The Doughnut that Could Save the World

A review of the book Doughnut Economics by Kate Raworth

Every day the news provides us with more examples of how we as humans continue to fail our planet and each other.  Hurricanes, fires, floods, growing deserts and rising levels of extinctions show us the harmful effects we have had on our environment.  The #MeToo movement shows us how long we have devalued the dignity of women in our world.  Political news from many countries highlights growing discord, as those with wealth and power connive to extract more wealth from the rest of the population, often inflaming ethnic and racial tensions in the process.  And while we have shown progress in reducing poverty, we still acquiesce to a world where a tenth of all people live in extreme poverty.  Meanwhile, the growing capacity of technology and artificial intelligence portends a time when production will no longer need human labor.

Another couple of generations at this pace and the only question left is what will destroy us first, all-out class warfare or a global environmental catastrophe.

Can a doughnut turn us away from our headlong rush into self-destruction?   Kate Raworth thinks so.  Raworth has worked with microenterprises in Tanzania, as a researcher for Oxfam, and now serves as a visiting senior research associate at Oxford’s Environmental Change Initiative.  The doughnut is her illustration of a radical new theory of economics that she has developed, one that changes the goals of the game in order to give us a new concept of what economic success looks like.

Like a doughnut, Raworth’s illustration has an outer border and an inner border.  Our ecological ceiling, the level at which we expend or destroy resources faster than they can be renewed, forms the outer border.  Our social foundation, the level at which every person has the adequate resources and rights to live a healthy and purposeful life, forms the inner boundary.  The goal of economics, then, should be to operate between the two boundaries as a regenerative and distributive economy, in a zone she calls the “safe and just space for humanity.”  Depleting our natural resources shows that we are overshooting our ecological limits.  People living in extreme poverty or without basic human rights shows that we are falling short of our productive and distributive targets.

In the diagram below, Raworth delineates the elements that make up the outer and inner edges of the doughnut:

Raworth organizes her book around seven changes in the way we think about economics brought on by this new paradigm.  I’ve listed the seven changes below, but here I want to highlight some of the important implications that the book describes as coming from this way of thinking about our economy.

• We need to replace our view of the economy as a “closed, circular loop” and begin to see it as an “open system with constant inflows and outflows of matter and energy.” This means we must place a much greater value on the resources we receive from the Earth and a greater cost on using resources that cannot be replaced.
• We need to also place much greater value on the contributions of the household that do not currently show up in our economic accounts, such as caregiving, food preparation, cleaning and the education of children. Raworth points out that these services make it possible for humans to provide their labor to businesses.
• We need to develop a more well-rounded view of humans than traditional economics has held. We are more social and reciprocal than narrowly self-interested.  We have fluid values rather than fixed preferences.  We are interdependent rather than isolated.  We approximate rather than calculate.  And, we are deeply embedded in the web of life, rather than standing apart from and over nature.
• We need to recognize that not everything needs a price. “Twentieth-century theory has led economists to overestimate the effectiveness of price as a lever and to underestimate the role of values, sense of reciprocity, networks, and heuristics.”
• We need to look at the economy as a garden, rather than a machine. Rather than believing that markets and economies will self-regulate, we need to understand that they need constant stewarding.
• We need to care about the distribution of wealth as well as caring about its creation. “Contrary to the founding theories of development economics, inequality does not make markets grow faster: if anything, it slows them down.  And it does so by wasting the potential of much of the population: people who could be schoolteachers or market traders, nurses or micro-entrepreneurs – actively contributing to the wealth of their community – instead have to spend their time desperately trying to meet their families’ most basic daily needs.”
• We need to see that the business of business is to contribute to a thriving world, not merely to make money for shareholders.
• We need to create economic policies that aim for balance, rather than growth. Growth that consumes resources at levels greater than the Earth can sustain leaves us poorer.

“Contrary to the founding theories of development economics, inequality does not make markets grow faster: if anything, it slows them down.  And it does so by wasting the potential of much of the population … “

 

 

 
Raworth’s economic theory brings a lot more complexity than earlier economic models.  Those older models, that still hold sway today, simplified analysis by giving one objective to people and corporations (maximizing financial gain), focused only on production, did not account for labor that is not paid or the true cost of natural resources and pollution,  and called everything that was too hard to model “externalities.”  But, in this age of big data and networked information, developing ways to measure the economy in a more complex and accurate way should be possible.

I also appreciate that Raworth’s theory includes the people that I have spent my life working with, people living in poverty.  Not many economic theory books come with sentences like, “Millions of women and girls spend hours walking miles each day, carrying their body weight in water, food, or firewood on their heads, often with a baby strapped to their back – and all for no pay.”

To move from theory to practice, though, we will need some additional steps.  First, we will need measurement systems that make that move from the global level to the national, corporate and individual level to show the role that all play in moving the world to greater balance or imbalance.  National economic systems will need to show what is happening to each country’s natural resources and how economic activity affects wealth distribution and poverty levels.  Corporate annual reports will need to see whether the company contributes to a more equal or inequal society and whether they develop products that regenerate resources or deplete them.

With proper measures, we will then need proper incentives for corporations and individuals to operate in ways that move us into balance.  Raworth suggests policies like taxing the use of natural resources, rather than labor and providing greater tax benefits for those who stay home to care for their children.

All theories are abstractions.  They make simplified models of the real world to enable us to understand the interactions between variables.  But sometimes these simplifications leave out important elements and end up promoting activity that ends up not matching what is best for nations or for the planet.  This is the place we are with our old economic theories.  We have produced incredible economic growth over the last two centuries, but that growth has also imperiled the earth that sustains us.  We used to assume that, over time, economic growth would lead to greater equality, but now we see advanced economies where most of the gains from economic expansion accrue to the wealthiest members of society.

Raworth gives us a theory that fits the growing complexity and interconnectedness of our world.  She provides a picture that shows us where we are falling short in making our planet a safe and sustainable place where all its inhabitants can thrive, as long as they don’t eat too many doughnuts.

Seven Ways to Think Like a 21st Century Economist

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1. Change the Goal: From GDP to the Doughnut
2. See the Big Picture: From self-contained market to embedded economy
3. Nurture Human Nature: From rational economic man to social adaptable humans
4. Get Savvy with Systems: From mechanical equilibrium to dynamic complexity
5. Design to Distribute: From “growth will even it up again” to distributive by design
6. Create to Regenerate: From “growth will clean it up again” to regenerative by design
7. Be Agnostic about Growth: From growth-addicted to growth agnostic