Getting Specific on "Ego to Eco"

I've noticed some misunderstanding online about what we at the Presencing Institute actually mean when we talk about things like “Ego to Eco”, “Society 4.0”, and “transforming capitalism”. Since we'll be launching a major initiative next year that will reference these terms quite often, I realize they could use a bit more explanation. To add some context and hopefully clarity, I want to share an excerpt from Leading From the Emerging Future (2013), the text where these ideas are spelled out in full detail. The excerpt below gets at the essence of what we’re saying. With a common understanding of what the Ego to Eco framework actually proposes, we can have better conversations about its strengths, blind spots and applications in the world today.

[Note: Italics and bold text below are mine for emphasis. I’ve edited the text lightly in some places to remove references to tables. The full text is available here (beginning on pg. 51).]

The Evolution of Capitalism as an Evolution of Consciousness

According to the British historian Arnold Toynbee, societal progress happens as an interplay of challenge and response: structural change happens when a society’s elite can no longer respond creatively to major social challenges, and old social formations are therefore replaced by new ones. Applying Toynbee’s framework of challenge and response to the socioeconomic development of our societal structures today, we briefly review capitalism’s evolution.

Society 1.0: Organizing around Hierarchy

Think of Europe at the end of the Thirty Years’ War in 1648, of Russia after the October Revolution in 1918, of China after the Chinese Civil War in 1949, or of Indonesia at about the time when Sukarno became its first president. Recent turmoil had created the felt need for stability—that is, for a strong visible hand, sometimes in the form of an iron fist—to provide security along with the vital allocation of scarce resources in line with much-needed public infrastructure investment. In that regard, we can view twentieth-century socialism in the Soviet Union not as (according to Marxist theory) a post capitalist stage of economic development, but as a pre-capitalist (quasi-mercantilist) stage. The core characteristic of this stage of societal development is a strong central actor that holds the decision-making power of the whole. This could be an emperor, a czar, a dictator, or a party. Examples are manifold and include eighteenth-century European monarchs, as well as Stalin, Mao, Mubarak, and Sukarno, all of whom led coercive states whose appetite for lengthy democratic processes and discussions was, shall we say, limited. In a recent visit to the favelas of São Paulo, I (Otto) learned about the “pacification” strategy of the Brazilian police, who went into the favelas and drove out the drug lords. The young people in the favelas argued that the police presence was a good thing for two reasons. It reduced the level of random violence and allowed the community to get access to vital social services. So, in their eyes, the so-called 1.0 police structure was actually a step in the right direction.

The positive accomplishment of a state-driven society, which we call Society 1.0, is its stability. The central power creates structure and order and calms the random violence that preceded it. The downsides of Society 1.0 are its lack of dynamism and, in most cases, its lack of nurturing individual initiative and freedom.

Society 2.0: Organizing around Competition

Historically, the more successfully a society meets the stability challenge, the more likely it is that this stage will be followed by a shift of focus from stability to growth and greater individual initiative and freedom. This shift gives rise to markets and a dynamic entrepreneurial sector that fuels economic growth.

Awareness during this stage of development...can be described as an awakening ego-system awareness in which the self-interest of economic players acts as the animating or driving force.

At this juncture, we see a whole set of institutional innovations, including the introduction of markets, property rights, and a banking system that provides access to capital. These changes facilitated the unprecedented explosion of economic growth and massive industrialization that we saw in Europe in the nineteenth century, and that we are seeing in China, India, and other emerging economies today. New York Times journalist and bestselling author Thomas Friedman links the rise of the emerging economies with the rise of a global virtual middle class that includes not only today’s actual middle class, but also the global community of Web and cellphone users who physically still live in poverty but who mentally already share an aspirational space with the current global middle class. Says Khalid Malik, the director of the UN’s Human Development Report Office: “This is a tectonic shift. The Industrial Revolution was a 10-million-person story. This is a couple-of billion-person story.”

Awareness during this stage of development—Society 2.0—can be described as an awakening ego-system awareness in which the self-interest of economic players acts as the animating or driving force. The bright side of this stage is the burst in entrepreneurial initiative. The dark side of this stage includes negative externalities such as unbounded commodification and its unintended side effects, including child labor, human trafficking, environmental destruction, and increased socioeconomic inequality.

The two main sources of power at this stage are state-based coercive legal and military power (sticks) and market-based remunerative power (carrots). The great positive accomplishments of the laissez-faire free market 2.0 economy and society are rapid growth and dynamism; the downside is that it has no means of dealing with the negative externalities that it produces. Examples include poor working conditions, prices of farm products that fall below the threshold of sustainability, and highly volatile currency exchange rates and stock market bubbles that destroy precious production capital.

Society 3.0: Organizing around Interest Groups

Measures to correct the problems of Society 2.0 include the introduction of labor rights, social security legislation, environmental protection, protectionist measures for farmers, and federal reserve banks that protect the national currency, all of which are designed to do the same thing: limit the unfettered market mechanism in areas where the negative externalities are dysfunctional and unacceptable. The resulting regulations, products of negotiated agreements among organized interest groups, serve to complement the existing market mechanism. As society evolves, sectors become differentiated: first the public or governmental sector, then the private or entrepreneurial sector, and finally the civic or NGO sector. Each sector is differentiated by its own set of enabling institutions. Each sector also evolves its own forms of power (sticks, carrots, and norms) and expresses a different stage in the evolution of human consciousness, from traditional (1.0) and ego-system awareness (2.0) to an extended stakeholder awareness that facilitates partnerships with other key stakeholders (3.0).

Twenty-first-century problems cannot be addressed with the twentieth-century vocabulary of welfare-state problem solving.

Stakeholder capitalism, or Society 3.0, as practiced in many countries, deals relatively well with the classical externalities through wealth redistribution, social security, environmental regulation, farm subsidies, and development aid. However, it fails to react in a timely manner to global challenges such as peak oil, climate change, resource scarcity, and changing demographics. Over time, response mechanisms such as farm subsidies or subsidies for ethanol-based biofuel become part of the problem rather than the solution. There are three essential limitations of Society 3.0: It is biased in favor of special-interest groups, it reacts mostly to negative externalities, and it has only a limited capacity for intentionally creating positive externalities.

Moreover, global externalities such as climate change, environmental destruction, and extreme poverty are not being addressed effectively by domestic mechanisms, as the breakdown of international climate talks has put on display. Since the governance mechanisms of a 3.0 society give power to organized interest groups, they systematically disadvantage all groups that cannot organize as easily because they are too large (e.g., consumers, taxpayers, citizens) or because they do not yet have a voice (future generations). Summing up, twenty-first-century problems cannot be addressed with the twentieth-century vocabulary of welfare-state problem solving. The challenge that most societies face is how to respond to externalities in a way that strengthens individual and communal entrepreneurship, self-reliance, and cross-sector creativity rather than subsidizing their absence.

Society 4.0: Organizing around the Emerging Whole

As we move to deal with the complexity of the twenty-first century’s landscape of challenges, we face some contradictory trends: (1) a further differentiation of societal subsystems that have their own ways of self-organizing; (2) a business subsystem that in many countries dominates and interferes with other sectors (government, civil society, media); and (3) a lack of effective platforms that engage all stakeholders in a focused effort to innovate at the scale of the whole system.

Eco-system awareness is an internalization of the views and concerns of other stakeholders in one’s system. It requires people to develop the capacity to perceive problems from the perspective of others.

The most significant change at the beginning of this century has been the creation of platforms for cross-sector cooperation that enable change-makers to gather, become aware of, and understand the evolution of the whole system, and consequently to act from impulses that originate from that shared awareness.

Each stage discussed above is defined by a primary challenge. Society 1.0 deals with the challenge of stability. The next challenge is growth (2.0), followed by externalities (3.0). Each challenge requires society to respond by creating a new coordination mechanism.

The response to the lack of stability was the creation of a centralized set of institutions around state power. Markets were the response to the growth challenge, and NGO-led stakeholder negotiations attempted to address negative externalities. Each phase led to the rise of a new societal sector: The stability challenge created a central power or government; the growth challenge created the rise of businesses; and the attempt to address the negative externalities created different NGOs that supported stakeholder groups such as labor activists, environmentalists, and human rights activists. And again, each area has its own source of power: sticks, carrots, and norms.

Each configuration also comes with a specific set of core beliefs, which we discuss in more detail in chapter 3. Society 1.0 has an ideology of state-centric core beliefs (state planning). Society 2.0 adopts a market centered set of core beliefs (market competition). Society 3.0 operates according to a communication- or discourse-centric set of beliefs that typically integrates both markets and government (examples: twentieth century Keynesianism or the European-style social-market economy).

The last column in table 2 [not pictured in this post] anticipates an emerging stage that we refer to as Society 4.0 or, to use another placeholder term, the co-creative eco-system economy, which innovates at the scale of the whole system. In this developmental framework, each system’s players operate with a different state of awareness. The 1.0 economies operate according to the primacy of traditional awareness: complying with existing mindsets and rules. The 2.0 economies awaken to the ego-system awareness that Adam Smith famously captured when he wrote: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” In 3.0 economies, this self-interest is widened and mitigated by the self-interest of other stakeholders who organize collectively to bring their interests to the table through labor unions, government, NGOs, and other entities.

In the emerging 4.0 stage of our economy, the natural self-interest of the players extends to a shared awareness of the eco-system. Eco-system awareness is an internalization of the views and concerns of other stakeholders in one’s system. It requires people to develop the capacity to perceive problems from the perspective of others. The result is decisions and outcomes that benefit the whole system, not just a part of it. A close look at today’s economies and societies reveals an awakening of eco-system awareness in numerous arenas. For example, the movements for Slow Food, conscious consuming, fair trade, LOHAS (Lifestyles of Health and Sustainability), socially responsible investing, and collaborative consumption are all extending their reach to include the concerns of others in the economic process. They can be seen as forerunners of the 4.0 state of the economy.

Thoughts or questions about this framework? Please share them in the comments below.