Social Invention & The Fourth Economy

1. Social Invention & Progress

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.

Soft Technology Invention

Most attempts by business to understand the future rather seem to miss the point. They come across as technology plays, predictions about which breakthroughs are likely to come to fruition and how they'll parlay these into products. This is fine if you are head of a research lab, but has less obvious application if you are tasked with other management positions. If your job is to head up a business or function, you're likely looking - if indeed you are looking at all - at the wrong kind of technology.

Some should focus on the evolution and change in hard technology - changes in cars, computers, drugs, and telephones. Most managers should be focused instead on soft technology - changes in culture, behavior, roles, beliefs, and organization. It's true that in practice these two, the hard and soft technologies, play together. It's also true that any one individual is likely to focus on one dimension. Thanks to roughly a century in the evolution of the formal role of scientists and engineers, we have clearly defined the tasks associated with the development of hard technology. By contrast, roles for developing soft technology are less clearly defined. Indeed, what plays catalyst for the shift in public opinion or new practice often seems unpredictable and random. Of course, so is the development of hard technology, but that doesn't stop societies from investing hundreds of billions into its development.

Most management types should be looking at the future of organizations, work, and society. It is not that they should remain willfully ignorant of the hard technology, but often there is little that a CEO or VP of, say, Human Relations can do about furthering the next generation of web development software. They can help to develop the organization.

There is so much that can be written about this, but I will for now limit myself to this. There are a variety of questions that anyone in management - from small business owner to CEO - can ask, questions that intelligent and imaginative people scattered throughout the organization can answer more creatively than me. Managers should be regularly asking these questions.

1. How do we more fully engage our people in work? What work place designs, chunking of tasks, and communication protocols should we use to encourage focus?

2. How do we clarify consequences? What can we do to more clearly link the work of the individual to the value created by the organization?

3. How do we more clearly tie together individual effort, longer term consequences, and organizational performance? Are there lessons we can draw from market economies?

4. Are we prepared for the devolution of power and decision making as accords with self-adapting complexity and market dynamics that might follow from designing a system that allows individual initiative in place of central controls? What are the consequences of creating such a system? How would we make this operational? What are the practical obstacles to moving in this direction today?

5. Are our people motivated by a vision of their future? Do they see this organization as a place of possibility or are they even interested in realizing their own potential? Why or why not? What would we have to change about our organization to allow a critical mass of our employees to realize their potential?

6. Who in the organization is tasked with coaching our people towards the realization of their potential? What is the lost revenue resulting from our lack of interest in this?

I would argue that seriously pursuing questions such as this could be the catalyst for developing new organizations, for creating the next generation soft technology. If your business is hard technology, you are likely focusing an enormous amount of energy on creating the next generation of your products. If you expect to remain competitive as a senior executive, you should be just as focused on creating the next generation of soft technology.

The Swinging Pendulum of Social Evolution

The Rothschild brothers didn’t seem like elites when they began their career. Mayer Rothschild began his life living in a Frankfurt ghetto, forced to leave the sidewalk when even a young child ordered him to “Step aside, Jew!” He had the vision to send four of his five sons to the most important cities in Europe.

Mayer's son Nathan Rothschild was in London when the English began their war against Napoleon. This war was incredibly expensive. Coordinating efforts with his brothers, Nathan was able to raise huge sums of money for the British by selling war bonds throughout Europe – primarily through his brothers in Frankfurt, Paris, Vienna, and Naples. Nathan not only raised money for the British – he made the Rothschild brothers rich and famous. By the time of his death in 1836, he might have had more liquid wealth than anyone in the world. Because they helped to invent modern financial markets, the Rothschild brothers rose from the German ghetto to become elites with power enough to dictate terms to kings.

The Rothschild brothers and others like JP Morgan helped to pioneer modern financial markets and then, in the next century, philosophers like Keynes, policy-makers like FDR, and business visionaries like Charlie Merrill and Dee Hock “democratized” financial markets, creating access to credit and investment markets for the people. Alan Greenspan or Ben Bernanke is supposed to manage interest rates and reserve rates so as to do what is best for the general economy and the average person – not just a few powerful bankers. Access to financial markets is now considered a right.

Martin Luther, John Calvin, Huldrych Zwingli, and John Knox were among the revolutionaries who wrested control of the church away from the elites and helped to put it into the hands of the people.

Later, Louis XIV and Henry VIII help to pioneer the nation-state and then, centuries later, revolutionaries like Jefferson and Franklin wrested control away from the elites and into the hands of the people.

The swings between power held by the elites and the people seem to me inevitable. The elites pioneer and prosper. They are the social inventors who create the great institutions like church, state, and corporation. But once those inventions have become an integral part of the social fabric, along come revolutionaries who turn control of these inventions over from the elites to the people.

Next up for Western Civilization? Wresting control away from the CEOs, the last of the monarchs, and putting power into the hands of the investors, employees, and communities whose fate is so inexorably tied up in the actions of the corporation.

Am I a populist or an elitist? A Republican who wants the people’s interest represented by a trusted group of elites or a Democrat who wants the people to directly represent their own interests? At this point in history, I’m a populist, a Democrat ready to see the power of the powerful corporation dispersed.

A Clear Definition of Progress

Progress is a muddled concept. The current concept of progress suggests that if a community increases its GDP by 5% while eroding its habitat, it's making progress. The current concept suggests that if people feel compelled to stay indoors at night and spend more money on home security systems and Chinese take-out because of high crime rate, thereby driving an increase in GDP, it's progress.

I'd like to suggest a measure of progress that is conceptually more clear than growth in GDP, even if is harder to measure.

Progress means more autonomy for the individual. A person with shoes has more options about where to go than a person in bare feet. A person with a car has more options than a person with shoes. And a person with access to a great transportation system that costs hundreds per year has more options than a person stuck in traffic paying thousands per year for gas, payments, and insurance. A person with the option to enjoy a local forest on the weekend or even on a lunch hour (I used to love jogging the fire trails through the redwood trees between classes at UC Santa Cruz) has more autonomy than a person who lives in a concrete jungle miles and miles from any bit of wilderness. Progress = more options for the individual.

When the West wrested freedom of religion away from the medieval church, the individual had more autonomy - more choice about how and whether to worship. This was progress.

When the West wrested political control away from monarchs, the individual had more autonomy - more influence over the policies that defined the community.

When access to credit and investment markets was popularized, when the average person had access to retirement accounts through a combination of retail innovations and social security, the individual had more autonomy - more control over the financial irregularities that could be so devastating to an individual or household.

There are at least two dimensions to this progress: the initial surge of progress (monarchs lose power to merchants) and the gradual, continued dispersion of that progress (minorities gradually win the right to vote - minorities as varied as blacks, women, and conscripted 18 year-olds).

Such a measure of progress takes into consideration technology. Cars, computers, and even iPods give a person more autonomy. But this measure of progress also takes into consideration social inventions - credit cards, civil rights, and the joint-stock corporation.

By this metric, policies can be evaluated. Does the new legislation provide more autonomy? To whom? At what expense?

Predicting a Massive Wave of Social Obsolescence and Innovation

If I were to tell you that within 50 years, your car, your stereo, and your computer will all be obsolete, you would likely yawn. You expect such technology to radically change. Your reaction to my next prediction might be less obvious. Within 50 years, your schools, your corporation, and your government will all be obsolete. The social technology will radically change.

I can safely predict a few things. One is that the rate of technological change will continue to accelerate. A big factor in the rate of innovation is information. Access to, and quantity of, information are both growing rapidly. The result? Accelerating levels of innovation that change technology.

The impact of technology is never benign. Life expectancy will go up, which seems wonderful. But if this happens while birth rates are dropping, the ratio of working population to retired population is likely to drop precipitously. Technology is disruptive.

Technology changes impact social institutions. The Gutenberg Press made it possible for households to afford a copy of the Bible. (During medieval times, one man sold his house to buy a Bible.) This is fascinating technology but its real impact was social – one could argue that the distribution of Bibles triggered the distribution of power and helped to fuel the Protestant Revolution. This is a clear case of technological innovation triggering social innovation. It is by no means the only such case.

Technological inventions will radically change in the next fifty years. The change of social inventions will be even more remarkable. Corporations, government, and schools will perhaps be changed the most.
Will the corporation as it is now is managed be able to keep pace with technology and market changes? Is the way that employees are now managed likely to increase productivity enough to offset the precipitous drop in the ratio of working population to retired population?

Will the nation-state as it is now governed be able to achieve important like sustaining peace and reducing green house gases? It is hard to imagine that as more countries compete economically with India and China that they’ll make more progress in reducing greenhouse gases. It is hard to imagine that as more countries gain the technology of nuclear weaponry that they will all use it as a war prophylactic rather than an actual weapon.

Do we think that our current education system - geared as it is towards realizing the potential of maybe 5% of the population - is going to survive in a world where careers are being redefined as quickly as products are today?

The rate of technological change will continue, but it will seem almost incidental to a larger work. By 2050, the world's social institutions will have been radically reconfigured and with it the very way we think about society and self. We will look back on the half century leading up to this time as a period of the most significant disruption of social systems ever seen.

We’re going to see a transformation of our very notions of institution, organization, and roles. It will seem as though the time leading up to the 21st century was an ice age, a time when social roles and institutions were basically frozen. And by 2050, what was once frozen will be in flow.

4 Revolutions and the Rise of the Individual Over the Institution

A pattern of revolutions has brought us out of the Dark Ages and into the modern world. This pattern has been repeated three times. During your lifetime, it will repeat for a fourth time. This will be the next great revolution.

If I were to ask you to name some technological inventions that helped us to become modern, you could probably name quite a few – things like the printing press, the steam engine, the automobile and the computer. But if I were to ask you what social inventions helped us to become modern, you might pause. We are less inclined to think of things like schools and universities, banks and corporations as inventions and yet they are. Our social institutions and customs are at least as different from what they had in medieval times as is our technology.

When a technology inventor comes up with a radically new product, they call it an innovation. When a social inventor like Martin Luther or Thomas Jefferson comes up with a radically new institution, they call it revolution. Such revolutions have created our modern world. A fourth is about to transform it once again.

The First Revolution - the Church
In 1300, you could be burned at the stake for a number of offenses. If your neighbor's donkey had died or crop had failed, he might bring an accusation against you for being a witch. If you spoke out against the church, questioning its doctrine. Or if you simply owned a copy of the Bible in your own language. All of these, and more, were capital offenses.

In the early 1500s, Martin Luther became the most visible agitator for a change to the church. He didn’t like the idea of church authorities substituting for his conscience or interpretation of the Bible. He may have articulated the first revolution when he said, “We are all priests.”

It took quite some time, and a tragic amount of bloodshed, but the individual in the West finally gained the freedom to choose how – or even whether – to worship. The power that once was held by the church – by the elites within the church – was now held by the individual. This church revolution was the first great transformation of the West. To appreciate how different this made us, consider the fact that in many Muslim countries today it is a capital offense to renounce one’s Muslim faith. Think about how different life is here in the West for this reason alone.

The Second Revolution - the State
The second great transformation involved the revolution of the state. We learn about this great and amazing story in our American history classes. Jefferson penned the words, “All men are created equal.” Again, the revolution was not immediate. After we won our independence from the British, for example, only white, landowning men could vote. But the idea of power to define policy – to define the laws and budgets that so influence our quality of life – the idea that this should be power ultimately held by the people is an idea that has spread. In just the last century, the number of democracies has increased from about 13 to 67.

It is not, ultimately, the aristocrats who decide on the politicians and policy that defines our society. Rather, it is the polity. As with the Protestant Revolution, Democratic Revolution dispersed power outwards from elites to the common person.

The Third Revolution - the Bank
The third great transformation involved a revolution of the bank – a transformation of capitalism.

Before this, the third transformation, it was common for a 9 year-old child to work 12 hour days in factories and for young women to not only work 12 hour days but to be, effectively, prisoners on a factory compound, able to leave only on Sunday’s. The power over lives that had earlier been held by popes and kings was now wielded by robber barons. Money and credit was scarce – to get a loan you would be subject to great scrutiny and bankers would decide whether or not the purchase you wanted was appropriate.

By 2000, capitalism had transformed in so many ways. As with the church and state before it, the power of the bank had been dispersed outwards to common people. The great management guru Peter Drucker was one of the few to note that by the end of the 20th century it was labor - people like us – who through their 401(k) plans and pension plans now owned the majority of the country’s equity.

The battle between capital and labor that played out through the actions of robber barons, unions, and in more dramatic relief through the policies of communists and fascists, was over. The battle had not been won. It had been dissolved. Labor had become the capitalist. Not only did workers have rights, but the average person with a credit card could now decide for himself whether or not to take a loan. Bankers did not decide whether you should buy the new refrigerator. You made that decision. Freedom of religion and the right to vote were followed by access to credit upon our choosing – not the banks. What would the banker of 1900 think about our literally tearing up requests for us to TAKE OUT loans? What would he think about us throwing away advertisements that guaranteed us credit?

Three revolutions have brought us into the modern world. But the church, state, and bank are no longer the dominant institution. In today's world, it is the corporation that has that role. My prediction is that the elites within corporations are going to find their power dispersed out, just as happened to the elites in the church, state, and bank before them. The CEO now making hundreds of times what the average worker makes is following in the footsteps of the Renaissance popes, the Enlightenment-era monarchs, and the powerful capitalist whose world was depicted in Dickens’s novels.

You live in a remarkable time. For one thing, all three past revolutions played out over a century or more. This next revolution will take place within decades. I will go into more detail in later posts, but the fourth revolution has already begun. For now, I will simply say that the Internet has dispersed information outwards to average employees. Increasingly, power, decision-making, and autonomy will be dispersed with it.

We know that a country is poorly developed if its head ruler makes more money than anyone else within the country. When the top salary goes to the top political leader, we rightly suspect a dictatorship or political abuse. it is different in developed nations. Within the U.S., for instance, President Bush’s’ $400,000 annual salary might put him among the top 1 million for income. People in the United States are free to make as much as they can, and many make more than our political leader. By contrast, it is the rare company where any employee makes more than the CEO. Imagine how incensed CEOs would be if the government was to define their annual goals and their maximum salaries – and yet that is just what these CEOs typically do to their employees.

This will change. Power will be dispersed outwards to employees from the corporate elites. Senior management will increasingly play a role that looks more like that of a venture capitalist, and employees will take on a role more like that of entrepreneurs, effectively using the corporation as an incubator for starting new ventures that translate into shared equity. As with the past revolutions, this transformation of the dominant institution will involve sweeping changes and myriad smaller social inventions. And like the past revolutions, it will be defined by the rise of the individual over the institution - an increase in individual autonomy that has repeatedly defined the West.

Martin Luther said, “We are all priests.” Perhaps the cry of this century will be, “We are all entrepreneurs.”

The Corporation is Today's Dominant Institution

Fortunately, you can't see air. If you could, it is unlikely that you could see anything else. In a similar way, when a particular institution dominates a community, it is nearly invisible.

In medieval times, that institution was the church; today, the dominant institution is the corporation. Its influence is so pervasive that we can’t even see it.

Think about the typical day of the average person. The alarm goes off at 6:30. The programming is courtesy of a corporation - the Corporation for Public Broadcasting. The very thoughts that first enter her head aren’t daily prayers sanctioned by her church but are, instead, news items and commentary approved by employees of a corporation. The radio that conveys this programming is made by the Sony Corporation and was bought from a retail outlet the Best Buy Corporation. This person lifts herself off the bed, a bed made by the Select Comfort Corporation. The alarm goes off at 6:30 because the time it takes to commute in her car (made and sold by the Nissan Corporation) plus the time it takes to get ready (using products like toothpaste, shaving gel, hair gel, and deodorant provided by the Proctor & Gamble Corporation) equals the time that the corporate employer expects her to begin working. She has scarcely gained consciousness and already her day is defined by corporate norms, products, and expectations.

Even the context for the use of the products listed in the above paragraph is a product of corporations. The very notion of “body odor” is a product of corporate advertisers trying to create demand for deodorant early in the 20th century. The idea of time zones was not an idea of governments but of railroads that needed uniform time zones in order to create schedules. It is one thing to notice that we’re bombarded by about 3,000 advertisements a day. It is another to notice that the very expectation of wearing deodorant or chewing mints is created by corporations, much less the expectation that we’ll all synchronize our watches and alarm clocks.

Our clothes and transportation are defined by corporations. Our working hours and the number of years that we need to work are also defined by corporations. More than 90% of Americans are employees and their role as employees is either defined by a corporation or an institution that patterns itself after the corporation. The level of pollution that we accept is defined by the needs of the corporation. Only when health needs of people and the planet are being too obviously ignored is that negotiated or changed. The extent to which children are allowed to be with their parents during the work day is defined by the corporation. Even our diet is defined by corporations and if the health consequences of this are harmful, then corporations are ready to offer prescription drugs that remedy the complications from the diet.

One of the real obstacles to transforming the medieval church was getting enough intellectual distance from it to see it, rather than simply see through the lens it provided. Our situation is little different today. Just take note of how pervasive is the corporation in defining your daily life. Once you do, you can begin to explore ways to define it rather than accept it defining you, taking to heart the warning that Emerson gave: "We have become the tools of our tools."

Why does this matter? It was impossible to change life, to make progress, coming out of medieval times without changing the church - and changing it fundamentally. Today, fundamental progress depends on changing the corporation, today's dominant institution.

Welcome to the Next Transformation

In about 1300, the West began its first great transformation. When it was complete by 1700, the church had been eclipsed as the dominant institution by the nation-state – kings had more power than popes and it was the individual who chose his or her religion. Starting with this great transformation, the West has gone through three great transformations. You are living through the very beginning of the fourth.

In succession, the past transformations have given the individual freedom of religion, the right to vote, and access to credit. In the process, the church, state, and bank have been transformed. And the West has overcome the limits of land, capital, and knowledge workers as well through a succession of economic revolutions we’ve come to know as the Commercial Revolution, Capitalism, and the Information Age.

The next great transformation, the fourth in the series, will transform the modern corporation as the past repetitions have transformed the church, state, and bank. It will result in the individual having unprecedented levels of control over how he works and on what he works. In the process, the West will overcome what has replaced land, capital, and knowledge workers as the new limit to progress, it will overcome the limit of entrepreneurship by turning a growing number of employees into entrepreneurs, changing our notion of a corporation and its employees.

Key to all of this is this notion. We are well aware that progress depends on technological inventions like the wheel, the compass, the steam engine, the car, and computer. We seem less aware of the fact that progress depends, too, on social inventions like the bank, accounting, legal contracts, schools, universities, nation-states, and the modern corporation.

The next great transformation will disrupt everything. It is hard to image a world in which a group who might have been expected to take a role as factory workers in the 19th century or as knowledge workers in the 20th century will, instead, take on the role of entrepreneurs. Imagine having even 10% of the population busily creating and recreating the organizations through which we conduct business, education, and governance.

This blog will tell the story of next great transformation, will predict the next 50 years using a pattern that began 700 years ago. Pull up a chair around my kitchen table and settle in. This is going to be a fascinating series of events to narrate.

Welcome to the next transformation.