Excerpted from Otto Scharmer who reports on a conference held at the neoconservative American Enterprise Institute:

“During the first panel of the (AEI) event, Jonathan Haidt of NYU suggested that today’s capitalism has three different story lines:

(1) capitalism as heartless exploitation,

(2) capitalism as the greatest discovery of mankind, and

(3) a “more ethical capitalism” that relinks morals and markets, including a constructive role for religion and ethics.

Otto Scharmer

Haidt suggested that His Holiness believes in story 1 (“I am a Marxist,” the Dalai Lama occasionally likes to point out with a smile). Haidt said that his co-panelist Glenn Hubbard, Dean of the Columbia Business School, believes in story 2. Hubbard was previously the chief economic adviser to George W. Bush, oversaw the tax cuts, and became well known for his interview in Charles Ferguson’s Oscar-winning documentary film Inside Job (2010), in which the 2008 economic crisis is linked to the deregulation that Hubbard and many others (including Democrats) advocated for.

Jonathan Haidt then said that he sees the emergence of story 3. That story begins with capitalism as one of the “greatest human achievements” (see story 2), but unlike story 2 also focuses on the externalities that we are facing now.

Reflecting on Haidt’s point of view, which seemed to resonate with many in the room, I would like to point out two issues that time constraints prevented me from raising during the panel discussion on Thursday.

First, the framing of the three stories misses a story that matters even more: a story of profound institutional transformation–story number 4. And second: the framing of the three stories lacks a structural analysis that gets at the deeper core of our institutional transformation challenges today. Just bringing in religion, morality, and some other good wishes will not do the trick.

So here is another view that frames our current situation in the context of four logics and paradigms of economic thought. They all respond to the basic coordination problem of our modern economies, but in a different way.

1.0: Organizing around centralized power: state and central planning ? giving rise to socialist and mercantilist economies (single sector)

2.0: Organizing around decentralized power: markets and competition ? giving rise to entrepreneurs and the private sector (two sectors: public, private)

3.0: Organizing around special interest groups: negotiation and dialogue ? giving rise to the NGO sector (three sectors, conflicting: public, private, civic)

4.0: Organizing around shared awareness and cultivating our commons ? giving rise to co-creative relationships among the three sectors (government, business, civil society) in order to innovate at the scale of the whole system.

These four logics mirror four different stages of economic development. Each earlier stage is included in the later ones. As economies move from 1.0 to 2.0, 3.0, and now possibly to 4.0, the consciousness of the human economic actors also evolves from traditional (1.0), to ego-system awareness (2.0), to stakeholder awareness (3.0), and to an eco-system awareness (4.0) that we see beginning today.

The problem of our current economic debate is that we are trying to solve 21st -century problems with 19th- and 20th- century economic thought. That is: our discourse is stuck between “more markets and free enterprise” (2.0) and “more regulation and government” (3.0). In reality, neither of these approaches will suffice. Trying to solve 21st-century problems with 19th- and 20th-century economic thought is like driving a car at high speed while only looking into the rear mirror. That is what the economic debate looked like while it drove us into the crisis of 2008. As Einstein famously reminded us, we cannot solve our problems with the same thinking that created them.

The present economic discourse does have three major views: 1.0–the authoritarian solution (à la Putin); 2.0–the free-market capitalism solution (the neo-liberal view); and 3.0, the stakeholder capitalism solution, which basically advocates “more of the same” in terms of the 20th century welfare state (the progressive view). But the problem with these three views–and the problem with Haidt’s three stories–is this: they all look backward, they all drive into the future while using frameworks of the past. What we need is a 4.0 framework and narrative that is based on transforming the patterns of economic action and thought from ego-system to eco-system awareness, in order to innovate at the scale of the whole (as I have laid out here).

A panel moderated by Arthur Zajonc, president of the Mind and Life Institute, started off with remarks by Richard Davidson, one of the leading neuroscientists of our time.

Davidson talked about the neuroplasticity of the brain, a concept that has replaced the older static view of the brain. Neuroplasticity is based on the discovery that the structure (anatomy) and function (physiology) of the brain are much more malleable by our behavior and the environment than previously thought. For example, recent advances in epigenetics suggest that our behavior can alter the expression of the genes. According to a recent study, even a single day of mindfulness practices can change the epigenetics of your brain. What follows from this is that well-being and its key drivers, such as generosity and conscientiousness, can be learned. Says Davidson, “There is absolutely no doubt that these factors can be learned.”

Listening to Richie Davidson’s intriguing presentation, I thought: Boy, the plasticity of the human brain is an unbelievable leverage point that points us to our ultimate leverage points as human beings: paying attention to our attention. It calls for a new type of leadership work that focuses on the cultivation of our inner instruments of knowing. But what would it mean to cultivate the neuroplasticity of the collective brain at the level of a whole system? That would seem to require a new type of leadership work that we all need to learn to engage in.

I followed that train of thought by structuring my own remarks around four major points.

One, that there are two sources of learning: learning from reflecting on the past, and learning from sensing and actualizing emerging future possibilities.

Two, that in order to activate the future-based learning cycle, leaders and change-makers have to go through a three-stage process:

• Observe, observe, observe: Go the places of most places of most potential and listen with your mind and heart wide open.

• Retreat and reflect: Allow the inner knowing to emerge. Share, reflect, and go to an inner place of stillness to connect with your deeper sources of knowing. Contemplate Who is my Self? What is my Work?

• Act in an instant: Explore the future by doing. Co-create rapid-cycle prototypes that generate feedback from stakeholders, which then helps to further evolve your idea.

Three, that in order to activate that deeper cycle of innovation and future-inspired learning, leaders have to engage in a new leadership work that focuses on cultivating three deeper capacities of knowing:

• The open mind–the capacity to suspend old habits of judgment by paying attention to our attention (mindfulness);

• The open heart–the capacity to empathize, to experience a problem from the viewpoint of another stakeholder, not your own view (compassion);

• And open will–the capacity to awaken and activate the deeper creative, entrepreneurial core that is dormant in each and every human being.”