Doughnut Economics

Doughnut Economics:  Seven Ways to Think Like a 21st Century Economist
By Kate Raworth
Chelsea Green Publishing, White River Junction, Vermont.  2017

How do we shift our economy from a focus on never-ending GDP growth to living within the “Doughnut?”

Doughnut?  What doughnut?

Scientists are telling us, with increasing certainty and urgency, that human activity is damaging the Earth’s biosphere.  We must take action to prevent potentially catastrophic consequences. For example, we need to limit global warming to no more than 2 degrees Celsius above pre-industrial levels. That’s one example of a “planetary boundary” that we should not exceed. There are actually nine of these planetary boundaries relating to critical ecological systems that we all depend on.  You can read more about them here.  Together they form a “safe operating space” for humanity.

But we also need to address hunger, poverty, disease, illiteracy and other social development issues, best summarized by the United Nations Sustainable Development Goals adopted in 2015.  These too are a set of boundaries; social development boundaries that form a foundation, or a floor that we should not fall below.

These two sets of boundaries form a “safe and just space for humanity,” a doughnut with an outer circle of planetary boundaries and an inner circle of social boundaries.

Kate Raworth, a “renegade economist” and research associate at Oxford University’s Environmental Change Institute, popularized the idea of the Doughnut in a paper she wrote in 2012.  (I blogged about it here.)  It looks like this.

The Doughnut: A Safe and Just Space for Humanity

Source: Oxfam

But how do we get there?  We need new economic thinking to help drive the transition to an economy that fits within the social and environmental boundaries of the Doughnut.

That’s what Kate Raworth proposes in her 2017 book Doughnut Economics:  Seven Ways to Think Like a 21st Century Economist.

Doughnut Economics - cover

Doughnut Economics is about reforming the field of economics, about changing the way economists think, view the world, and practice their profession.  But along the way it paints a pretty clear picture of what a new economy should look like, or at least what Raworth thinks it should look like.

Reading a book about economics might not be everyone’s cuppa, but I found Doughnut Economics to be anything but dry and monotonous.  Raworth writes with conviction and urgency, and although she occasionally becomes a little strident, her arguments are well-researched.

Each chapter of the book examines one major topic or aspect of traditional economic theory and essentially stands it on its head.

These ideas in the book are neatly summarized by this chart from the Introduction.

Doughnut Economics - Summary Chart

Source:  Chelsea Green Publishing (https://www.chelseagreen.com)

For me the most profound change Raworth proposes is to stop thinking about the economy as an entity that is separate and distinct from society and the environment.  Instead we ought to recognize that the economy is embedded in society which is in turn embedded in the biosphere.  The economy, she says is not a machine that can be modeled with Newtonian laws.  Instead it is a complex adaptive system governed by the interplay of stocks and flows of resources, feedback loops, and delays.  Contrary to classical economic theory, disequilibrium might be the norm.

This may sound obvious, even trite, but economic theory is not taught this way at most universities.  Pollution, climate change, even technology, are treated as “externalities” in economic theory, relegated to the sidelines instead of being centrally important.

Another key idea is that the economy must be designed to be regenerative.

We can picture today’s economy as a straight line.  It runs in a sequence: take, make, use, lose.  We take resources from the environment, make the things we need and want, use those things, and then lose the leftovers or the byproducts.

  • We take petroleum from the ground, make it into gasoline, use it in our cars and trucks and lose the CO2 into the atmosphere.
  • We take wool and cotton from farms, make them into clothing, wear it for a season or two and then lose it into landfill.

You get the picture.  The take-make-use-lose economy is a straight line.  It’s also unsustainable.  In the end, everything ends up as waste.

Raworth says we need to move to a circular economy, one where all materials belong to either a biological cycle or a technical cycle – like two wings of a butterfly.

Many of us try to recycle at home.  Some of us even compost food waste.  However, what Raworth and others are calling for is a profound restructuring to make restoration and regeneration a central organizing principle of the economy.

“Take mobile phones, for example, which are chock full of gold, silver, cobalt and rare earth metals, but are typically used for just two years.  In the European Union, over 160 million mobile phones are sold annually, but in 2010 … 85% ended up in landfills or lay defunct in the back of some drawer.”  [p. 186]

In a circular economy, Raworth says, phones would be designed for easy collection and disassembly. They might be built in a more modular fashion allowing for easier repair, refurbishment, or reuse of components.  This impacts not just the design and manufacturing of products, but how they are sold, delivered and collected again.  Like I said, a fundamental restructuring.

Finally, Raworth urges us to abandon GDP growth as our economic North Star.  She’s not against growth, but she says we should be agnostic about it.

 “No country has ever ended human deprivation without a growing economy.  And no country has ever ended ecological degradation with one. “ [p. 208]

We need to design our economy so that it “promotes human prosperity whether GDP is going up, down, or holding steady.” [p. 209]  Growth, if it occurs at all, should be in service to human well-being.

Thriving within the Doughnut is humanity’s most important goal.

Unsolicited Feedback

I remember taking a bunch of economics courses at university. The first year courses really frustrated me because they presented such a grotesquely simplified view of the economy.  The models we learned about were based on a laundry list of assumptions that were divorced from reality. I knew there was no such thing as perfect competition.  I read all the time about mergers and acquisitions leading to concentrations of economic power.  I was majoring in computer science, so I knew first-hand that technology was not just a static input.

In my upper years, I took some econometrics courses.  The models got a little more sophisticated, the assumptions a little less ridiculous.  Still, the underlying premise was that we could in fact develop accurate and predictive models of how billions of humans would interact and behave, or at least billions of “rational economic actors.”  Looking back, the hubris was incredible.

So it was refreshing to read Raworth’s call for a thorough revamping of economics.

But it’s her ideas about how to reshape the economy into a more sustainable form that make Doughnut Economics worth reading.  You probably won’t agree with them all.  I didn’t.  But if we are to respect planetary and social boundaries, we must change course.  Raworth is out there at the bow of the ship pointing one way forward.

Related Links

A safe and just space for humanity
Paper defining the Doughnut by Kay Raworth, February, 2012

A safe operating space for humanity
Paper describing planetary boundaries by Johan Rockström, September, 2009

A healthy economy should be designed to thrive, not grow
TED Talk by Kate Raworth, April 2018

Why we need to move toward an economy that can regenerate itself
ideas.ted.com article by Kay Raworth, April 2018

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