System Change our Economy. A practical approximation.

“System Change” is something we frequently demand today. In our health care system. In our education system. In our pension system. And maybe most at center stage: in our economic system. But what do we mean by these words? 

Let’s go untangle that a bit.

What is a system? And how does it work?

“A system is a set of elements that is interconnected in a way that achieves its function.” (Meadows, 2008). It has a purpose, elements, relationships that connect them and can be structured into stocks, flows and feedback loops. Now, try to think of anything that is not a system according to the quoted definition. Have you found something? It is actually not that easy. As part of the living world, we are always surrounded by multiple systems at a time. A forest. Your team. A sports club. Your family.

Probably the most famous system thinking scientist was Donella Meadows. She has researched on the behaviour of systems & systems change and became famous for her report on the limits to growth. Because, yes, also our entire planet is one of those systems.

Systems are a setup of roles, resources, relationships, rules and results. (There is actually a great methodology developed by Ashoka and other system change agents, that can guide you through the process of mapping “your” system of concern. This can help you develop a Theory of Transformation (TOT) and Theory of Change (TOC) both for your organisations as well your personal journey.)

What is really important – and I am cutting it short now – is that systems work cyclical, they have feedback loops and they are complex. Note: not just complicated, but complex. Complicated are problems that are hard to solve but it is possible to do so with a certain method, like a difficult math problem. With complexity elements of uncertainty arise. Small butterfly effects can lead to unforeseen consequences, and no one input can with certainty be linked to a resulting outcome. Patterns emerge, self-organize, and surprise the human mind, like in disruptions of innovations that no one foresaw. At the same time, complexity does not equal chaos. There are patterns that emerged over time, and we can assume these patterns to continue or incrementally evolve – never with full certainty of course. 

That means that we can not know for sure, what the outcome of one specific action is. The intervention may affect a threshold or unknown relationships. Think of your class when you were at school. Someone new joins the class. You can already guess how some people in the class will react, who will get along, but you can not predetermine how your system will evolve. There might be new groups forming, invisible hierarchies challenged and the tone of voice in the classroom changes – for the better or the worse.

Or as John Muir put it: “When we try to pick out anything by itself, we find it hitched to everything else in the Universe.” – (1911)

What does that have to do with economic change?

Well, first of all, as you are already aware, our economy is such a system. It has roles (e.g. consumer, the state etc.), relationships (e.g. contracts between investors – investees), rules (e.g. the inflation rate), resources (e.g. working hours) and results (employment, wellbeing – though today we usually think of GDP).

How we define the boundaries of that economic system is crucial because it will influence the elements that become part of our analysis (read also this perfectly articulated blog entry on Care Economy, link) and consequently, where we believe we can steer the system. Think about it for a moment. How would you define “economy” or “economics”?

When we try to change systems, change agents try to find so-called “leverage points”. It is like the jackpot of system change activism. A leverage point is something, that when pushed with little energy, will be able to significantly shift the system’s outcome and design. Usually, as systems activists, we don’t have that many resources – both in terms of time and money. So we try to find that leverage point, which we can target our limited resources towards. Donella Meadows in her time has come up with a hierarchy of these leverage points. (see below). The further right, the higher the leverage.

Now if we want to change the economic system, we can try do so on different levels:

We can for example propose new height on subsidies given to people in poverty (parameters / numbers). This will cause real impact, but it will not change behaviour at scale, which makes it a rather low leverage point, even though a lot of time is invested in these types of discussions.

Let’s take a look at something in the middle: Information flows. Usually, we have what economists call imperfect markets due to imperfect information. Through entering certificates or sustainability reports we can add an information flow between the company and the consumer or the company and the state. Even higher on the hierarchy, we could add a rule, like an environmental tax, which could result in a negative feedback loop.

Negative feedback loops are really important to keep a system in balance, because they counteract positive feedback loops that spiral the system in one direction (e.g. wealth creates better access to networks, which creates access to more capital, leading to better investment chances, leading to more wealth …). 

“Changing the goal”can be really powerful and affect rules, information flows, basically everything towards the left. When we build a social / impact enterprise, we change what was believed to be the purpose of business for a very long time from profit to purpose. If done right, it changes how governance is built, how finances are managed, how people behave within that system. Adam Smith has proclaimed wealth to be the goal of the economy. John Maynard Keynes believed full employment and price stability to be the target size of economics and nowadays, wellbeing has become more popular in discussions.

And finally, we arrive at paradigms. Paradigms are the assumptions that together make up a certain view of the world. A belief system that is so deeply enrooted, we never really feel the necessity to state them, because they seem so obvious. “Progress makes us happier”, “humans are selfish”, “money is a useful instrument”, “growth is good”, “civilization makes us better”, “resources are scarce”. 

When we call for true paradigm shifts in our economy, we first need to understand what that paradigm is, that informs our thoughts, our action, our being. To say it with a classic Einstein “We cannot solve our problems with the same thinking we used when we created them”. In my perspective, we still hold on to many paradigms of managerial capitalism when creating the impact economy. I am not saying these sets of beliefs are all wrong. We also need paradigms to structure our worldview, otherwise we become lost or indifferent. But in order to change our paradigms, we need to challenge ourselves to step outside, become detached on some level, see things from a different consciousness. The more we dissolve our paradigm view, the more open it makes us towards new innovation in our socio-economic system. 

If you are interested in what that can look like in practical terms, I highly recommend reading “Earth for All”. With this book and computer model (building on the world model from “Limits to growth”) a group of scientists reporting to the club of rome have identified 5 major turnarounds on inequality, poverty, women’s empowerment, food systems and clean energy to shift our economy to a just and sustainable one. In this they make several proposals on policy change linked to a shift in paradigm (see graphic below). 

What role can we consequently take after our analysis?  After all, we don’t want this to be an intellectual exercise.

The Horizon Three Model is a really great framework to start understanding the different layers of change (But we should probably have an extra blog entry on this one. For the very curious: watch this video.)

Building on Schumpeters approach of destruction & construction, Steve Waddell proposes a – as I find beautiful – model of 4 strategies to act for change. It can help us find our personal journey, understand our logical limitations and at the same time honour approaches other people around us take.

• “Doing Change: The Entrepreneurs” Focused on creating something new, that is “better” than the old but challenged to stay irrelevant compared to the size of the existing.
• “Forcing Change: The Warriors” Focused on challenging the status-quo and influencing people with the “new”.
• “Directing Change: The Missionaries” Focused to destruct current design flaws from within, usually with power in the existing system.
• “Cocreating Change: The Lovers” Focused on bringing people together to collaborate, challenged with balancing two fronts.

To conclude, I think what I have taken from system change science so far is (1) there are tools and processes to systemically think about and impact system change. (2) There will be different strategies of system change, which ultimately all need to do their part in leveraging the system together. And (3) we are kidding ourselves, if we believe that the system change we plan, will play out how we predict at the beginning. After all, every system map is only a portrayal of our consciousness and systems are more complex than we perceive. 

So to close it with Donella Meadows herself: 

“Magical leverage points are not easily accessible, even if we know where they are and which direction to push on them…it seems that power has less to do with pushing leverage points than it does with strategically, profoundly, madly letting go.”

Further reading (in order of time needed from a few minutes to a couple of months):

• Website article: Leverage Points by Donella Meadows, https://donellameadows.org/archives/leverage-points-places-to-intervene-in-a-system/
• Four Strategies for Large Systems Change, Steve Waddell, Stanford Social Innovation Review. 2008
• Book / Website: Earth4All, A survival guide for humanity, Sandrine Dixson-Declève, Owen Gaffney, Jayati Ghosh, Jørgen Randers, Johan Rockström, Per Espen Stokne. 2022
• Journal Article: How do we know where there is potential to intervene and leverage impact in a changing system? The practitioners perspective, Anna Birney, 2021 
• Report: James Arbib & Tony Seba: Rethinking Humanity (Report 2020) – https://www.rethinkx.com/humanity,
• Book: Thinking in Systems, Donella H. Meadows. 2008