Walter Alexander Interviews Otto Scharmer, PhD

I interviewed C. Otto Scharmer, PhD, Senior Lecturer at the Massachusetts Institute of Technology (MIT) Sloan School of Management in his MIT office in the fall of 2009, and conducted a substantial “catch-up” phone interview in March, 2011. He is the founding chair of the Presencing Institute1, the author of Theory U and co-author of Presence (both translated into twelve languages). Scharmer is a core faculty member of the UN Leaders Program and chairs the MIT IDEAS program, which brings together key leaders from business, government, and civil society to co-create profound innovation and systems change.

WA: So, any big changes since we spoke last? Has President Obama made a difference?

OS: It’s impossible to change the system with one person sitting in the White House– and even more impossible when that one person sitting in the White House surrounds himself with the wrong advisers and plays to the wrong lobbying groups.

The bailout of the banks—any president would have had no other choice in that emergency. But then, rather than imposing strict conditions on the bailout funds, that money was basically given without any conditions. The systemic root issues that led to the whole crisis were not addressed—that we have banks seen as too big to fail which therefore can take on risks that they enjoy the upside of, but when the downside materializes they pass that on to the taxpayer. By not breaking up the banks and making them smaller so that they would no longer pose a risk to the rest of us, he gave them a perverse incentive to continue their practices.

WA: His motive?

OS: This group was one of the biggest supporters of his campaign. Same as with the nuclear industry—which I find disappointing. Given Fukushima, while the German government is considering whether or not to exit all nuclear energy strategies, all that Obama has offered is a promise to review options.

So, again, when push comes to shove, when there is a real historic opportunity to take a new stance toward these systemic risks—from the megabanks too big to fail and the mega technologies with such negative potential for us and future generations, both of them not in the interest of life, the planet and the future—you see the government take positions against the will of the majority of the population. To that, add that we are now in three unwanted wars, the first two in Iraq and Afghanistan costing a trillion dollars a year. This at the same time as massive downsizing of popular public health, education and social welfare and education services that make community life livable and worthwhile.

WA: And who would not imagine that there will be long-term costs to those cuts?

OS: Usually from an industry point of view, people talk of the adverse costs that a civil society or grassroots movement has towards economic value creation. But I think with Fukushima we can turn it around, and we can propose that there is a huge cost that comes where there is a lack of strong civil movements that can bring a consciousness of the externalities-–the social and environmental externalities that need to be considered in decision-making. These clearly were not considered enough with Fukushima. People are now wondering how Japan, a country that experienced the bombing of Hiroshima and Nagasaki, put nuclear plants in such vulnerable locations and ignored appropriate safety standards. So this human and economic disaster for Japan is a direct cost of not having a strong civil society and anti-nuclear movement that would have fought for higher safety standards at the very least.

WA: Is the industry so strong here in the US that nothing will change?

OS: It is a strange situation. After last year’s Supreme Court decision, we are moving from one man/one vote to one dollar/one vote. That was another disappointment, one that we need to defend against, this hijacking of democracy.

WA: These are missed opportunities, aren’t they?

OS: Yes. With Fukushima unfolding, Mikhail Gorbachev’s remarks from 2006 on the twentieth anniversary of the Chernobyl disaster were recently rebroadcast. He said that glasnost [freedom of speech] and perestroika [restructuring], and with them the downfall of the Soviet Union, came about as a direct result of Chernobyl. When his scientists told him that a possible further steam explosion after the meltdown could render Europe uninhabitable, he realized that they were working with forces way beyond their control and that the nuclear idea was totally nuts—and that a different approach would be necessary. And out of that came glasnost and perestroika. So here you have a mind looking into the face of catastrophe—and waking up to a higher level of awareness. Look how powerful, how massive the impact—of one person becoming aware—and what an imprint that has left on world history. It’s a beautiful example.

WA: And today?

OS: With Fukushima in mind, for the future use of energy and for the building and running of an economy, we can ask, what is the higher level of awareness we can wake up to collectively?

WA: And helping key participants to wake up to this higher level of awareness, as far as I read from your book, is what your work is about.

OS: Yes. You can look at all I do—change projects in education, health, government and business—and in all of these systems the fundamental problem is basically the same, that you need to convene all the key decision makers, institutions, players across the sectors—the business community, the regulators, the civil society players —and bring them together and move them through a process that allows them to move from ego-system awareness to ecosystem awareness. That’s the real leadership work today. That’s where the most interesting transformations of capitalism and society are taking place.

WA: But it’s not what’s taking place in general.

OS: That’s why so many people feel stuck, because their change efforts are not addressing the root issues. Their efforts use the same kind of thinking, the same reactive mindset that created the problems in the first place. Einstein warned against that.

WA: So you just need to change the type of thinking?

OS: No. We also lack the places, the institutions that would convene the key players. Leadership training today is geared towards individuals and not towards systems that support ecosystem awareness.

WA: That’s three problems. Let’s look at the first one, at our thinking about root problems. My reading of Theory U is that it points to some real epistemological aspects—revolutionary understandings of how groups can come to know something about what they can do together.

OS: Yes. Part of the change process relates to assumptions about who we are as human beings, including how we think about the economy, about the customer, about the people we serve and about the different levels and qualities of relationship that we can engage in as human beings. Relationships can be more transactional or they can be more relational and transformative. It’s almost like learning a different language and learning to operate on that different or higher level, without losing the ability of returning to the first one.

WA: The summer before last I was dealing a lot with insurance companies—in connection with a non-profit where I’m on the board—over flood damage to our building, and, at same time, with some issues with my own health insurance. I spent day after day screaming on the phone—and very gradually it began to sink in that I had naïvely thought I had paid for services outlined in a policy and was simply entitled to those services. But what I was forcibly led to see is that when I bought those policies I also bought into a war with shareholders, with a CEO’s feeling—backed by law—of being committed to shareholders more strongly than to the contract with me or my organization. Can we survive that paradigm?

OS: With any kind of system we work in today, if you drill down to the root problems, to the root issues, they always have to do with the same things. They deal with issues of power, issues of money, issues of wealth generation and appropriation, and issues of—I would say—human rights. And underlying these issues are really our deepest assumptions about who we are as human beings, how we should constitute a community, and how economic life relates to the political and cultural life. So, yes—what you describe is an experience that many people have—and it is non-functional. It does not work for most of us, but only for a very few. So, my work has shifted.

WA: Shifted to?

OS: Capitalism 3.0 2—The transformation of capitalism so that the rights of the consumers and the rights of the employees and the rights of other stakeholders are as important as the rights of shareholders.

Helping people at the bottom of the pyramid

WA: And can you similarly characterize what it replaces?

OS: Replacing the notion that through market growth, through trickle-down, the people at the bottom of the pyramid will be helped.

WA: It’s been a long wait.

OS: We have almost half of mankind living at the poverty threshold—or below—and we have environmental destruction that is threatening the conditions of future life. So, that requires us to transform the larger operating system we have that’s called capitalism.

WA: And what, in your opinion, has held up your colleagues in academia from cooking up something better to date?

OS: It’s true that there’s not a lot of innovative thinking about that. Because as a business school professor, you are basically paid for not asking certain questions and —you know—developing theories that do not illuminate a number of key issues that now everyone realizes are absolutely critical for the future of mankind.

WA: Is there a key issue that’s off the PC table? A first step?

OS: Well, the first thing I try to do is to develop a framework that eliminates the blind spot of the current economic theory—which is consciousness. And that‘s what I try to put into place. Today, if you talk with leadership practitioners, everyone gives you the same thing—which is change and institutional transformation. Everyone. What is that? If you unpack that, what is the nature of change? Well, it is transforming consciousness. Because change essentially is helping people to see the bigger picture, to see that they are part of a bigger picture. You level people up from a more narrow, egocentric perspective to a perspective where you take into account the views of other stakeholders, and maybe even of the larger ecosystem that you are a part of. So, real change practitioners, institutional leaders today all deal with consciousness. You deal with the transformation of who man is in consciousness. That’s what change work is about. But in economic theory, it’s a variable that doesn’t exist. In economic theory, we just assume that actors are operating based on certain preferences. But we do not take into account that the way I behave on one level of awareness and consciousness is completely different from the way I behave from a higher level of awareness and consciousness. Therefore, the real question we need to pay attention to is how to move from one level to the other.

WA: I see that part of the old model is that you may seek to climb to a higher level of awareness or insight with the goal that you come back down to the old level and try to achieve some sort of advantage according the lower level’s goals and understanding.

OS: Right.

WA: Rather than saying, I need to bring that lower level up to the understanding of this higher one.

OS: I would say that given the challenges that we face today, it needs to be more fully recognized that just tinkering a little bit with incentives, tinkering with regulations and just adding another multisector dialogue won’t do the trick. We need new ways for stakeholders across ecosystems to collaborate with each other. And most importantly, we need an awareness that allows us to really—as consumers, as producers, as participants in these larger systems—to operate from a viewpoint that takes into account the health of the system as a whole. But that’s not what current institutional designs lead us to do.

WA: How do you see change taking place?

OS: When we have seen capitalism transformed in the past from what I call “Capitalism 1.0” to “Capitalism 2.0”—which is kind of free-market capitalism to social-welfare-based state capitalism a la Europe twentieth century—when that happened, it didn’t happen overnight. It happened as a result of a number of intentional innovations in infrastructures.

WA: Which occurred in Europe but not here?

OS: No. It occurred in Europe beginning with the Bismarck social legislation in the 1870s—and it happened here with the New Deal, but started actually in 1913 with the Fed (Federal Reserve, the central banking system of the US), because what the Fed does on the system for money and currency, is the same as what labor unions and social labor legislation do for the labor market—which is that they limit the market mechanism, suspend the market mechanism and put into play a system that makes sure that the health of the overall system is accomplished. It puts some boundaries around where the market has free play. Now, today we see that this system is hitting the wall because first, no one can pay for it, second, it only works in the West not globally, and third, we have new global challenges like climate change and global poverty and underdevelopment that cannot be addressed by this kind of welfare-based redistribution mechanism.

WA: And the change?

OS: That’s the challenge today. That’s where we need another revolution in terms of a new set of institutional infrastructures that facilitate ecosystem-wide collaboration between all of the key players, generating innovation and collective action rather than just debates and more fruitless talk where each side endlessly repeats their arguments.

WA: Are there any models for that now?

OS: I think there are models, but perhaps on a very small scale and at a very early stage. On a small level we see new spontaneous ecosystem-wide collaboration happening in disaster response. If a flood hits, if a disaster hits, what is happening? Everyone pulls together, looking at the pieces, figuring out what needs to be done and then immediately—and without an abstract planning process or abstract market—moves into action, moving into a very collaborative, distributive way of making things happen, and adjusting, as needed, to the situation. So, that is a rapid response model that we meet in many different fields today that, in fact, creates a new boundary for what markets, what regulation and what other mechanisms do.

WA: Can that be transferred to other areas?

OS: I think in many cases it may be difficult to pull together all the main supply chain players in industry because you have legislation against—anti-trust and so forth—that makes it difficult to convene the entire system into a space.

Targeting the weak underbelly

WA: Aside from disaster response, where do you see something that is the direction of Capitalism 3.0?

OS: Basically, it’s not there yet. But we do see small beginnings. There’s the huge movement in this country around local living economies. The whole BALLE movement.

WA: Which is what?

OS: BALLE—Business Alliance for Local Living Economies. Social and green entrepreneurs, organic food growers, and small towns and small business owners create community and entrepreneurial space that allows regeneration of the economy from the roots. Another example is interventions from non-governmental organizations (NGOs)—like WWF (World Wildlife Federation). When they looked at industry child labor abuses, they asked, “Where’s the weak underbelly of that system?” And they saw that it’s the brand! So they went after the brand—Nike—and created public advocacy. And they showed us that you can change the entire industry in a heartbeat, because the brand in the Western consumer market is the weak underbelly. Nike cannot afford to not please the advocacy groups when they take you on. And that is what is happening in other industries. NGOs figure out where the weak underbelly is, and target that. Then this major player—like Nike—says, “Hey, I don’t like child labor! It’s not me, it’s them over there where the factory is.” And the NGO says, “I don’t care, you’re buying from there. It’s your brand, so you better fix it or you’re in trouble.” So they have no other choice than to fix it.

WA: In that strategy—and I’m not in any way against it—you’re working from the dinosaur’s sensitivity about self-image, rather than getting them to look in the mirror. You’re getting them to try to change what’s in the mirror, but not what’s behind it.

OS: I’m not sure I understand.

WA: You’re appealing to a more primitive impulse to change what the appearance is—because it’s a brand—and if they have to do something they will, but they’re not doing it because they care about the child labor.

OS: I don’t think it’s that simple. The reality is very complex. It’s not either/or. If you go to Nike and you talk with the people, you’ll see that the development that followed unlocked a lot of creative potential within Nike. And, of course, there are plenty of people like you and me who care a lot about child labor, but who previously had no chance to make a positive impact within the corporate framework. So, I wouldn’t say that they just care about profits, and NGO people are the only good guys. You have a lot of gray across the business community. There is, actually, no such thing as “Nike.” It’s different coalitions, it’s different people, and in any kind of global institution today, we have a whole bunch of individuals who work and live in these institutions whose aspirations and whose real creativity is not leveraged at all. If we could activate all of these dormant, positive aspirations inside the big institutions and outside in the small ones!

WA: And it takes an awakened consciousness to do it.

OS: Exactly. The NGO community forced Nike to extend its consciousness, its awareness, from just itself to the entire system it’s operating in.

WA: So Capitalism 3.0 implies much broader collaboration.

OS: Yes. I think another interesting area where we can see good beginnings is in city ecologies, in sustainability related urban transformation, or also, in general, cities competing against each other to attract global partners, and business partners for investments in technologies. It is natural for cities to go after these big problems. A village is too small and a national government is often too big. A city is smaller scale, yet there is enough diversity to have a shared space, and there is a shared interest where you can prototype some new ways of collaborating. The BALLE movement—those are the entrepreneurs and green-minded entrepreneurs in small towns who pull together and who create a market—farmer’s markets, for example. In the case of climate change, we see the necessity for collaboration on a much larger scale.

Another example of stakeholder collaborations leading to some breakthroughs is the Commission on Dams, which convenes peoples from the NGO community who are fighting against dam construction projects of the kind the World Bank used to sponsor. It brought together the CEOs of the construction companies, the World Bank people and the NGOs. They came together, and they went through a whole process of listening to each other and coming to terms with different views. They transformed their antagonistic views, found some shared views, developed a platform of recommendations for how these types of construction projects could be handled and should be dealt with differently going forward. Where you had a highly contested issue with lots of violence and destruction going on, through a social process of listening to each other, of taking into account the scientific and all the other levels of evidence, they finally arrived at some common ground.

WA: Does this include a recognition that someone is sacrificing something, and that some of the recipients of benefit need to acknowledge that?

OS: Always. Whenever you put together a multi-stakeholder situation, what tends to happen is that it’s not just two views or two actors and one issue. It’s many more actors and many more issues and the art of facilitating and creating, so to speak, ecosystem management, which is all about bringing in all these different variables. Because what keeps you at the table is something else, something different, from what keeps me at the table. It’s all about the fact that complex problems require complex solutions. Everyone has to let go of some of their beliefs and embrace other ways of viewing, sensing and co-creating new possibilities rather than defending the past.

WA: Are the younger people coming up into the business world more ready for this than the old guard?

OS: Well, there are different generations. In all major institutions today, you have major generation gaps. There is the boomer generation, which is in power. Then there is generation X. Those are the people in their late thirties or mid-forties or so. I experience with that generation there’s a huge gap between them and the current boomer executive generation, without the executives really noticing it. But they notice it. It has to do with their being, generally speaking, more relaxed with status. They are much more down to earth and see the people dimension rather than the hierarchical dimension. They also are coming into leadership challenges that can be characterized as network leadership challenges. With network leadership challenges, being successful requires me to do way more than just oiling my hierarchy machine. Success in my job actually depends on a whole bunch of people whom I cannot control through hierarchy. I need to keep them happy some other way. So my capacity to build relationships, to listen, to communicate, and to create relationship sources of commitment is key for me to be successful. In other words, they need to be highly socially competent. These leadership and communication and listening skills are in very high demand. Yet, it is exactly that generation that grew up without parents, because both parents were working.

WA: Yes. Latchkey kids. They bonded much more with each other than with their teachers or their parents.

OS: That’s right, and they also have had disproportionately more time in front of the TV or later the computer. Basically, they probably grew up in smaller families and had significantly reduced social complexity in their experience. So they come into their careers with very low social skills, and as they progress they are confronted with challenges that require them to become world-class black belts in managing social complexity.

WA: And the following generation?

OS: The next gap is toward “generation Y,” which comes in different versions. But it is the “we” generation, the twenty-somethings now which in some ways are more inspired and motivated to create careers for themselves where they make an impact, a positive impact on their communities for the larger health of society now, rather than waiting until after their careers. So that intention is much more vivid and in the foreground for them—that’s yet another generation. In some ways, their potential and aspiration to actually create a world that is different than the one we have now is similar to the boomer generation. But this generation grew up in a completely different context, with the country in decline. It’s a very difficult thing. It’s like, the party is over and significant crises are coming at us. And by the way, we have to carry all the boomers through their retirement, for instance. When you see all the things that are dumped onto that generation, it should make everyone else feel really bad. And yet, they somehow take that. The other day I read a study saying that there are two faces of that generation. One is generation “we” that carried Obama into office. The other face of that generation has no collective sense of the “we,” at all. It has a sense that, yes, there are all these problems, but they won’t affect me. I will somehow make it. The “we” is missing. Their experience is just the self, and they say, somehow I will manage. They don’t have the idealistic aspirations.

WA: That’s a generation that has grown up with video games and very little contact with the natural world.

OS: Yes. You could say there is a huge attack on this generation, against their ability to connect with the real sources of inspiration. It works through technology. It works through a lot of other distractions that are thrown against them and against their capacity to connect. Their social capacities, their emotional capacities, their cognitive, mental and reflective capacities and their creative and deeper capacities and awareness for spiritual capacities have not been nourished at all and remain by and large underdeveloped.

On the other hand, you also have many, many people who are able to connect with their deeper sources of inspiration.

WA: What’s encouraging is that some have a mature aspiration. They see working together as an absolute necessity, and they want to engage their will right from the start.

OS: Yes. That’s a nice way of saying it. That generation is more pragmatic. Unlike the boomers, they have no tolerance for talking forever without doing something. That was possible (laughter), maybe in our generation. But if you want to be a teacher for that generation, you’d better talk from your own experience, because unless you do it, unless it’s grounded in your own experience, it’s worth nothing to them. It’s a much higher standard.

Creating a green, global, local school for action science

WA: Do you feel some basis for optimism if those people are given a chance?

OS: Yes—but you picked the right word —“if” they are given a chance. In most cases they are not. That’s why one of my big projects right now, really my big dream, is to create a G school. A G school is a green, global, local school for action science. It pioneers a new ecosystem economy based on the principles of sustainability and inclusiveness. It would really put this new Capitalism 3.0 collaboration into practice.

WA: What new ingredients does it supply that conventional academia does not?

OS: We need new leadership capacities that currently are not nurtured anywhere. So we want to create a place that would allow that generation—the generation Y— a “we” generation, to find the right kind of infrastructure and support to allow it to engage in an entirely new learning model. It would take the place of learning out of the classroom into the real world—into the hot spots of social innovation around the planet. From there it would create an infrastructure around them that equips them with methods, tools, coaching, supervision, training and the right kind of networks into various institutions and senior leadership circles that would help them to be successful.

WA: What age level does this school start with?

OS: I’m thinking about a graduate school 3, one you would go to instead of going to a school offering an MBA. I want to work with people who have a little bit of experience but haven’t yet wasted their whole career in the wrong direction. I would create an action learning school with global ecology projects and institutional partners where 3.0 ecosystems are in the making. We would provide executive training and leadership capacities for these projects.

WA: So, if I were in this school, I might over the course of two or three years be sent to several different places or...?

OS: That’s right. Your curriculum would be based on periods where you’d be on campus and then extended periods where you are sent to these places, in order to be immersed, to observe, to help.

WA: Can you name some places you might be sent?

OS: It could be a US city with sustainability based urban transformation projects, retrofitting of green buildings, working with marginalized groups and social transformation at the ground level. Or working on HIV/AIDS and maternal health in Namibia or in Zambia. Sustainability projects in Indonesia. Or working with Seventh Generation to reinvent how they connect with consumers and customers. So as a student, you have these deep immersion periods—and you do that as part of strategic change projects. I have developed very successful executive development programs where people go through a deep journey of cross-sector innovation and introspection along the lines of the U-process where they develop prototyping ideas. So the G school has the executive level members who generate these ideas and then the students are the animating force to take these ideas, put them into practice and learn from the experience.

WA: Do you see the third world as the place where important innovations will come about—because the old forms are going to die too slowly in the developed world?

OS: No—they are dying rapidly here, too. We do go where the collapse is already happening, but that is the global situation. We have poverty and collapsing systems here, too, just like in the third world. The issues are universal, and where the old is collapsing, there is a readiness and awakeness for creating the new.

WA: Lincoln, shortly before issuing the Emancipation Proclamation, called this country “the last best hope of earth.” Still true?

OS: Well, if you think of Washington giving billions to banks while pushing a brutal cost-cutting war against programs for children and the future—and you look at what we saw in Brazil when Lula 4 came to power, you might think that the cutting edge is outside us.

WA: Say more.

OS: While Obama surrounded himself with the wrong advisers, the people who were responsible for the deregulation that led to financial disaster, Lula convened a committee of a hundred thought leaders from civil society and business, local and regional representatives, to engage in a conversation and develop a shared view of the future. The concerns of labor, the poor, and the concerns of entrepreneurs and entrepreneurial dynamics were voiced and heard. There was much greater participation among people from all sectors in the decision-making procedures that affect public policy and the things that affect the livelihoods of everyone.

WA: And the result?

OS: In Brazil, the stimulus went not to the banks, but to the bottom of the social pyramid, supporting school attendance, and providing guaranteed minimum income.

The winds of change are blowing

WA: Is there a message for us?

OS: We can’t sit still and wait for someone else to do the difficult change work in society. Not the White House—we need to do it ourselves. The winds of change are blowing. Even in Davos at the World Economic Forum, I found that more and more people are aware of the larger wind of change that is now starting to reshape and shatter even some of the most entrenched institutions on earth. What’s next? Who is the Mubarak in global finance that will crumble next? Who is it in the global food system? We are just at the very beginning of an unfolding story.

WA: Thank you.

1. See www.presencing.com/presencing-theoryu. "Presencing," refers to the ability to sense and bring into the present one's highest future potential—as an individual and as a group. Theory U suggests that the way in which we attend to a situation determines how it will unfold and offers a set of principles and practices for collectively creating the future that wants to emerge.

2. Capitalism 3.0: is an as-yet-unrealized intentional, inclusive, ecosystem economy that upgrades the capacity for collaboration and innovation throughout all sectors of society.

3. www.ottoscharmer.com/docs/articles/2011_PresencingGschool.pdf

4. Luiz Inácio Lula da Silva known popularly as Lula, served as the 35th President of Brazil, from 2003 to 2011.