Photo by Sandrachile . on Unsplash

Respect the Doughnut – economics for challenging times

Economics is not about discovering laws, it is essentially a question of design – Kate Raworth

Economics as we know it has got it all wrong. Economists failed to predict the 2008 global financial crisis, and in the face of humanity’s myriad crises of today seem unable to do anything else but prescribe more of the same. Meanwhile we live in a world where inequality reigns, poverty still kills people and, to boot, we are dangerously close to destroying the conditions for life on the planet.

It is this familiar critique of economics and the contemporary state of the world that Kate Raworth elaborates on in her insightful “Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist”. She doesn’t stop at diagnosing the problems, however, but articulates a holistic vision of how the economy needs to change if it is to address the related evils of human suffering and environmental degradation.

The book brings together a wealth of policy ideas, critiques and exciting new developments under a single, comprehensive framework. Under each of the main points summarized below, there is a plethora of practical proposals and examples of change already happening. And don’t let the light, catchword-sprinkled tone fool you, many of these ideas are truly radical.

And now for the big vision. It is contained in Kate Raworth’s model “the Doughnut”, called thus because of its shape consisting of two concentric circles, each of which represents a boundary that the economy should not cross if we are to have a world where all human beings can thrive.

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The inner circle is what she describes as the “social foundation for human well-being”. It represents the minimum desired and acceptable level of satisfaction of human needs, material and social. Anything below this border would be considered deprivation, or shortfalls, such as in housing, income, education, political voice, etc. The upper circle represents the ecological boundary, beyond which human activity becomes a threat to the environment. To ensure survival, a good life and justice for all people, including future generations, and all other life forms on the planet, we humans need to learn to live (and fit our economies) within the “safe and just space” between the two circles.

The central goal of economics, according to Raworth, should be to design the economy in such a way as to enable humanity to respect the Doughnut’s two boundaries, to make it distributive for people and regenerative of nature.

How to achieve this? Raworth proposes seven main changes in economic thinking that should recalibrate the discipline to make it fit for our 21st century challenges:

1. Change the goal. Continuous growth of the gross national product (GDP) has been the paramount goal of mainstream economics’ ever since the mid-20th century. Raworth joins a host of other thinkers in, for example, the degrowth or the economy for the common good movements, who believe this is wrong. Economic growth cannot by itself solve all other problems our societies are facing and it cannot last forever, due to the very scarcity of resources neoclassical economics so often refers to. Delivering well-being for people and the planet (our “planetary household”) should be the main purpose of economics, in lieu of growth, profits and the other usual suspects.

2. See the big picture. In neoliberal economics, the market rules. It’s supposed to most efficiently allocate resources when left to its own devices. Regulation ought to be minimal, the state’s role restricted to providing security to its citizens and protecting private property. Society is irrelevant, and the Earth’s resources seen as unlimited and thus left out of the equation. Kate Raworth advocates stepping back and taking a broader view to see the economy how it really is, embedded within Earth’s natural systems and within human society. Within the economy itself, households, the market, the state and the commons all have an equally important role to play in meeting human needs. None should be given primacy over the others, but they should all be supported to serve human welfare in mutually complementing ways.

3. Nurture human nature. Neoclassical economics bases its theories on a limited view of human nature, the notorious endlessly rationalizing and self-maximizing homo economicus. Instead of sticking to this impoverished caricature of who we are, we should promote an expanded portrait that takes into account our capacities for solidarity, empathy and reciprocity.

4. Get savvy with systems. Economics has long striven to come up with simple, mechanics-inspired models to explain and predict the workings of the economy. Think of the iconic supply and demand graph. What often gets overlooked is that these models come with a set of specific assumptions that almost never hold in reality – the economy is simply much more complex. Thinking in terms of systems can do a far better job helping us understand how our world works and what actions we could take to reverse negative developments. The trick is to see the economy as a system akin to a living organism and study what makes it move and what makes it stop (i.e. its feedback loops), and how its many different actors are interconnected and affect each other over time. Economics should be the art of tending the metaphorical garden, i.e. working to create the conditions for the system and its participants to prosper and constantly experimenting with interventions and inventions that can bring about positive change.

5. Design to distribute. It’s high time we set the record straight, says Raworth: inequality is neither good for growth nor a necessary stage of development. On the contrary, more unequal societies are shown to be less healthy and happy, and to face a higher degree of environmental degradation. Redistributing income is not enough to address the situation, for most of the rise in inequality we see today is due to wealth concentration resulting from returns on capital. Meaning the rich get richer not through wages, but because they own property, such as real estate, shares in companies, or financial assets, whose value increases over time. Therefore, apart from income, we should also distribute capital (the sources of wealth), as well as time and power. Moreover, our economies should be distributive from the start, rather than just correcting after the fact. This is where distributive design comes in, pointing at ways to democratize control over land, money creation, enterprises, technology and knowledge, and to do so at a global scale. Land can be managed in common by communities, enterprises owned by workers, and technology and ideas shared though open-source digital platforms. With economic power thus widely spread out, the future economy should be more of a network than a hierarchy, with the different nodes nourishing and supporting each other.

6. Create to regenerate. As regards the environment, our current economic setup resembles a caterpillar – eating up Earth’s resources at one end and spewing out waste from the other. We should instead strive to design a circular, “butterfly” economy (image below), with all the energy and resources in constant flow – reused, renewed, returned to the planet’s life cycles. For this to happen, businesses will have to make giving back to the environment a primary goal, the financial sector will need to be scaled down and transformed to support bold environmental design, and the state will need to implement taxes, subsidies and regulations that promote life.

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7. Be agnostic about growth.
Once again, as long as we are focused on living within the Doughnut, it is simply not relevant whether the economy grows in a given year or not, different indicators of success will apply.

Whew, that was a lot to take in at once! But radical times call for radical measures. At the moment, humanity is reportedly overshooting at least five of the nine planetary boundaries built into the Doughnut, and the situation is deteriorating fast. A change of course is needed urgently! As an economic model, the Doughnut has great potential to help people visualize the way the economy is nested into Earth’s ecosystems and human society, and finally realize (or relearn) that it is not an isolated, closed realm. It should serve nature and society, not the other way around.

I also like that the book establishes a firm connection between environmental protection and economic justice, citing evidence that more equal societies are more likely to achieve the consensus needed to pass environmental regulations and to take good care of their environment. Currently, way too many people live below the acceptable thresholds for each of the twelve dimensions of the Doughnut’s social foundation, and maybe concerns about the environment will add to the pressure to do more about this. Those very concerns, however, require that we use new, environmentally friendly approaches in the effort to eliminate poverty as well. In short, the two goals, caring for the environment and ensuring a decent life for all people, are worthy in themselves, but are also deeply interconnected, for reasons the Doughnut makes clear.

There is, however, lack of clarity, about the political processes that should be set in motion to realize the Doughnut’s ambitious vision. First of all, since it calls for global transformations, how can we ensure that people everywhere share this vision? Is it not “too Western”, too top-down? Furthermore, what kind of collective could bring about the changes required? How would it stand up to entrenched power and how can today’s owners and capitalists be made to renounce short-term gain and change a system designed in their favour? As Duncan Green suggests, a Doughnut Politics is clearly in order! And it could probably benefit from some serious class and power analysis.

Will the Doughnut be the banner under which humanity finally saves itself and the planet? Not sure, but exploring the ideas it presents is definitely worthwhile.

Featured photo credits: Sandrachile . on Unsplash.

By: Daniela Atanasova