In the earliest grades, children learn that technological inventions fuel progress. Things like the wheel, the iron plow, the automobile, and computer obviously made ours a different world.
Less obviously, social inventions are essential to progress. Tribes, city-states, nation-states, and international organizations have made it possible for larger groups of increasingly specialized people to cooperate to create a new world. Like microwave ovens, churches, governments, banks, and corporations have also made ours a different world from the one in which our ancestors lived.
We're about to enter a new economy, one in which the act of social invention (a broader application of the notion of entrepreneurship) will become as normal as the introduction of new products. At first, this will seem disorientating, but our grandkids will think it is normal. It will be a period of unprecedented prosperity and individual freedom.
2. Waves of Social Invention
Social invention often looks like revolution. When innovators change how people worship, or challenge the king’s authority, innovation will probably be violent. Indeed, the acceptance of change without violent resistance is a fairly novel experience in humanity’s history, and a big reason that the pace of progress is accelerating.
Social invention can occur in a wide variety of domains, from Macarena dance moves to currency arbitrage. Some of this innovation is random and in some of it one can discern a pattern.
Between about 1300 to 1700, a wave of social and technological inventions produced the first economy. As land, or natural resources, was the basis of wealth in this economy, one can simply refer to this as an agricultural economy. Technological inventions like the seed drill and steel plow enabled farmers to produce more and new technology like the compass made it possible for anyone to sell their products more widely, capturing a higher price as trade emerged across even oceans. Meanwhile, social inventions like Martin Luther’s challenge to the papacy and Henry VIII’s making himself the head of the Church of England were key to the eclipse of the nation-state over the church. This maelstrom of innovation produced an agricultural economy, the first market economy in lieu of a traditional economy.
Once natural resources were being traded widely (think of Italy without the tomato, Ireland without the potato, and England without tea and you begin to get a sense of how transformed Europe was by the flow of new products across oceans), the next step in creating value was processing. Wood and wool has less value than lumber and textiles. Processing natural resources into finished products was the work of the industrial revolution. This, too, required a panoply of technological and social inventions. Democracy did for the nation-state what the Reformation did for the church – dispersing power in the dominant institution outwards to a wider group.
In the last century, the most advanced countries have hosted the latest wave of technological and social inventions, culminating in the information economy. Technology like the computer and telephone, coupled with innovations like the modern corporation and university have produced the most advanced economy yet.
3. Social Evolution is Not Done Yet
But this most recent economy will not be the last. The pattern of invention and revolution since about 1300 suggests that we are on the cusp of one more wave of innovation. One more economy, one more society, has yet to emerge. As with every new economy before it, this one will transform our philosophy, our dominant institution, the social order, and the individual. And unlike the emergence of the first economy that took place over a period of hundreds of years, this one will emerge in about half a century.
4. Pattern of Revolutions
The pattern of revolutions has been the same each time a new economy has emerged. The power in the most dominant institution is dispersed outwards from elites. Intellectual, institutional, and social revolutions accompany the new economy.
In the first economy, the power of the elites over the church – the power of popes and cardinals – was dispersed. Martin Luther declared, “We are all priests!” and became a prophet of how the West would eventually treat religion – giving the individual authority to make his or her own choices about how – or whether – to worship.
In the second economy, the power of the elites over the nation-state – the power of kings and queens – was dispersed. Thomas Jefferson wrote, “All men were created equal,” and became a prophet of how democracies would eventually treat politics – giving the individual authority to choose leaders and policy that defined the community.
In the third economy, the power of the elites over the bank – the power of capitalists – was dispersed. The bank itself was dispersed into a number of pieces, some as well known as Central Banks and others as arcane as hedge funds. The average person who, in the beginning of the 20th century had to grovel for a few hundred dollars with which to buy a simple appliance would, by the end of the 20th century, be regularly turning away offers of credit in the form of credit card solicitations.
These changes were not lightly made. Although the most recent looked more like innovation than revolution, each involved myriad changes in technology and social norms. It is easy to forget that credit – or, rather, debt – was generally considered dishonorable a century ago, rather than a simple fact of life.
5. Intellectual Revolution
The most pervasive and least visible change was in how people thought. There is a huge difference between the medieval mind and even the Renaissance, much less the modern, mind. In medieval times, witches and evil spirits were blamed for bad crops, infertility, and dying oxen. The earth was the center of the universe. But Renaissance thinkers embraced facts, heeding the advice of Roger Bacon to use the empirical method.
While a Renaissance thinker like Galileo could say that the earth circled around the sun, he could not explain why it was that we weren’t spun off into space by centrifugal force, like ants spun off of a rock spun around on a string. Galileo could accept facts as he observed them, but didn’t really have a cogent explanation of why the solar system worked as it did.
It took an Enlightenment thinker – the Enlightenment thinker – to explain why. Isaac Newton, in one fell swoop, explained how it is that the earth circled the sun and why we didn’t fly into space while spinning at 1,000 miles an hour. Newton added laws – a theory – to observations and facts. His friend John Locke did a similar thing in the domain of politics, brushing aside Henry VIII’s argument for the divine rights of kings and replacing it with the rule of law to which even monarchs were subject.
Pragmatists like Henry James and Oliver Wendell Holmes were less impressed with the general application of Enlightenment thinkers’ laws. They were not looking for a universal tool with which to eat. Rather, they were content that a fork would work best for some foods and a spoon for others. They were interested in solving specific problems in specific situations and thought of Enlightenment style thinkers as idealistic. (To this day, you’ll note how politicians and managers invariably refer to themselves as pragmatic.) The engineer and modern professional is neither a Renaissance nor Enlightenment thinker. By the end of the 20th century, the dominant way of thinking was pragmatism, a philosophy at one and the same time invisible and obvious, as characterizes any period’s dominant philosophy.
6. Social Revolution
Finally, the social order is transformed with the emergence of each new economy. The medieval church was the dominant institution of that time, but as a social invention, the church is less effective than the nation-state as a means to get the most out of land – the basis of wealth in the first, agricultural economy. The nation-state’s dominance was lost when land was eclipsed by capital as the basis for wealth. The bank, or capitalism more broadly, eclipsed the nation-state as the most dominant institution during the second, industrial economy. Most recently, the multinational corporation has eclipsed the bank in importance as knowledge workers, rather than capital, have become the limit to progress. A community dominated by a church is very different from one dominated by a corporation. This revolution in the social order has seemed to get less notice than institutional revolutions that transformed the church or state, but have been as defining of the new communities.
7. Economic Revolution
These various revolutions – intellectual, institutional, and social – swirl within a larger pattern – the emergence of a new world. One easy way to tie together these changes is to see them as means for creating a new economy. Authoritarian communities like the medieval theocracy that defined the West are incompatible with market economies that take their lead from individual choices. Products of the land – whether they be spices or gold – are going to be worth more when traded and their value is greater when strong governments can remove tariffs and other barriers to trade while respecting property rights in a way that encourages investment. The emergence of the nation-state, the rise of fact-based thinking, and the reformation almost seem obvious when you think that social inventors had to develop solutions that would enhance the value of land – the basis of wealth in the first economy.
The revolutions of the second and third economies can be understood in the same way. The rise of parliaments that voted for bonds that paid interest rather than taxes that simply took money helped to fuel the development of nascent financial markets. Monarchs could not be the ultimate source of power if a community was going to encourage investment and the development of capital. Investors instead needed a rule of law in which they could trust.
8. The Fourth Economy – the Pattern Repeats
"The only thing new in the world is the history you don't know."
– Harry S Truman
As it turns out, our future is in this past. Tomorrow the sun will rise just like it did yesterday. Patterns repeat. And in this case, the patterns of transformation will repeat. A new economy, a new society, is just beginning to emerge. We can predict quite a bit of it based these past changes.
Power within the dominant institution will be diffused. Just as popes and monarchs and JP Morgan lost their grip on their period’s most powerful institution, so will today’s CEOs lose theirs. Within the last decade, information has been radically dispersed outwards; a 12 year old with internet connection has access to more information than the heads of the CIA or KGB did in 1970. Now, as decisions are dispersed along with this information – as power to act is dispersed out to individuals within corporations, the CEO’s power will change.
This is not to say that CEOs will have less power – just less power relative to everyone else. President Bush had more power than President Hussein, it is just that Hussein had more power relative to the average citizen. The role of CEO will be more like that of venture capitalist than traditional boss and while measured in absolute terms the CEO’s power will increase, in relative terms it will be radically less.
The Popularization of Entrepreneurship
In the last economy, progress followed from getting more – and getting more from – knowledge workers. Universities, information technology, and corporate bureaucracies were all social inventions that facilitated the growth of the information economy in which knowledge workers – labor – had become the limit to progress rather than capital. Before 1900, there were knowledge workers but there just weren’t enough of them to define the economy.
In this Fourth Economy, the same will be true of entrepreneurship. Since the dawning of the market economies that have defined the West during the last 700 years, entrepreneurs have been around and have been vital. But they’ve always been the exception, not the norm. An entrepreneur creates something new, defies convention to create a new organization that combines labor, capital, and resources into value. The entrepreneur is a social inventor. And the Fourth Economy will be to the popularization of entrepreneurship what the popularization of knowledge workers or capital was to the information and industrial economies. This will drive and be driven by the transformation of the corporation. Within the corporation, the role of employee will begin to look more like that of entrepreneur.
And the reason that the fourth economy will be the last economy to emerge is that within it, communities will learn to make fluid what has previously been cataclysmic. Social invention and its resultant changes will become the norm rather than an exception, part of the normal pattern of progress rather than revolutionary. Forms of schools, government agencies, businesses and non-profits as yet unimagined will result from this Cambrian-like explosion of social innovation.
Evidence of this is already appearing. A growing number of successful entrepreneurs have taken the path of Bill Gates – applying their wealth and their expertise to creating sustainable solutions, engaging in acts of social invention rather than just donating money to problems. The resultant organizations don’t neatly fit into the category of any pre-existing organizations. They are non-governmental, not really charity in the classic sense, and are certainly not for-profit businesses. They defy simple categorization and in this sense may well be the model for future organizations, pioneers of entrepreneurship writ large.
The Intellectual Revolution
Systems thinking pioneer Russell Ackoff has pointed out that we have, in the West, created separate institutions for different dimensions of being human. We’ve created schools for learning, office spaces for working, and parks for playing. And yet, this fragmentation of the human experience doesn’t really facilitate the experience of being human. Children learn most rapidly when they are working at play, innovations in work often come from learning that follows from playing with ideas or things. These institutions we’ve created fragment our experience into artificial categories and make it hard for us to treat one another as humans or to feel fully human ourselves.
Seeing beyond the confines of our institutions into what new institutions we can create will require that we adopt something other than the reductionist perspective that underlies the philosophies of the first three economies. Since the time that Descartes advocated breaking apart – or reducing – problems into simpler parts, the West has largely been defined by a reductionist approach. Systems thinking offers a complement to this, a philosophy or world view that is beyond that of Renaissance, Enlightenment, or pragmatism.
Entrepreneurship gets its value from synthesis – bringing together the pieces into some whole. Labor gets its wage, capital its return, and resources its price. After all that is paid and combined into a new whole – some product or service – the entrepreneur gets profit. Entrepreneurs are systems thinkers who deal with systems.
The really important problems are emergent – they don’t neatly fit within the confines of one institution or domain. Solutions to problems like terrorism, pollution, climate change, and trade issues are provoking the creation of new institutions, acts of entrepreneurship that bring social invention outside of the traditional confines of nation-states or corporations. These emergent problems are systems problems and can’t be addressed from within the confines of traditional institutions.
Systems thinking – with its emphasis on interaction, interdependencies, and emergent phenomenon – will be to the fourth economy what the Enlightenment was to the second. By beginning to embrace the approaches and perspectives advocated by people like W. Edwards Deming, Russell Ackoff, and Peter Senge, we’ll begin to create this new economy, this new world. It is a way of thinking that will find its expression in new institutions – in acts of entrepreneurship.
9. The Rise of the Individual
During the first economy, the nation-state rose to eclipse the church as the community’s most powerful institution. In the fourth economy, the individual will at last arise to eclipse institutions.
To date, the individual has been measured against a variety of standards, expected to find his or her justification within the institution. The individual is expected to adhere to some standard in the church, judged as good Christian. The individual is expected to adhere to some standard in the country, judged as a good citizen. The individual is expected to adhere to some standard in the corporation, judged as a good employee. In an age when social invention becomes expected, these institutions will instead be judged against the needs of the individual. Does the church make the person feel more peace, more joy, more charitable? If not, perhaps it is the church and not the Christian that needs changing – a change that requires an act of entrepreneurship, or social invention. Does the state make the individual safer and more free? If not, perhaps it is the state that needs changing and not the citizen. Does the corporation allow the individual to choose only to do tasks that add value, to pursue her own potential, and to find and create opportunities that would not exist on her own? If not, perhaps it is the corporation that needs to change rather than the employee.
Social invention has been largely overlooked in the story of progress. It will, however, be central to the fourth economy, when entrepreneurship will be popularized and institutions will be expected to adapt to the reality of the individual’s experience. This will be the most exciting economy – the most exciting world – yet to emerge.
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