Happy 4th! (In Which Your Blog Author Takes Yet Another Stab at Making the Case for Creating a New Economy)

Happy 4^th (Economy)!

It’s the 4^th of July and a good day to think about revolution.

The good news from last month’s job report is that job growth continues, and compared with every Western nation save Canada, the US seems like a beacon of job creation. The bad news is that job growth continues to be anemic: in contrast to the 2^nd terms of any recent president, Obama’s second term average monthly job creation number of 202,000 is ranked last, behind Clinton, Nixon, Reagan, and GW Bush. Admittedly, no president has had to swim upstream against such steady layoffs from the government sector during a recovery. But then again no president has had such a large labor pool; simply adjusted for the size of the work force, Obama’s job creation numbers should run about double Nixon’s.

It might be worth considering the possibility that something is different about this economy. Taken as a whole, there has been no time since the Great Depression that the West has done so poorly at job creation.

I think that an argument can be made that we need a new set of policies to acknowledge the possibility that we’re in a new Entrepreneurial Economy that is as different from the Information Economy into which we were born as that was from the Industrial Economy before it. If my theory is right, this new economy suggests that we will have to develop a new set of policies to popularize entrepreneurship as much as we popularized knowledge work in the last century.  Before we can make sense of this new economy and begin to formulate effective policies, we need to understand a pattern of progress.

Since the Dark Ages, the West has had at least three distinct market economies. The same pattern of change that created them is now creating a fourth.

Economy	~ Period
1st Agricultural	1300 to 1700
2nd Industrial	1700 to 1900
3rd Information	1900 to 2000
4th Entrepreneurial	2000 to ~

These economies are defined by their limits to progress.

Progress in an Industrial Economy, for example, is limited by capital – industrial and financial. As a community in an Industrial Economy creates and attracts more capital, it becomes more rich and powerful. 

But just as what limits a baby’s development is different from what limits a teenager’s, so it is with economies at different stages of development. At a certain point, an industrial community has enough factories to make more than enough products and now needs knowledge workers who can design better products, more efficient processes, and stimulate demand. Manipulation of things gives way to the manipulation of symbols, and an Industrial Economy limited by capital gives way to an Information Economy limited by knowledge workers. Limits shift and as communities adapt and attempt to overcome the new limit, they begin to create a new economy. Eventually information does as much to distract as inform, and university graduates struggle to find jobs that pay enough for them to pay back student loans and the rent.

Economy	Period	Limit to Progress
1st Agricultural	1300 to 1700	Land
2nd Industrial	1700 to 1900	Capital
3rd Information	1900 to 2000	Knowledge Workers
4th Entrepreneurial	2000 ~	Entrepreneurship

Economies depend on invention for progress. Nobody denies that. Curiously, though, technological inventions like steam engines and computers get more attention in discussions about progress than do social inventions like banks and the modern corporation. Yet social inventions are just as important.

Business entrepreneurship – starting a business – is just one form of social invention.

It might be easy to understand that a nation-state with a standing army to defend (or even extend) borders is important to an economy limited by land.

It might be harder to understand that as communities struggle to overcome the limit of entrepreneurship they’ll have to popularize social invention. This suggests a different idea of self. A self defined by the big institutions is different from a self who defines them. It’s very different to be a good Catholic or good British citizen than to be a Protestant or American revolutionary. To be a good employee is very different than to be a good entrepreneur. The popularization of entrepreneurship – or social invention – will rely on a very different notion of the individual, a new kind of self.

Economy	Period	Limit to Progress	New Social Invention
1st Agricultural	1300 to 1700	Land	Nation-State
2nd Industrial	1700 to 1900	Capital	Bank
3rd Information	1900 to 2000	Knowledge Workers	Modern Corporation
4th Entrepreneurial	2000 ~	Entrepreneurship	Self

The pattern of progress doesn’t just result in new social inventions: it transforms the old ones. The Medieval Church did not meekly yield to the new nation-state. Monarchs in the 2^nd economy didn’t easily yield power to the new capitalists. But in spite of resistance, the institutions created by and run for elites become a tool for the masses. Martin Luther proclaims that “We are all priests,” or Thomas Jefferson writes, “All men are created equal,” and the power of popes to define beliefs or of monarchs to define policy becomes a power of the common person.  This pattern will repeat again in the fourth economy; rather than use the individual as a tool, the corporation, just as the church, state, and bank before it, will become a tool for the average person.

Economy	Period	Limit to Progress	New Social Invention	Social Transformation
1st Agricultural	1300 to 1700	Land	Nation-State	Religion (Protestant Revolution)
2nd Industrial	1700 to 1900	Capital	Bank	Politics (Democratic Revolution)
3rd Information	1900 to 2000	Knowledge Workers	Modern Corporation	Finance
4th Entrepreneurial	2000 ~	Entrepreneurship	Self	Business

We don’t just invent and transform institutions. We invent and transform ways of thinking.

Successful business entrepreneurs create a system that generates more value than it costs. Like systems thinkers, they focus on the interaction of parts as much as the action of the parts, working towards value that emerges out of these interactions. A knowledge worker focuses on a specialty; the entrepreneur looks at the whole. Knowledge work is enhanced by pragmatism and entrepreneurship is enhanced by systems thinking.

Of course our modern world is defined by systems – manmade information and transportation systems that rest atop – and interact with - climate and ecosystems. One way to frame the central challenge of our time is to create sustainable and stable systems – from financial systems to industrial systems. And incidentally, becoming more adept at understanding, creating, modifying, and harmonizing with systems will make us more adept at entrepreneurship, at social invention. As we begin to organize our world around the principles of systems thinking we’re likely to change our world as much as the Enlightenment thinkers of the American colonies changed theirs.

Economy	Period	Limit to Progress	New Social Invention	Social Transformation	New Way of Thinking
1st Agricultural	1300 to 1700	Land	Nation-State	Religion (Protestant Revolution)	Renaissance
2nd Industrial	1700 to 1900	Capital	Bank	Politics (Democratic Revolution)	Enlightenment
3rd Information	1900 to 2000	Knowledge Workers	Modern Corporation	Finance	Pragmatism
4th Entrepreneurial	2000 ~	Entrepreneurship	Self	Business	Systems Thinking

The West is struggling to create jobs. Continuing to assume that what limits job creation and economic progress is a lack of capital when trillions sit idle in banks and corporate accounts, or even knowledge workers when the most educated generation in history struggles to find work suggests that we’re clinging to old models of the world in the face of new realities. Assuming instead that what limits us is entrepreneurship – and beginning to make the changes that focus on overcoming that limit – could be the key not just to getting back to the healthy job growth of past decades but to the most healthy and innovative economy the West has yet created.