An Excerpt From

Leading From the Emerging Future
From Ego-System to Eco-System Economies
by Otto Scharmer & Katrin Kaufer
Published by Berrett-Koehler Publishers

Leadingfrom theEmerging
FutureFrom Ego-System
to Eco-System Economies

This page intentionally left blankOtto Scharmer and Katrin Kaufer

Leadingfrom theEmerging
FutureFrom Ego-System
to Eco-System Economies

Leading from the Emerging Future
Copyright © 2013 by Otto Scharmer and Katrin Kaeufer
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2013-1
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Contents

Introduction: Breathing Life into a Dying System

1

1 On the Surface: Symptoms of Death and Rebirth27

2 Structure: Systemic Disconnects

44

3 Transforming Thought: The Matrix of Economic

Evolution

67

4 Source: Connecting to Intention and Awareness141

5 Leading the Personal Inversion: From Me to We

152

6 Leading the Relational Inversion: From Ego to Eco

174

7 Leading the Institutional Inversion: Toward Eco‑System

Economies
8 Leading from the Emerging Future: Now

191
239

Acknowledgments

255

Notes

259

Index

275

About the Authors

288

About the Presencing Institute290

This page intentionally left blankIntroduction

Breathing Life into a Dying System

Finance. Food. Fuel. Water shortage. Resource scarcity. Climate chaos.
Mass poverty. Mass migration. Fundamentalism. Terrorism. Financial
oligarchies. We have entered an Age of Disruption. Yet the possibilityof profound personal, societal, and global renewal has never been more
real. Now is our time.
Our moment of disruption deals with death and rebirth. What’s
dying is an old civilization and a mindset of maximum “me”—​maximum material consumption, bigger is better, and special-interestgroup-driven decision-making that has led us into a state of organizedirresponsiblity, collectively creating results that nobody wants.
What’s being born is less clear but in no way less significant. It’s
something that we can feel in many places across Planet Earth. This
future is not just about firefighting and tinkering with the surface ofstructural change. It’s not just about replacing one mindset that no longer serves us with another. It’s a future that requires us to tap into a
deeper level of our humanity, of who we really are and who we want tobe as a society. It is a future that we can sense, feel, and actualize byshifting the inner place from which we operate. It is a future that in thosemoments of disruption begins to presence itself through us.
This inner shift, from fighting the old to sensing and presencing
an emerging future possibility, is at the core of all deep leadership work
today. It’s a shift that requires us to expand our thinking from the head1

2

Leading from the Emerging Future

to the heart. It is a shift from an ego-system awareness that cares about
the well-being of oneself to an eco-system awareness that cares about thewell-being of all, including oneself. When operating with ego-systemawareness, we are driven by the concerns and intentions of our smallego self. When operating with eco-system awareness, we are driven by
the concerns and intentions of our emerging or essential self—​t hat is,by a concern that is informed by the well-being of the whole. The prefix eco- goes back to the Greek oikos and concerns the “whole house.”
The word economy can be traced back to this same root. Transforming
our current ego-system economy into an emerging eco-system economy
means reconnecting economic thinking with its real root, which is thewell-being of the whole house rather than money-making or the wellbeing of just a few of its inhabitants. But while the whole house was for
the Greeks something very local, today it also concerns the well-being ofour global communities and planetary eco-systems.
This shift in awareness from ego-system to eco-system is somethingthat we are approaching and living through not only as groups and organizations, but also as a global community. Pioneering the principles andpersonal practices that help us to perform this shift may well be one of
the most important undertakings of our time.

Crumbling Walls
Numerous books have been written about today’s global crises. Why add
another one? We hope to contribute some frameworks, methods, andtools that can help leaders and change-makers understand what is goingon and be more effective in helping communities shift from ego-system
to eco-system economies.
The world has changed. Walls are crumbling. Tyrants are toppling.
The polar caps and glaciers are melting. We have been watching thesedevelopments for years. But the two things that appear to be deeply frozen and unchanged are our collective habits of thought and the actions thatthey produce and reproduce in our world.
Why is that? Why do we collectively create results that nobody wants?
What keeps us locked into old tracks of operating? And what can we doto transform these patterns that keep us firmly in the grip of the past?

Breathing Life into a Dying System

3

The Blind Spot: How to Leadfrom the Emerging Future
We have written this book for change-makers in all sectors, cultures,and systems, including business, government, civil society, media, academia, and local communities. The book addresses what we believe to
be a blind spot in global discourse today: how to respond to the current
waves of disruptive change from a deep place that connects us to theemerging future rather than by reacting against the patterns of the past,
which usually means perpetuating them.
In this book, we argue that responding from the emerging future
requires us to shift the inner place from which we operate. It requires
us to suspend our judgments, redirect our attention, let go of the past, lean
into the future that wants to emerge through us, and let it come.
The ability to shift from reacting against the past to leaning into andpresencing an emerging future is probably the single most importantleadership capacity today. It is a capacity that is critical in situations of
disruptive change, not only for institutions and systems, but also forteams and individuals. In the old days, we used to learn one profession and practice it throughout our working lives. Today we face rapidlychanging environments that increasingly require us to reinvent ourselves. The more dramatic the changes in our environment, the less we
can rely on past patterns, and the more we need to learn to pay attention
and tune in to emerging future opportunities.
This book is a quest to answer three interrelated questions:
1. In the face of disruption, how do we lead from the emerging future?
2. What evolutionary economic framework can guide our journeyforward?
3. What strategies can help us to function as vehicles for shifting thewhole?
Let’s start by taking a quick tour through what we call the iceberg
model of the current system. Why an iceberg? Because the name implies
that, beneath the visible level of events and crises, there are underlying
structures, mental models, and sources that are responsible for creating

4

Leading from the Emerging Future

them. If ignored, they will keep us locked into reenacting the same oldpatterns time and again.
Progressing through the levels of the iceberg, from surface to depth,
will illuminate several blind spots that, if attended to, can help us rebuild
our economy and society to be more intentional, inclusive, and inspired.

Symptoms: Landscape of Pathologies
Like the tip of an iceberg—​t he 10 percent that is visible above the waterline—​the symptoms of our current situation are the visible and explicit
parts of our current reality. This symptoms level is a whole landscape ofissues and pathologies that constitute three “divides”: what we call theecological divide, the social divide, and the spiritual-cultural divide.
The Ecological Divide

We are depleting and degrading our natural resources on a massive scale,using up more nonrenewable precious resources every year. Although
we have only one Planet Earth, we leave an ecological footprint of 1.5
planets; that is, we are currently using 50 percent more resources thanour planet can regenerate to meet our current consumption needs. As
a consequence, one-third of our agricultural land has disappeared overthe past forty years. Rapidly falling water tables are taking us on a path
toward food riots. Food prices are expected to double by 2030.
The Social Divide

Two and a half billion people on our planet subsist on less than US$2 perday. Although there have been many successful attempts to lift people
out of poverty, this number has not changed much over the past several decades. In addition, we see an increasing polarization in society inwhich, in the case of the United States, the top 1 percent has a greatercollective worth than the entire bottom 90 percent.1
The Spiritual-Cultural Divide

While the ecological divide is based on a disconnect between self andnature, and the social divide on a disconnect between self and other, thespiritual-cultural divide reflects a disconnect between self and Self—​

Breathing Life into a Dying System

5that is, between one’s current “self” and the emerging future “Self” that
represents one’s greatest potential. This divide is manifest in rapidly
growing figures on burnout and depression, which represent the growing gap between our actions and who we really are. According to theWorld Health Organization (WHO), in 2000 more than twice as many
people died from suicide as died in wars.2
What, if anything, have we as a society learned from addressing theseissues over the past hundred years?
In the twentieth century we created ministries and UN agencies todeal with each of these divides. In addition, we created dedicated nongovernmental organizations (NGOs) to address single issues; in academia we created dedicated university departments, scholarly journals,
and professional career paths to combat each symptom. Today we realize that this silo-type approach—​dealing with one symptom cluster at atime—​isn’t working. On the contrary, it seems to be part of the problem.
We seem to have a blind spot that prevents us from seeing the rest of
the iceberg, the deep systemic structures below the waterline.

Structures: Systemic Disconnects That
Give Rise to Symptoms
Today’s system does exactly what it is designed to do. But it is a systemthat features a number of significant structural disconnects. Here aresome of them:
1. A disconnect between the financial and the real economy. The total valueof foreign exchange transactions worldwide amounted to US$1.5
quadrillion (1 quadrillion is 1,000 trillion) in 2010, whereas the total
value of international trade was only US$20 trillion, or less than
1.4 percent of all foreign exchange transactions. Says Lawrence Lau,professor of economic development, emeritus, Stanford University,and chairman, CIC International (Hong Kong): “The overwhelming
majority of foreign exchange transactions are thus purely speculative,in effect, pure gambles, and serve no useful social purposes.”3 This
disconnect between the financial and the real economy produces the6Leading from the Emerging Futurefinancial bubbles that keep plaguing the global economy: the Latin
American debt crisis (1980s); the Asian financial crisis (1997); thedot-com bubble (2000); and the US housing crisis (2006–​07), which
was followed by the world financial crisis (2007–​09) and the euro
crisis (2010–​). Such financial bubbles destabilize the real economy
instead of serving it.
2. A disconnect between the infinite growth imperative and the finite
resources of Planet Earth. The disconnect between the infinite growththat current economic logic demands and the finite resources ofPlanet Earth has produced a massive bubble: The overuse of scarce
resources such as water and soil has led to the loss of a third of ouragricultural land globally in roughly one generation’s time.
3. A disconnect between the Haves and the Have Nots. This disconnect hasgiven rise to an extreme inequity bubble in which the richest 1 percent of people in the world (adults with incomes over US$ 500,000)
own 40 percent of the world’s wealth while half of the world’s population (50 percent) own just 1 percent of the world’s household wealth.4
The increasing polarization of wealth and income undermines equal
access to opportunity and thus erodes basic human rights in society
today.
4. A disconnect between institutional leadership and people. This disconnect results in a leadership void that shows up in the widely sharedsense that we are collectively creating results that nobody wants.
This collective condition of felt helplessness and disempowerment
is a hallmark of our systemwide leadership void (or bubble) today.
5. A disconnect between gross domestic product (GDP) and well-being.
This disconnect shows up as a bubble of material consumption that
does not advance actual well-being. Research on developed countries
shows that, contrary to popular belief, higher GDP and higher material consumption do not translate into more well-being, as we will
discuss in more detail below.
6. A disconnect between governance and the voiceless in our systems.
The disconnect between current governance mechanisms and thevoices of the underserved is a governance failure in which people areaffected by regimes that they are completely unable to influence orBreathing Life into a Dying System

Ecological
DivideSocialDivide7

Spritual–
Cultural Divide

Infinitegrowth
bubbleIncomebubbleFinancialbubbleTechnology
bubbleLeadershipbubbleConsumerism
bubbleGovernancebubbleOwnership
bubbleFiniteresources

Human
rightsRealeconomy

Real
needs

Collective
paralysisGDP ≠happiness

VoicelessBest
societal use

Figure 1. The iceberg model: a surface of symptoms and structural disconnects(bubbles) below it.

change. For example, many farmers in India have lost ownership of
their seeds to Monsanto.
7. A disconnect between actual ownership forms and best societal use ofproperty. The disconnect between actual ownership and best societal benefit results in a bubble in which state and private property,
despite their merits, allow the overuse and mismanagement of theecological and social commons in epic proportion.
8. A disconnect between technology and real societal needs. This disconnect generates technology bubbles that serve the well-being of a few
in already overserved markets. For example, most R&D spendingby the pharmaceutical industry caters to markets at the top whilelargely ignoring the needs at the base of the socioeconomic pyramid.
These bubbles and structural disconnects produce systems that aredesigned to not learn. The systems operate through delayed or broken
feedback loops that prevent decision-makers from experiencing and personally feeling the impact of their decisions. In our current complex

8

Leading from the Emerging Future

global systems, decision-makers often affect large groups of people with
their actions but never see, feel, or become aware of their actions’ consequences. Without feedback, or with delayed feedback, there is no learning. As a result, institutions tend to change too little and too late.5
Positive Externalities Flow to the Top,
Negative Externalities to the Poor

A second feature that the bubbles share concerns externalities. Externality is a term that is used in economics to designate unintended side
effects on third parties or costs that are not accounted for in prices.
Externalities can be positive (benefits) or negative (costs). For example,
I may enjoy driving my car, but, unlike the cyclist behind me, I rarely
notice the negative externality—​air pollution—​t hat I cause.
In today’s society, positive externalities tend to flow to the top, while
negative externalities tend to flow to the bottom of the socioeconomic
pyramid. We see this both in organizations and in societies. Globally, for
centuries, raw materials have flowed from the global South to the global
North, from developing to developed countries, while toxic waste andtoxic products have flowed the other way. All these flows are rationalized by economic theories such as comparative cost advantage. But these
theories don’t include the impact of externalities.
Whenever ecological issues and environmental disasters strike, thepoor pay the highest price (e.g., after Hurricane Katrina in the UnitedStates and after the tsunamis of 2004 and 2011 in Indonesia and Japan).
When food prices begin to soar as result of manmade environmental
problems, the 2.5 billion people who live below the poverty line suffer
the most.
In the United States, the 2008 economic meltdown brought the mostsuffering to low- and middle-income families. Today we know that toxic
home mortgages were specifically targeted to the poor by the financial
industry. While Wall Street profits have rebounded, the less-privileged
have continued to lose: First they lost jobs; then they lost funding forteachers, school activities and meals, and libraries; then they lost heating assistance and medical services.
Yet those whose collective behavior created the crisis, the Wall Street

Breathing Life into a Dying System9bankers, are by and large back to enjoying their bonus packages. In fact,
their leverage for extracting even more government subsidies in the
future increased after 2008. In 1995, the six largest bank holding companies in the United States held combined assets valued at less than
17.1 percent of US GDP.6 Thirteen years later, on the eve of the financial
crisis in 2008, these organizations’ assets were 55 percent of GDP. By
2010, it had only gotten worse, with their combined assets reaching 64
percent of GDP. That is, the ability of the six largest Wall Street banks
to take excessive risk in order to privatize profits and socialize losses by
forcing a taxpayer-funded bailout has gone up, not down.7
Money Flows the Wrong Way

A third feature concerns the flow of money. In order to achieve economies
of scale and minimize lending risks, banks and financial institutionsorganize around financing large projects for well-known clients with
sufficient security who use existing business models and known technologies in familiar markets.
Smaller projects that involve new entrepreneurs without trackrecords or security require banks to make individualized loan decisions,which are riskier and more expensive. Decisions on whether to fundinnovations in renewable energy, for example, require expertise thattraditional loan officers usually do not have. As a result, entrepreneurs
and companies that are small or new, or that are venturing into new sectors or sectors with traditionally small returns, have the most restricted
access to capital and pay a higher price.
Thus, in an externality-unaware financial system like the one wehave today, money flows the wrong way: Those who are innovative, step
into new ideas, or even work intentionally with lower returns in orderto create societal benefits pay the highest prices, while those who may
already have more than they really need pay the lowest prices.
These are all examples of the same fundamental issue: The economic
playing field is tilted to favor big players that privatize profits at the top
and socialize losses. Which raises a question: Why is our economic playing field tilted in this way? This brings us to the fourth common feature:
the role of special-interest groups.

10

Leading from the Emerging Future

Governance Is Driven by Special-Interest Groups

Many organized interest groups, including the banking, agriculture,
nuclear, oil, and pharmaceutical industries, command a disproportionate
influence on the very regulatory bodies that were originally designed tosupervise them. At issue is not only the vast amount of money and lobbying power that these groups command, but also the revolving-door practice that is pervasive in Washington, DC, and other capitals worldwide.
To give one of many possible examples, on November 5, 2008, theday after Barack Obama was elected president, Michael Froman of Citigroup, an influential Obama fundraiser during the election campaign,
was appointed to assemble the Obama administration’s economic team.
While working in this role, Froman remained an employee of Citigroupfor two more months, even as he helped appoint the very people who
would shape the future of his own firm in the following weeks andmonths.8 The result is history.
Likewise, many of the same people responsible for the deregulationof the financial industry during the Clinton administration returned
to key government positions in the Obama administration, where they
devised massive bailout programs for their former colleagues at their
too-big-to-fail banks.
This pattern is repeated in the food industry. A revolving door
between Monsanto, the agribusiness giant, and its two regulating government agencies, the Food and Drug Administration (FDA) and theEnvironmental Protection Agency (EPA), hinders effective oversight.
The potential damage from this alliance is no less catastrophic than thealliances in the financial sector.
In all these cases, the problem arises when the political process istilted by an uneven playing field and a lack of transparency. As we know
from the economist Mancur Olson’s work on collective action, groups
with only a few members can organize themselves easily and speak witha common voice.9 Obvious examples are the big players in finance, food,health, and energy. Larger and more diverse groups usually are not able
to organize as easily and consequently have more difficulty making theirmembers’ interests heard. Ordinary taxpayers, who pay for the bailouts,
and future generations are two good examples.
These structural issues matter a lot and need to be fixed. But theyBreathing Life into a Dying System11

may not be the root cause of the landscape of pathologies discussed
above. So, given all these bubbles and disconnects, what is the force
motrice that keeps us reenacting these highly dysfunctional structures?

Mental Models That Give Rise to Systemic Bubbles
and Disconnects
This force is called thinking. As Albert Einstein put it so eloquently:“We cannot solve problems with the same kind of thinking that created them.”10 Thinking creates the world. The structures of yesterday’s
economic thought manifest in the structures of today’s institutions andactions. If we want to upgrade our global economic operating system,
we need to start by updating the thinking that underlies it; we need to
update the essence of economic logic and thought.
Using the iceberg model that guides the journey of this book, we
refer to this deeper layer as “thinking,” “mental models,” or paradigmsof economic thought.11 Outmoded mental models have produced an intellectual bankruptcy: the bankruptcy of mainstream economic thought.

Ego-System Awareness versus Eco-System Reality
Today’s thinking shapes how we enact tomorrow’s reality. This link
between thought and social reality creation is nowhere more visible thanin our economy.
The eight disconnects that we listed above represent a decouplingof two worlds: a decoupling of the structure of societal reality from thestructure of economic thought. We could also say that they’re a decouplingof the structures of eco-system reality from the structures of ego-systemawareness. Today’s economic reality is embedded in a global eco-systemof environmental, social, political, and cultural contexts that are highlyintertwined and that evolve in uncertain, complex, and volatile ways.
These conditions require a mindset on the part of decision-makers thatis more open, attentive, adaptive, and tuned in to emerging changes.
Instead, what we often observe in current reality is a disconnect
between reality and awareness; that is, between an eco-system-centric
global economy and an ego-system-centric awareness of institutional

12

Leading from the Emerging Future

decision-makers. The result is a war of the parts against the whole. We
see the impact of this disconnect, for example, in the dramatic overuse of scarce resources, which is often spoken of as “the tragedy of thecommons.”12
Bridging the gap between eco-system reality and ego-system awareness is the main challenge of leadership today. Decision-makers acrossthe institutions of a system have to go on a joint journey from seeing only
their own viewpoint (ego-awareness) to experiencing the system fromthe perspective of the other players, particularly those who are mostmarginalized. The goal must be to co-sense, co-inspire, and co-create an
emerging future for their system that values the well-being of all rather
than just a few.
This is not just an ethical but an economic imperative. Let’s consider
the euro crisis, which emerged after the 2008 global financial crisis, asa case in point. The euro crisis is to no small degree a function of Germany and some other countries reverting to a nation-state-centered wayof seeing reality. What made the EU such an unlikely success story afterWorld War II? A Franco-German accord with other core EU countries inwhich all shared an intention to create a future that was different fromthe past. With the memories of the war still lingering, West Germany
was willing to pay a bit more than a narrow state-centric interest would
have required. The resulting EU process has largely been a success. The
EU today has, contrary to conventional wisdom in the United States, theworld’s largest economy, with a GDP of US$17.6 billion in 2011 (followedby the United States at US$15.1 billion and China at US$7.3 billion) thathas benefited most of the 500 million citizens in its 27 member states.
The success of the EU suggests that good economics and good politics require defining one’s self-interest broadly (eco-centrically), notnarrowly (ego-centrically), so that it is aligned with the well-being ofothers and the whole. Sadly, the emerging failures of the EU prove
the same point. Bad economics and bad politics result from defining
one’s self-interest too narrowly. In the euro crisis, we can see in a nutshell how a narrowly defined self-interest translates into poor economic
and political decision-making. In September 2008, after the collapseof Lehman Brothers, the German finance minister claimed in front of
the parliament that this was an American problem, not a European or

Breathing Life into a Dying System

13

German problem.13 The second and bigger error of judgment happened
on October 12, 2008, when the German chancellor and finance minister met with their EU colleagues in Paris at the first crisis summit anddecided that each country would develop its own rescue mechanism
rather than a joint European mechanism that could have taken care of
all of them.14
What is missing from how this story unfolded is a moment of reflective disruption in which all players would have come together, lookedin the mirror, and realized what they were doing to themselves. They
could have thrown out their nation-centric ego-view and replaced it witha mindset that could deal with the complex global eco-system realities
they’re up against now. This second view is what we call eco-systemawareness, because it values and accounts for the well-being of others
and the well-being of the whole.

A Journey from Ego-System to Eco-System AwarenessThe surface landscape of symptoms and the eight underlying structural
disconnects arise from the same deep source: a framework of economic
thought that is stuck in the past. The framework we use today may havebeen appropriate in earlier times, but it is no longer in touch with thecomplex challenges and demands of our time.
How did we get here? What does the evolution of economic thought
over time look like? What are the different frameworks of economic
thought that are available to us now, and what might be next?
Figure 2 shows four stages, logics, and paradigms of economic
thought, each of which devises a different solution to the principal problem facing each modern economy: How do you coordinate collaboration processes that are characterized by a division of labor? They are as
follows:
1.0: The state-centric model, characterized by coordination throughhierarchy and control in a single-sector society.
2.0: The free-market model, characterized by the rise of a second(private) sector and coordinated through the mechanisms ofmarket and competition.

14

Leading from the Emerging Future

Ecological
DivideSocialDivideSpritual–
Cultural Divide

Infinite
growthbubbleIncomebubbleFinancialbubbleTechnology
bubbleLeadershipbubbleConsumerism
bubbleGovernancebubbleOwnership
bubbleFiniteresources

Human
rightsRealeconomy

Real
needs

Collective
paralysisGDP ≠happiness

VoicelessBest
societal use

1.0 State-centric (1 sector) ➔ Hierarchy & Control

Traditional awareness

2.0 Free market (2 sectors) ➔ Markets & Competition

Ego-system awareness3.0 Social market (3 sectors, conflicting) ➔ Networks & Negotiation

Stakeholder awareness4.0 Co-creative (3 sectors, co-creating) ➔ Seeing & Acting from the Whole

Eco-system awareness

Figure 2. The iceberg model: symptoms, structures, thought, and sources.

3.0: The social-market model, characterized by the rise of a third(NGO) sector and by negotiated coordination among organizedinterest groups.
4.0: The co-creative eco-system model, characterized by the rise of afourth sector that creates platforms and holds the space for crosssector innovation that engages stakeholders from all sectors.
As in evolutionary stages, the earlier stages continue to exist at the laterstages: That is, all four coordination mechanisms are complementary;
they are not substitutes for one another.
Today, though, we are having the wrong conversation. Economic andpolitical discourse is often framed as a choice between more privatization, deregulation, and slashing of the welfare state and more regulation, government, and stimulus-based deficit spending. This debate
reflects the world of the twentieth century, not the world of the twentyfirst century.
To paraphrase the quote above attributed to Einstein, we cannot solve
the current 4.0 type of eco-system problems with the 2.0 and 3.0 ego-

Breathing Life into a Dying System

15

system thinking that created them. What we need is to co-create a new
economic framework that helps us to rethink and evolve all the core
concepts of economics from an awareness-based view. We also need tolink this framework to practical methods and tools for addressing challenges in our current reality.
Are you thinking now that this discussion of economic thought isgetting a little boring? Well, it’s exactly that pattern of thinking thatkeeps us from seeing past our blind spot. The blind spot of our time is that
we take mainstream economic thought for granted, as if it were a natural law.
But in reality, all so-called economic laws begin to melt and morph into
something else the moment you begin to change the most importantvariable: the quality of awareness of the participants in a system. Who arethese participants? They include leaders and change-makers in business, government, and civil society, as well as consumers, investors, andcommunities. They include you.
In chapter 3, we reconstruct the evolution of economic logic andthought as the deeper grammar that underlies the evolution of the economy. And we show that the essence of this developmental path can betraced as an evolution of human consciousness.
The frameworks of economic thought articulate four different economic logics or paradigms that give rise to four different operating
systems. The 1.0 Economic Operating System is based on traditionalawareness and hierarchical thinking. The 2.0 Economic Operating
System is based on ego-system awareness and me-centric thinking (inneoclassical economics, this “me” is referred to as homo oeconomicus, anidea of a human being who acts only by maximizing self-interest). The
3.0 Economic Operating System is based on institutional stakeholder
awareness and some negotiated coalitions that internalize concern for
the well-being of key stakeholders. For example, corporations negotiate
and partner with labor unions. The emerging 4.0 Economic Operating
System (discussed in detail later) is based on eco-system awareness—​that is, an awareness that values the well-being of all others and serves
the well-being of the whole.
As the laws of economics morph along with the level of awarenessthat the agents in a system are operating from, we need to create a new
economic science that accounts for the entire matrix (1.0 to 4.0) rather

16

Leading from the Emerging Futurethan limiting the inquiry to just one of its rows or paradigms (chapter 3
provides a detailed discussion). What we need today, to paraphrase thepsychologist Eleanor Rosch, is an economic science that is performed
with the mind of wisdom.15 We need an economic science that describes
and follows the journey from 1.0 to 4.0 on all levels, for individuals andteams as well as for institutions and systems.

Sources That Give Rise to Mental Models, Structures,and Symptoms
The journey from ego-system to eco-system awareness, or from “me” to“we,” has three dimensions: (1) better relating to others; (2) better relating to the whole system; and (3) better relating to oneself. These three
dimensions require participants to explore the edges of the system andthe self.
Exploring the edges of the system means going to the place of mostpotential: for example, walking in the shoes of some of the most marginalized people, such as residents of remote villages in Africa or immigrants in a developed country (see chapter 7). It is our experience thatthe new in any system shows up first at the periphery. That’s where
you see the problems and the opportunities as if through a magnifying
glass. Diverse stakeholder groups can use their shared experiences tobecome aware, to make sense of what is actually going on.
Exploring the edges of the self means shifting the inner place fromwhich one operates. It means opening the mind, the heart, and the will.
It means suspending old habits of judgment. It means empathizing.
And it means letting go of what wants to die in oneself and letting comewhat is waiting to be born.
Over the past eighteen years, we have been working on creating environments for these types of outward and inward journeys across organizations, systems, sectors, and cultures. What is so surprising is how
reliably this journey to the periphery of a system works. It’s not easy.
It’s hard work. And you cannot engineer it in the old way, which is bycontrolling it. But you can create conditions that allow a deeper alchemy
to work—​that is, conditions that help leaders in a system to broaden anddeepen their view of the system from ego to eco, from “me” to “we.”Breathing Life into a Dying System

17

A new type of awareness-based collective action is emerging fromthis line of experimentation and work. It doesn’t use the old collectivization model in which the common DNA is imposed from above, the old
top-down pyramid that we all know only too well. In this more horizontal model, each individual node is mindful of the well-being of others. It
is this shared awareness that allows for fast, flexible, and fluid coordination and decision-making that are far more adaptive and co-creative thanany other organizational model currently being used in major societal
institutions.

The Journey to U
We arrived in the United States in 1995 to work with the MIT Center for
Organizational Learning, which had been founded by Peter Senge andhis colleagues, together with a group of global companies, in the early
1990s. Upon arrival, we learned that Senge and his organization werepart of the same MIT System Dynamics group that had produced theinfluential Limits to Growth study, which shaped our thinking earlier andhelped to spark the worldwide environmental movement in the 1970s.16
In his work, Senge kept noticing how well developed the skills of thesystem dynamics PhD students were in analyzing the broken systems ofour current society. But their practical impact on changing any of thesesystems was almost zero. Based on that puzzling observation, Senge
became interested in the behavioral dimension of change.
Senge’s book The Fifth Discipline is based on blending (1) system
dynamics, (2) organizational change, and (3) the creative processes. Thissynthesis resulted in the concept for the MIT Center for Organizational
Learning and in an initial set of methods and tools developed by thissmall group of action researchers at MIT.
After a few years, Senge and his colleagues noticed that the tools
worked very well in the hands of some practitioners, but that in othercases the application of the same tools resulted in no significant change.
Why are the same tools effective in the hands of some and ineffective inthe hands of others? We have investigated this question in our research,which has included 150 interviews with leaders, entrepreneurs, andinnovators (many of which were conducted by Otto and our colleague

18

Leading from the Emerging Future

Joseph Jaworski), as well as active participation in change processes incompanies, governments, and communities.17 The result of this eighteen years of work is a 2.0 framework for learning, leading, innovating,and profound systemic renewal. We call this framework Theory U for
the shape of the drawing used to depict it. It has been fully described in
Otto’s book Theory U and in the book Presence, which Otto co-authoredwith Senge, Jaworski, and Betty Sue Flowers.18
The gist of this framework is simple: The quality of results produced
by any system depends on the quality of awareness from which people in thesystem operate. The formula for a successful change process is not “formfollows function,” but “form follows consciousness.” The structure ofawareness and attention determines the pathway along which a situation unfolds.

Shifting the Inner Place from Which We Operate
We stumbled onto this deep territory of leadership research when weinterviewed Bill O’Brien, the late CEO of Hanover Insurance. Summarizing his most important insights from leading transformationalchange in his own company, O’Brien said: “The success of an intervention depends on the interior condition of the intervener.”19 We might
say it this way: The success of our actions as change-makers does notdepend on what we do or how we do it, but on the inner place from which
we operate (see figure 3).
When I (Otto) first heard O’Brien say that, I thought, “Boy, what do
I really know about this inner place? I know nothing! Do we have one orseveral or an infinite number of these places?” I didn’t know, because thatplace is in the blind spot of our everyday experience. We can observe
what we do and how we do it. But the quality of the source (or inner place)from which we operate in “the Now” tends to be outside the range of ournormal observation, attention, and awareness.
This puzzling insight into the deeper source level of social reality
creation set us on an intriguing path of inquiring about and integrating
recent findings in leadership, management, economics, neuroscience,contemplative practice, and complexity research. The essence of ourBreathing Life into a Dying System

19

Results:
What

Process:
How

Source:Who

Blind spot: inner placefrom which we operate

Figure 3. The blind spot of leadership.

view concerns the power of attention: We cannot transform the behaviorof systems unless we transform the quality of attention that people apply
to their actions within those systems, both individually and collectively.

Leading from the Emerging Future
In exploring this territory more deeply, we realized that most of theexisting learning methodologies relied on learning from the past,
while most of the real leadership challenges in organizations seemed torequire something quite different: letting go of the past in order to connect with and learn from emerging future possibilities.
We realized that this second type of learning—​learning from theemerging future—​not only had no methodology, but also had no real
name. And yet innovators, entrepreneurs, and highly creative people
all express an intimate relationship with this deep source of knowing.
Otto started referring to it as Theory U and presencing. Presencing is a
blended word combining sensing (feeling the future possibility) and presence (the state of being in the present moment). It means sensing andactualizing one’s highest future possibility—​acting from the presenceof what is wanting to emerge.

20

Leading from the Emerging Future

The proposition of Theory U, that the quality of the results in any
kind of socioeconomic system is a function of the awareness that people
in the system are operating from, leads to a differentiation among fourlevels of awareness. These four levels affect where actions originate relative to the boundaries of the system.
Consider the example of listening. We call the first level of listening
downloading. It describes habitual behavior and thought and results in“same old, same old” behaviors and outcomes. This type of listening
originates from the center of our habits, from what we already know
from past experience. Here’s an example: When President George W.
Bush and Vice-President Dick Cheney received CIA briefings about an
imminent attack on the United States prior to 9/11, they were so focusedon getting the war against Saddam Hussein going that they were unable
to hear and recognize the numerous strong warnings from the intelligence community. They were unable to hear anything that didn’t agreewith what they thought they already knew. That inability trapped thedecision-makers inside the world of their preconceived notions andviews.20
In contrast, level 4 listening, called presencing, represents a state of
the social field in which the circle of attention widens and a new reality
enters the horizon and comes into being. In this state, listening originates outside the world of our preconceived notions. We feel as if we areconnected to and operating from a widening surrounding sphere. As
the presence of this heightened state of attention deepens, time seems
to slow down, space seems to open up, and the experience of the selfmorphs from a single point (ego) into a heightened presence and stronger connection to the surrounding sphere (eco). Examples of this shift
are seen when a sports team raises its level of play to be in the zone orwhen a jazz ensemble finds its groove.
The two intervening levels are level 2 (factual listening) and 3(empathic listening). We will discuss all four levels in more detail when
we introduce the Matrix of Social Evolution in chapter 4.
What does it take for individuals, teams, institutions, and larger systems to shift their attentional logic and mode of operating from downloading to presencing?

Breathing Life into a Dying System

21

Principles of Presencing
We will answer this question in much more detail throughout the book.
But for now let us share a few key principles that reflect what we havelearned over the past few years and which may resonate with some ofyour own experiences:
1. Energy follows attention. Wherever you place your attention, that iswhere the energy of the system will go. “Energy follows attention”
means that we need to shift our attention from what we are trying to
avoid to what we want to bring into reality.
2. Follow the three movements of the U. We refer to this as the U process
because of the “shape” of the journey. In order to get to the deep
point of transformation (at the bottom of the U), it is necessary firstto go down the U (the left-hand side) by opening our minds, hearts,
and wills, and then, after passing through the “eye of the needle” atthe bottom, go up the U (the right-hand side) to bring the new into
reality (see figure 4). In the words of our colleague, economist Brian
Arthur, the three main movements of the U process are:a. Going down the U: Observe, observe, observe. Stop downloading
and totally immerse yourself in the places of most potential, in
the places that matter most to the situation you are dealing with.
b. At the bottom of the U: Retreat and reflect; allow the inner knowing
to emerge. Go to the places of stillness where knowing comes tothe surface. Here you share and reflect on everything that you
have learned from a deep place of listening, asking, “What wants
to emerge here?,” “How does that relate to the journey forward?,”and “How can we become part of the story of the future rather
than holding on to the story of the past?”c. Going up the U: Act in an instant. Explore the future by doing.
Develop a prototype. A prototype explores the future by doing
something small, speedy, and spontaneous; it quickly generates
feedback from all the key stakeholders and allows you to evolveand iterate your idea.

22

Leading from the Emerging Future

Downloading

Performing

past patternsby operating from the wholesuspending

VoJ

SeeingOpen Mind

VoC

VoF

Prototyping
by linking
head, heart, handwith fresh eyes

redirecting

embodying

Open Heart

enacting

Sensing

Crystalizing

from the fieldvision and intention

letting go

Open Will

letting come

Presencing
connecting to source

Who is my Self ?
What is my Work?
Figure 4. The U process of co-sensing and co-creating: presencing.

3. Go to the edges of the self. To apply this process in the context of institutions, we have to power it with a new leadership technology. The
core of this technology focuses on tuning three instruments: theopen mind, the open heart, and the open will. With an open mind,
we can suspend old habits of thought. With an open heart, we canempathize, or see a situation through the eyes of someone else. Withan open will, we can let go and let the new come.
4. Pass through the eye of the needle. At the deepest point of each U journey is a threshold. Crossing that threshold, passing through the eyeof the needle, can feel like dying and being reborn. According to the
Bible, “It is easier for a camel to go through the eye of a needle thanfor a rich man to enter the kingdom of God.”21 The phrase “eye ofthe needle” refers to a gate in ancient Jerusalem: For a man to fit his
camel through Jerusalem’s gate, he had to remove all the bags fromthe camel’s back. Likewise, if we want to go through the eye of theneedle at the bottom of the U, we have to let go of everything andoffload all the baggage that isn’t essential. Going through that gate

Breathing Life into a Dying System

23

means encountering the two root questions of our journey: “Who is
my Self?” and “What is my Work?” The capital-S Self is our highest
future possibility. The capital-W Work is our sense of purpose orcalling. It’s what we are here on this earth to do.
5. Transform the three enemies. Why is the U journey the road less traveled? Why is it that a lot of people are aware of this deep processof knowing and yet it rarely happens in the context of our larger
systems? Because the moment we commit ourselves to going on thisjourney, we start to encounter our three principal enemies: the voiceof doubt and judgment (VoJ: shutting down the open mind), the voiceof cynicism (VoC: shutting down the open heart), and the voice of fear
(VoF: shutting down the open will).
6. Always start by “attending to the crack.” Where do we meet the future
first? “Seek it with your hands. Don’t think about it, feel it” is theessential instruction that Bagger Vance gives to Junah in the Robert
Redford movie Bagger Vance. The future shows up first in our feelings and through our hands, not in our abstract analysis. “Attending
to the crack” means attending to the openings, the challenges, andthe disruptions where we feel the past ending and the future wanting
to begin.
7. Hold the space for transforming the fields of conversation from debate todialogue and collective creativity. Each social field needs a container.
Higher-level conversation like dialogue and collective creativity
requires higher-quality containers and holding spaces. “Transforming the quality of conversation” in a system means transforming thequality of relationship and thought—​that is, the quality of tomorrow’s results.
8. Strengthen the sources of presencing in order to avoid the destructive
dynamics of absencing. Modern society emerges from the interplayof two powerful social fields: presencing and absencing. The field ofpresencing works through the opening of the mind, the heart, andthe will. We know that there are plenty of inspiring examples of thisprocess across the planet. But everyone who works in institutions andsystems also knows that there is another field out there. That field ischaracterized by getting stuck with the idea that there is only One

Leading from the Emerging Future

Absencing

SOCIAL EMERGENCE
Economies of creation

SOCIAL PATHOLOGY
Economies of destruction

24

holding on
De-sensing
entrenching

Stuck manipulating
in oneself/will
Deluding

Stuck in one skin(us vs. them)

Denying
blinding

VoJ

Aborting

Stuck inone truth/view

Destroying

Downloading

Performing

suspending

Open Mind

redirecting

letting goembodying
Prototpying

Open Heart

Sensing

VoF

disembodying

Downloading

SeeingVoC

abusingenacting
Crystalizing

Open Will letting come
Presencing

Figure 5. The social spaces of collective creation (presencing) and destruction(absencing).

Truth rather than operating with an open mind, by getting stuck
in Us versus Them rather than operating with an open heart, andby being frozen inside one rigid identity rather than operating with
an open will. What do we call social systems that have these threecharacteristics? Fundamentalist. Fundamentalism is the result of
closing down and freezing our mind, heart, and will—​as opposed to
opening, warming, and illuminating them.
We live in the tension of these two fields. We are not one, but areoften torn in two. Sometimes we operate from our highest future
possibility (presencing). But every now and then we lose it and getstuck in old patterns of downloading (absencing). We experience thisfragile nature of current reality not only in personal relationships,
but also in the area of global development and change. We are torn

Breathing Life into a Dying System25

between these two fields, and we need to learn how to strengthen
our grounding in the field of presencing.
Social reality emerges continuously from the interplay of these
two forces: the field of presencing that enables us to co-create froma deeper level of humanity and intention, and the field of absencing
that, through our blind spot of not being aware, traps us in patternsof destruction and self-destruction (see figure 5).

The Journey of This Book
This book journeys through an emerging framework for transforming
institutions, society, relationships, and self. The first four chapters invite
you to travel down the left side of the U through four levels of the iceberg, from the visible top to the less visible underlying levels:
1. symptoms: disruption, death, and rebirth (chapter 1);
2. structure: systemic disconnects (chapter 2);
3. thinking: the Matrix of Economic Evolution (chapter 3); and4. source: traveling through the eye of the needle (chapter 4).
The next four chapters take you up the right side of the U into envisioning, enacting, and embodying the new:
5. leading individual transformation (chapter 5);
6. leading relational transformation (chapter 6);
7. leading institutional transformation (chapter 7); and8. leading from the emerging future (chapter 8).
Chapters 5 and 6 outline the personal and relational revolution that
this book tries to illuminate. Chapter 7 focuses on what we call the
Matrix of Institutional Transformation, a roadmap for the evolutionary
path of key institutions and societal systems from 1.0 to 4.0. This map
suggests that the transformational experiences necessary in education,
health, finance, business, government, and civil society are not actually all that different. They all feature similar journeys of inverting andflipping pyramid-style systems to cultivate the soil of a co-creative field26

Leading from the Emerging Futureof shared intention, awareness, and action across institutional boundaries. Chapter 8 concludes with a specific view of what we, as the current
generation of change-makers on this planet, are called to do over the
next decade or two.
Each chapter ends with concluding remarks and practical questions
for individual reflection and for group work. They are formulated to give
you a practical tool to join the emerging global movement in seeing theecological, social, and spiritual crises of our time as three aspects of adeeper issue that calls us to shift from egocentric to ecocentric as thegateway to transforming business, society, and self. The questions at
the end of each chapter aid you in forming your own group. The website(www.presencing.com) and its global classroom sessions provide you
ways to connect with others in order to co-sense and co-create our pathforward.

1

On the Surface: Symptoms of
Death and RebirthThis chapter explores the symptoms at the tip of the iceberg of our current
reality. We move from the toppling of tyrants to an exploration of the deeper
fault lines that keep generating the disruptive changes of our time. We also lookat these disruptive events from the viewpoint of change-makers: In the faceof disruption, what determines whether we end up in moments of madness or
mindfulness?

The Toppling of Tyrants
In the fall of 1989, two weeks before the Berlin Wall crumbled, we took
an international student group to East Berlin, where we met with civilrights activists in the basement of a church. At one point, the professor
who was with us, peace researcher Johan Galtung, put a prediction on
the table: “The Berlin Wall will come down before the end of the year.”
Everybody doubted that, including the people who were organizing theresistance against the East German regime. And we were all wrong. The
Wall came down and the Cold War came to an end just months afterthat meeting.
Nearly two decades later, in the fall of 2008, the bankruptcy ofLehman Brothers, a global financial services firm, sent shock waves
around the globe and within hours brought the financial systems of theUnited States and Europe to the brink of collapse. Today the remaining
Wall Street megabanks and their European counterparts have survived
because of massive taxpayer-financed bailouts from their governments.
On October 11 of that year, the head of the International Monetary Fund(IMF) warned that the world financial system was teetering on the“brink of systemic meltdown.”127

28

Leading from the Emerging Future

In December 2010, Mohamed Bouazizi, a young fruit and vegetable seller in Tunisia, set himself on fire in protest of his treatment by
police, who wanted to extract bribes from him and, when he refused,
took away his merchandise and beat him. In January 2011, a twentysix-year-old Egyptian activist, Asmaa Mahfouz, posted a video online
urging people to protest the “corrupt government” of Egypt’s president,
Hosni Mubarak, by rallying in Cairo’s Tahrir Square.2 With that video
she sparked and inspired an uprising among the Egyptian population.
A week later, on January 25, thousands joined her in Tahrir Square.
Within days, the movement counted millions. At first the Egyptian
police responded with brutality. But less than four weeks after Mahfouz
had posted her initial video, President Mubarak resigned.
A month later, a 9.0 earthquake struck off the coast of Japan, generating a massive tsunami that killed more than twenty thousand people.
The Fukushima Daiichi nuclear power plant was protected by a seawall
designed to withstand a tsunami of 19 feet (5.7 meters). Minutes after
the earthquake struck, a tsunami of 46 feet (14 meters) arrived, easily
crossing the seawall and knocking out the plant’s emergency power generators. As a consequence, the radioactive fuel began overheating andput the plant on a path toward catastrophic meltdown.
As the year went on, the Arab Spring spread across the globe. Muammar Gaddafi was toppled in Libya. The Occupy Wall Street movement,
which took inspiration in part from the Arab Spring, staged actions inmore than a thousand cities across the globe.3
The collapse of the Berlin Wall, the demise of the Mubarak and Gaddafi regimes, the meltdown of the Fukushima Daiichi nuclear power
plant, and the near-meltdown of the western financial system all sharesome features:
1. the end of an inflexible, centralized control structure, one that previously had been considered indestructible
2. the beginning of a spontaneous, decentralized grassroots movementof people letting go of their fear and waking up to another level ofawareness and interconnectedness
3. the opening of some small cracks in the old system, followed by its
crumbling and eventual collapse

On the Surface

29

4. the rebound of the old forces as soon as the memory of the collapse
began to fade away; the old forces tried to obscure the actual root
causes of the breakdown in order to extend their privileged access topower and influence (an example is Wall Street’s financial oligarchy)
We believe that these kinds of events will keep coming our way.
These disruptive changes mark the beginning of a new era that we haveentered as a global community, an era of increasing disruption. Sometimes such movements will give rise to movements that bring about
profound change, and sometimes they will falter and fail. In many cases,
as we discuss later in the book, these disruptions are already on theirway. It is too late to prevent all of them. So where is our point of control?
It is in how we respond to the impact that these disruptions have on how
we work and live.
A disruptive change affects not only our outer world, but also ourinner self. Such moments bring our world to a sudden stop. They may
be terrifying, but they also constitute a great blank space that can be
filled in one of two ways: by freezing and reverting to the patterns of
the past, or by opening us up to the highest future possibilities. The second response—​leaning into, sensing, and actualizing one’s emerging
future—​is what this book is about.

Presencing
At the moment when we reach the point of meltdown, we have a choice:We can freeze and revert to our deeply ingrained habits of the past, or
we can stop and lean into the space of the unknown, lean into that whichwants to emerge.
This second possibility—​to lean into and connect to our highest
future potential—​we refer to as presencing. As noted in the introduction, the word presencing merges the terms presence and sensing. It means
to sense and operate from the presence of an emerging future field.
As we connect with this field of heightened awareness, our attention
morphs from slowing down, opening up, redirecting, and letting go to letting
come, crystallizing, and embodying the new. Figure 4 (see the introduction) summarizes this process.

This material has been excerpted from

Leading From the Emerging Future
From Ego-System to Eco-System Economies
by Otto Scharmer & Katrin Kaufer
Published by Berrett-Koehler Publishers
Copyright © 2013, All Rights Reserved.
For more information, or to purchase the book,please visit our website
www.bkconnection.com