be explored below.

 

1. The goals of economists and economic activity.

According to mainstream thought, the goal of macroeconomic activity is to keep the production/consumption machine churning and growing so we all have the jobs and income we need to survive. This income then allows us to consume more, which signals companies to produce more, which then supports more jobs and income, and so on in a never-ending and ever-expanding cycle, as depicted in the following diagram.

So important is ever-increasing consumption to this cycle that father of modern macroeconomics John Maynard Keynes considered recessions and depressions a problem of “underconsumption.” This is why the 2009 US economic stimulus package, inspired by Keynesian ideas, was designed to encourage consumer spending. Keynes even viewed savings as counterproductive, preventing income from entering the consumption/production cycle.

The challenge we face in overturning the dominant economic concept is that there is undeniable logic behind the current emphasis on production and consumption. It all makes sense – and indeed has been borne out in the market -- until you consider that the current economic system's ability to support life is steadily diminishing with every turn of the production/consumption wheel. Though it may produce jobs and generate increasing monetary returns on investment, the economic system is also decreasing the real vital capacity of our complex life support systems. It is becoming more and more evident that, pursued relentlessly in isolation of other factors, the Mechanistic economic belief set is detrimental to human health and therefore to the health of the economy.

Dissenting economists generally share the observation that ever-increasing production and consumption of material “stuff” is not the sole measure of individual welfare and economic vitality, as Mechanistic Economics would have us believe. Moreover, it cannot continue to be the single defining goal that we pursue, or the Earth will no longer be able to sustain us. Despite their unanimity, however, there is far less agreement about a viable alternative model.

• Some propose that we all backtrack to more basic ways of living, a path that is neither popular nor practical, at least not in the extreme. Though the hunter-gatherer lifestyle does have its advantages, it seems more in keeping with life's patterns to bring that convergent consciousness forward and integrate it within a fuller theoretical and practical repertoire, rather than abandoning the relationship and divergence we've worked so hard to develop in the past 10,000 years.

• Others recommend introducing non-monetary measures of human well-being – including measures of environmental sustainability. While this is a step in the right direction, it still falls short of offering an alternative economic model.

• Some propose abandoning money altogether, but this seems to diminish our ability to be in life-enhancing relationship with each other. The better approach seems to be to change the beliefs that guide how we use money.

• And others argue that we must reach a state of zero growth. But this argument inevitably leads to an intellectual stalemate, as the unavoidable necessity of growth keeps popping back up persistently.

To move beyond this impasse, we may look to nature for inspiration. Nature also pursues a never-ending cycle in which growth features prominently. The outcome of that cycle is endlessly increasing diversity, in options, in adaptability, in the ability of life to flourish and prosper. Somehow, it creates increasing returns on effort, as every turn of its wheel makes the system richer and more robust.

What's the difference, then, between nature's growth cycle and our own? The difference lies in two things: (1) the goals of those participating, and (2) the other stages of nature's cycle of life, in addition to growth.

Let's start with what nature has to teach us about the role and goals of participating actors within the cycle of life.

In nature's cycle of life, every living thing functions as an integral part, working always to make a life-enhancing contribution to the wholes to which it belongs. Only humans believe that we stand somehow apart from each other and the rest of the world, existing only to consume. In this way, we see that we do want more jobs and more income, and our own interactions and exchanges in the marketplace are the key to keeping the cycle going. Keynes had that right. The problem is with our emphasis on consumption rather than contribution.

Think about it: is it any wonder that our economic system is self-destructive when we call ourselves “consumers”? We are consuming the Earth's resources, just as our economic theory tells us we should, without any obligation to return any of that natural wealth back into the system. The word “consumer” gives us no sense of mutual responsibility or interconnectedness with each other or with the rest of the ecosystem. And the word “employee” is hardly better – when we're not using up resources, we're being used (employed) . “Labor,” “Human Resources” and “Human Capital” take the point even further.

Imagine if we instead thought of ourselves as contributors to life's richness and possibilities. Imagine if our economic cycle were intended to enable life-enhancing contributions, instead of just jobs. Imagine if the fuller goal of our economies were transcendence – adaptation, innovation, regeneration and ever more robust forms of life – rather than simply production growth as the means to employment and consumption.

The diagram would then look something like this:

Focusing on contribution instead of consumption opens up the possibility of exchanging value without necessarily generating income or producing a tangible good, as the arrow in the middle of the diagram indicates. This potentially solves the mainstream economist's dilemma of how to account for volunteer work and unpaid childcare or elder care – and how to account for the growing gift economy.

In fact, with an integral view of economic activities, there is little distinction between purchasing and providing -- between accepting contribution and offering contribution. They are two sides of the same coin, each representing valued participation in the flow of life. Even the word “currency” – which means “flow” – supports this concept. As we spend money, we contribute resources to the flow of life. Designer and community builder Milenko Matanovic expresses this concept beautifully. Though he is speaking of selling artwork, the same principles apply to work of any kind.

...[J]ust as the sale of one's work is necessary for the livelihood of the worker, so a spiritual giving of the product of work is necessary for growth and creativity. In so doing, the artist acknowledges that the created thing acquires a new layer of meaning as it is received by others. This completes the cycle by enriching the community and clearing space within the artist for a new beginning. In the end, there should be three results: completed artwork, a wiser person who grew within the creative process, and an enhanced community gifted with a new way of seeing, hearing or thinking.

With this in mind, we might even collapse our diagram to show that increased income enables people to make increasing contributions (in the form of purchases, investments or donations), which triggers increased production (of goods or services), which enables increasing contributions (in the form of work projects), which leads to increasing income, and so on.

Such a view reinforces the concept that “you vote with your dollars,” creating awareness of the impact of our purchases and the responsibility that comes with them. It invites us to seek out products and services that make a life-enhancing contribution to all involved. Indeed, this is something we see happening already with the rising popularity of Fair Trade, organic and cruelty-free products.

In all, the fuller concept may be not only contribution but compassion, born out of recognition of the unity of all life.

Though many may skeptically dismiss such an attitude as idealistic or romantic, reserved exclusively for the starving artist, the following two chapters will show that, not only is it a rising trend among individuals, but fostering such an attitude is increasingly a competitive requirement for organizations.

This conceptual shift from consumption to contribution (or even compassion) is essentially a new story about our economic lives. And this new story has the power to change everything: how we craft organizational strategy, what we expect from our work, what kinds of products we're willing to create and buy, and how we interact with each other in transaction and in collaboration. Clearly, such a new story and the changes that come with it are exactly what is urgently needed. In Daniel Quinn's 1992 philosophical novel, Ishmael, the wise protagonist – who happens to be a telepathic gorilla – explains:

There's nothing fundamentally wrong with people. Given a story to enact that puts them in accord with the world, they will live in accord with the world. But given a story to enact that puts them at odds with the world, as yours does, they will live at odds with the world. Given a story to enact, in which they are the lords of the world, they will act as the lords of the world. And, given a story to enact in which the world is a foe to be conquered they will conquer it like a foe, and one day, inevitably, their foe will lie bleeding to death at their feet, as the world is now.

With such a new story and new goals to go with it, how will we resolve the persistent problem of growth?

Clearly, humanity's physical presence on Earth cannot continue to expand indefinitely. Paradoxically, however, Integral Economics would suggest that it is not necessary, desirable or even possible to eliminate growth as a core factor of the economy. As we've seen, living systems have an inherent urge to connect and create novel forms – which equates to growth. Says physicist and author Fritjof Capra, “Growth, of course, is characteristic of all life.” But he goes on to offer an important qualification: “[I]n the living world, it has not only a quantitative but also a qualitative meaning. For a human being, for example, to grow means to develop to maturity, not only by getting bigger, but also qualitatively through inner growth. The same is true for all living systems.”

Shutting off this urge to grow is impossible. Certainly, humans can deny our strongest urges if we must, but the situation will be unnatural, uncomfortable and, therefore, not sustainable.

Where, then, does that leave us? How do we develop an economic model that includes an appropriate level – and type – of growth?

Part of the solution is to be found in a model called the Adaptive Cycle. Developed by Buzz Hollinger and elaborated by Frances Westley, the model shows that natural systems exhibit a continuous four-part process (typically depicted as a figure eight) of:

1. Germination followed by

2. Growth followed by

3. Consolidation followed by

4. Death and renewal, returning to germination, and so on.

In our economies, we have plenty of germination, growth and consolidation. What our system generally lacks is sufficient death and renewal, with resources returned fully into the germination stage. The solution, then, may not be the total absence of growth – it may instead be a proportionate increase in economic death and renewal.

Getting more comfortable with the concept of death and renewal seems to be an important part of the shift beyond Mechanistic Economics toward a theory of economies as living systems. But it may not be as bad as it sounds. Some options – offered for illustration – might include:

1. Producing only those goods that can be returned into the system fully and relatively quickly as germination (cradle-to-cradle manufacturing). Making such “good” products cheap and “bad” products very expensive.

2. An increased proportion of economic value generated by intangibles, which can germinate, grow and consolidate without taxing the living system. This trend is already underway, with both the expansion of technological and service sectors of the economy and the individual shift toward connection, contribution and sustainability (which will be explored in a later chapter).

3. Reducing the pressure on companies to grow rapidly and incessantly (removing the legal obligation, encouraging new forms of governance, such as cooperatives, and revising the general understanding of organizational purpose).

4. Allowing failing companies to die so that the diversity of the economy is preserved – and so that society is not obligated to prop up companies that are “too big to fail”. This harkens back to Schumpeter's concept of creative destruction.

5. Fundamentally reforming the financial industry (debt and speculative markets, in particular) (1) so that it no longer overstimulates growth unnaturally and faster than that growth can be processed through to renewal and (2) so that it no longer jeopardizes an economy's resilience with excessive debt-to-GDP.

With changes of this sort, economic value could continue to grow without limit, but material production would ideally net out to zero growth, in what some economists refer to as “dynamic equilibrium” or a “steady-state economy.”

This raises the challenge of determining just how much growth would bring us to an equilibrium state. And it may be that the Earth will give us the answer. As it stands, when consumer spending falls, this triggers the US Federal Reserve Bank to lower interest rates in order to stimulate more spending. Instead, perhaps we'll need a system in which any reduction in the health of the biosphere would trigger a tightening of financial stimulus to growth.

2. The measurement of economic activity. 

Such a fundamentally new economic story, featuring new roles and goals, will undoubtedly necessitate new economic indicators. And indeed, the need to look beyond GDP has long been acknowledged and embraced by leaders around the globe. Multidisciplinary teams have been trying to answer this call for several decades, with economists Hazel Henderson, Herman Daly, Robert Costanza and a host of others leading the charge. Henderson explains how GDP could be adapted to offer a more complete picture:

To correct GDP, we must begin sorting out the “goods” from the “bads” and deduct all the social and environmental costs of production to calculate the “net” GDP.... Likewise, companies need to internalize on their balance sheets, all the social and environmental costs of their products. This way, consumers will pay these full costs of production in the price of products. This, in turn, will mean re-designing their product lines to minimize pollution, waste and social harm. Products will become safer, cleaner and “greener” while some goods will disappear.

But as Henderson and others are quick to point out, even a new-and-improved GDP will not be enough. If our goal is the full vitality and sustainability of the system, we need information about the subtle aspects of individual and organizational contribution.

Happily, a range of new indicators has been developed and proposed in recent years, with eleven of the top contenders described in a table at the end of this chapter. Some are more comprehensive than others, and they have varying points of emphasis. What unites them, though, is their focus on a broader definition of progress and well-being.

Even with an expanded GDP and new, more broadly descriptive indicators, current quantitative measures like unemployment rates and housing starts aren't likely to fall completely to the wayside. But what probably will fall to the wayside is pronouncements of these figures in isolation. Talking about unemployment rates alone, for example, doesn't help us understand why unemployment is high or low or what actions would be most appropriate in response to the situation. And it doesn't tell us about the quality of the employment there is. Today's partial information contributes to our view that we are at the mercy of a little-understood and regularly malfunctioning machine called The Economy. It invites us to place all the power – and blame -- into the hands of one leader, the nation's fix-it man. Instead, we will be better served by a more comprehensive set of indicators accompanied by wisely interpreted narratives that give us a broader understanding of the true nature of the living economy.

It is not at all clear which of the new, broader and narrative-based indicators will rise to dominance, if any. But the search is most definitely on.

3. What we do to encourage the system to work better.

Within mainstream economics, the core debate has centered on whether the economy is able to self-regulate or whether it must be actively managed. Harvard political economy professor Dani Rodrik describes these two camps as follows:

• Capitalism 1.0: The “miracle of markets” as a creative, dynamic “engine” requiring a minimal state. This view came into favor with Adam Smith's The Wealth of Nations.

• Capitalism 2.0: The Keynesian view that markets aren't self-creating or self-regulating and need to be “embedded” in a wide range of guiding institutions. This view rose to dominance with the Great Depression and World War II and continues to be the guiding philosophy of most Western nations.

Though the debate over these two versions of capitalism has raged on in academic circles, for the past seventy or eighty years the role of leaders and economists has been as manipulators of the machine, particularly in times of economic recession. At such times, the machine metaphor (or, more specifically, John Maynard Keynes) suggests that you just have to inject cash into the system to spark consumption, akin to jump-starting a car engine. With this in mind, macroeconomic interventions have been designed to stimulate the economy from without, primarily through direct payments to citizens and through government funding of infrastructure improvement projects.

Even if this actually succeeds in stimulating the economy – and there is debate over this as well – the first problem with such an approach is that it is necessarily accomplished through amassing a sizable debt that must be repaid with interest. Principal and interest payments continue to mount, as the business cycle brings another recession every few years, signaling the government to take on yet more debt. This tendency seems to be especially prevalent – and problematic – in the United States. According to an Associated Press article issued on August 25, 2009: “[T]he White House is predicting … [that] by the next decade's end the national debt will equal three-quarters of the entire U.S. economy.... Even supporters of Obama's economic policies said the long-term outlook places the federal government on an unsustainable path....” At some point, debt payments will become an unsupportable burden on the system.

The second problem with the external “jump-start” approach is that it doesn't address why the car has run out of power to begin with, or how to enable it to start well the next time around. And it doesn't enable us to see which features of the system – including the interventions themselves – are exacerbating cyclical downturns.

What, then, will be the role of leaders in Integral Economics -- or Capitalism 3.0, as Rodrik might call it? With a view of the economy as a living system, economic leaders will likely be less fix-it men-and-women and more gardeners or farmers, actively cultivating the fertile conditions for life's processes to flow naturally. Importantly, this view integrates the two earlier renditions of capitalism, embracing the seeming paradox that both theories can be right and finding novel solutions in the tension between them.

This is more than just a cute new metaphor or even an attitude change. It represents a fundamental shift in what is done, by whom. As more and more leaders adopt an integral worldview, they'll recognize that the economy is not an artificial, external man-made construct (as Mechanistic Economics claims); it is the living patterns of people engaging with each other. With this view, it will become clear that the economy encompasses more complexity than any leader can anticipate or manage, particularly as monumental debt repayments limit government resources to intervene and as our goals expand beyond the tangible and measurable. There will continue to be a need for wise intervention and guidance at a national, macroeconomic level, particularly in ushering in the structural changes described in the paragraphs about growth. But as more ordinary citizens gain integral awareness, we'll increasingly recognize our own role and responsibility in shaping the economy.

Tom Atlee, founder of the Co-Intelligence Institute, concurs: “[C]entralized approaches cannot adequately deal with the complexity and urgency of emerging crises. These require more systemic, distributed, self-organizing approaches.”

For this reason, we're likely to see more and more participatory processes in which people within communities come to a shared understanding of the economy's current conditions and what they're doing to create those conditions. And we'll see more examples of community-based collaboration to develop and enact a new vision for the future, along with ongoing collective learning about what has already been done.

In contrast to classic Mechanistic interventions, such integral approaches will be designed to build the lasting capacity of the economy from within. It's the proverbial teaching a man to fish – or, more precisely, creating the conditions for him to learn – rather than simply giving him a fish. It's about enhancing the resilience of a community and supporting its ability to solve its own problems. This is the spirit of integral interventions.

Atlee describes how this approach could work, and indeed is already working in many places:

We need to extend our vision of participatory governance to embrace citizen engagement not only in decision-making but also in action and the kind of review, evaluation and course-correction that characterize collective learning. Collaboration would come to mean real ongoing partnership between officials and community because the situations we face are simply too challenging to handle otherwise....

As collective intelligence and community wisdom come to be seen as vital aspects of public participation, the role of government will necessarily shift. Effective management and leadership become less a matter of telling people what to do when and more a matter of being effectively catalytic, evocative, inspirational and facilitative -- helping existing potential energy, wisdom and collaboration find creative expression for community benefit.

A table at the end of the chapter lists Atlee's practical suggestions for how this can work.

In fact, there are already many recent and well-documented cases of these kinds of approaches being enacted in communities, cities and even nations around the world, with inspiring results. The UK in particular appears to be a leader in engaging local communities in active, creative co-governance and shared responsibility for economic development. The nation's Department of Communities and Local Government proclaims its mission as: “Strengthening local democracy by giving citizens a much bigger role in shaping the places in which they live and the public services they use."

At the community level, the UK has encouraged the development of a network of Local Strategic Partnerships, which are supported by national government funding but are completely self-organizing and self-determining. In a report entitled Building Successful Cities, the Conference Board of Canada lauds the UK's example, noting that “most cities in the U.K. have improved their economic performance dramatically in the past decade.”

Non-profit organizations that support such community-wide collaborative efforts include Imagine Chicago, the Asset-Based Community Development Institute, AmericaSpeaks, the International Association for Public Participation (IAP2), the Human City Institute, the National Coalition for Dialogue and Deliberation, and the Institute of Community Cohesion.

Among these, Imagine Chicago is a particularly inspiring example. In true living systems form, what started as a community development initiative in one city grew into a self-organizing movement encompassing over seventy Imagine projects in more than twenty countries on six continents. Described as a set of “tools and practices for liberating imagination, improving communications and helping communities listen for and organize collective visions and actions,” the movement is built around Appreciative Inquiry, a highly engaging process that identifies and builds on a community's strengths rather than solving its problems. According to founder Bliss Browne, this gives it quite a new perspective:

[The Imagine movement] has worked to … encourag[e] and challeng[e] people and institutions to understand, imagine and create the future they value, to move from understanding and dreaming community to building it. This is “mothering” work in the way Sara Ruddick describes it in her wonderful book Maternal Thinking where she suggests that motherhood is a sustained response to the promise embedded in the creation of new life. That for me is the challenge: How do we bring worthy collective dreams to birth and honor the new life they represent by creating the structures to sustain life's promise on a long-term basis?

"I like to think of community as something of a garden," Browne continues. "In order to make it work one has to have a keen sense of the interdependence of things. And if one wants to be an active player in community, then one also has to be aware of the ecology of things."

Notice the decidedly life-centered concepts she evokes: mothering, gardening, ecology. This is a substantial shift from viewing an economy as a machine. Note also that economic development is not treated separately from community development; they necessarily go hand in hand.

What each of these approaches reflects is a trend toward the increasing cohesion, identity and self-organization of local communities. Though at first glance this rise in community power and identity might appear to be increasing fragmentation, in fact it is a beautiful example of the rich pattern of life: individual communities (parts) are increasing in their internal convergence, enabling them to contribute enhanced divergence to the surrounding whole (the living national economy). Rising transcendent creation is sure to follow. What a welcome relief that will be from The United States of Generica.

Conclusion

As we have seen throughout the first part of this book, the strength and vitality of any living system is a function of its capability to interact continuously and responsively with its context, to integrate divergent contributions from its contingent parts, and in these ways to evolve and adapt. With this in mind, we can now recognize that the strength of any economy is not only its physical resources or measurable output, but its fertility... its resilience... its cohesion... its ability to support transcendence.

This chapter seeks not only to document the unfolding transformation in economic theory and practice, but to move it along. At the heart of this transformation will be a necessary rise in individual wisdom, responsibility and self-reliance, as well as a fundamental shift in business priorities. Both of these prerequisites will be explored in the next two chapters.

 

A Selection of Proposed Measures of Progress and Well-Being

The Index of Sustainable Economic Welfare and the Genuine Progress Indicator are similar instruments used in different countries around the world. Both are based on the GDP but subtract costs that detract from social well-being (crime, pollution, commuting, family breakdown, income inequality) and add the value of positive but unpaid activities (i.e., parenting, volunteering).

The Sustainable National Income is an alternative to GDP that calculates “the maximum attainable production level whereby, with the available technology in the year of calculation, vital environmental functions remain available ‘for ever’.”

The Canadian Index of Wellbeing measures eight factors: living standards, healthy populations, community vitality, education, environment (ecosystem health), time use, civic engagement, and arts, culture and recreation. It also reveals how each of these is inter-related.

The United Nations' System of Integrated Environmental and Economic Accounting adjusts the System of National Accounts (Europe's version of GDP) for changes in the quality of the environment and depletion of natural resources.

The United Nation's Development Program has created the Human Development Index. Measured annually since 1990, it covers “poverty gaps [and] relative budget priorities between military spending and education, health, gender, environment and other aspects of government performance in over 180 countries.”

In 1995, the World Bank released a Wealth Index, attributing 20% of a nation's wealth to its environmental assets, 60% to its human and social capital, and 20% to human-built capital like factories and financial assets.

Hazel Henderson has co-created the Calvert-Henderson Quality of Life Indicators, a quarterly compilation of multidisciplinary statistics covering twelve non-monetary aspects of well-being and progress: Education, Employment, Energy, Environment, Health, Human Rights, Infrastructure, Income, National Security, Public Safety, Re-creation, and Shelter.

The New Economics Foundation publishes a Happy Planet Index, assessing both the ecological footprint and the level to which people are able to live long, fulfilling lives. It is described as “a measure of the environmental efficiency of supporting well-being in a given country.”

The Legatum Institute publishes an annual Prosperity Report, which encompasses both material wealth and life satisfaction. What is notable about this indicator is that it measures not outcomes but a nation's intrinsic ability and efforts to generate wealth and happiness. On the other hand, it has little reference to environmental or social costs.

Developed at the initiative of the European Commission, the European Innovation Scoreboard measures a nation's innovation rate and the structural conditions needed to support additional innovation.

The tiny Buddhist nation of Bhutan measures Gross National Happiness, the four components of which are “the promotion of sustainable development, preservation and promotion of cultural values, conservation of the natural environment, and establishment of good governance.” In 2007, an international conference on the topic drew 800 participants.

Suggestions from Tom Atlee, the Co-Intelligence Institute

* CATALYZE PARTICIPATORY CONVERSATION: Use and experiment with non-directive participatory conversations to engage the passionate co-creativity of communities, diverse stakeholders and ordinary citizens. So-called "emergent processes" like Open Space, World Cafe, Future Search, and Dynamic Facilitation provide productive channels for existing passions and creativity -- and even conflict -- with little effort to direct the outcome. Programs can start with simple, powerful do-it-yourself processes like Open Space and World Cafe that participants can then carry into their neighborhoods, networks and organizations. Meanwhile, government can build community facilitation resources -- including communities of practice -- to cover a broader range of processes the community needs. Government can also play a crucial role in ensuring the continuous availability of affordable venues for public events and conversations.

* SUPPORT ONLINE CONNECTIVITY: Actively promote coherent collective use of existing online resources for conversation, networking, social interaction, deliberation, and collaboration to engage citizens in addressing thorny issues and emerging crises. Where a government does not have resources to support multi-dimensional effective public participation on their own websites, they can use their websites to tell the public how to use Facebook, Twitter, chats, free conference call lines, GoogleDocs, MeetUp.com, YouTube, WiserEarth, and other online resources to better work together on local issues and participate in local government work.

* HELP COMMUNITY SHARE THE LOAD: Invite and enable citizens and community groups to take on more of the actual work of governance -- from solving problems to gathering and evaluating information to implementing policies and programs. Sometimes this can be designed into a process so citizens contribute to governance without even realizing it, while they're having meaningful fun. For example, in Eugene's participatory community planning process, we plan to immerse commission members and decision-makers in a community-wide World Cafe, followed by a creative participatory prioritization process focusing on "What should we be doing in this community to address climate change and peak oil?" This immersive experience will give officials a dynamic experience of community ideas, energy, and priorities without resource-intensive compilation efforts that generate piles of paperwork they then have to plow through.

* TAP POSITIVE POSSIBILITY: Use participatory approaches that tap into the energizing power of positive possibility -- from inspirational engagements like visionary backcasting and Transition Town initiatives, to exploratory approaches like Appreciative Inquiry and Asset Based Community Development, to behavior-change support programs like Positive Deviance and the Low Carbon Diet. All these approaches help people engage with situations more as opportunities to build better lives and communities than as problems to be solved.

* ALIGN WITH EVOLVING PROFESSIONS: Encourage, use, and participate in emerging movements among the information, knowledge and communication professions involved with computer technology, journalism, media, public relations, academia, research, group process, etc. As their professions are shaken by changes in technology and systemic challenges, some knowledge professionals are re-visioning their missions beyond objectivity, critique, and technique to focus on serving community well-being, promoting community engagement and capacity, and achieving deeper understanding of the foundational values and dynamics of their work. Notable examples include Journalism that Matters, Computer Professionals for Social Responsibility, community science and research (e.g., the Loka Institute), The Art of Hosting, and explorations of the underlying "pattern language" for various fields. Such pioneers can help create innovative public participation infrastructure to support ongoing community-wide collective intelligence. For example, imagine journalists committed not to stories of conflict, but to building community awareness of and participation in exciting public conversations, community action, and positive possibilities.

* TAP CREATIVE ENERGY: Engage natural existing sources of creative, evocative energy in calling the community into volunteer action, participatory governance, mutual support, visionary activism, and self-organizing activity. Latent sources of often "free" creative energy include youth, artists, writers, musicians, performers, innovators, and entrepreneurs who often just need an invitation and honored role to eagerly make a difference. (Note how Obama inspired and used this latent power in his campaign.) Also invite existing networks of common interest and activity -- religious congregations, schools, clubs, ethnic groups, community groups, neighborhood councils, professional organizations, unions, etc. -- to make a positive difference in the community by helping engage their members in inclusive public participation efforts. Often invitational processes work better by engaging network hubs to recruit participants from their networks than by broadcasting invitations broadly through mass media. Government can even sponsor gatherings of key networkers to explore what THEY would like to do to better their community....

* TRANSFORM UNEMPLOYMENT: Help unemployed people engage in fruitful volunteer activity -- including active support for the functions above -- while co-creating mutual support systems and exploring together entrepreneurial possibilities that make innovative contributions to social transformation. In Journalism that Matters' Open Space gatherings, for example, unemployed journalists have linked up with community bloggers to create new and exciting forms of journalism.