Doughnut Economics

Rowan Hoyler

Summary

• Reforming our economic systems is an essential component of the fight against climate change and other forms of environmental degradation in the 21st century. Unfortunately, there has been a dearth of ideas provided by mainstream economics. 
  
• The natural environment and its resources on which our economies depend is given little attention in economics, and that which it does receive is misguided. The current approach is guided by a mindset of extraction, with any consequent damage viewed as an inconvenient side-effect. 
  
• Fortunately, several renegade economists are breaking out of the mainstream and collaborating with biologists, anthropologists, and other researchers to propose new ideas to address our environmental issues. Kate Raworth, the author of ‘Doughnut Economics’, is one such economist. ​
  

Image courtesy of Research and Degrowth website

• In her book, Raworth offers a critique of modern economic thinking and its failure to acknowledge the devastation our contemporary systems have on our planet. 
  
• Part of the reason for this failure is the metric’s that economists propose we should use to measure a society’s welfare. 
  
• Foremost among these metrics is Gross Domestic Product (GDP), a measure of the market value of all the final goods and services produced within a country’s borders. 
  
• This measure has long been used as a measure of a societies welfare but doing so is unhelpful for two reasons. First, this number can increase due to the productions of goods and services which do little to increase our welfare in ways we care about. 
  
• Increasing sales of guns, prescription medications and cigarettes would all increase GDP, but none of these sales indicate societal progress. 
  
• Second, this number could continue to increase even if we chose to do absolutely nothing to prevent an environmental catastrophe. Although there are some signs that developed nations can uncouple GDP growth from resource extraction end emissions, research suggests this is due to an outsourcing of production to foreign countries rather than genuine improvements. 
  
• GDP is a narrow and flawed measure of a societies well-being and in dire need of an update. It is surprising that we have clung to it for so long since even the economist who created it, Simon Kuznets, warned that ‘the welfare of a nation can scarcely be inferred from a measure of national income’ [1]. But a constantly growing GDP has been a convenient number for politicians, who employ it to convince citizens that their government is doing things right, and for decades mainstream economics has failed to offer up any compelling alternatives. 
  
• In addition to flawed metrics, the last few decades of the 20th century saw the rise of flawed economic ideas. 
  
• In this period, neoliberalism, an economic ideology which favors free markets and offers little concern for social welfare or the planet, came to prominence. 
  
• As Raworth explains, these ideas have failed to provide a stable foundation for economic activity and have brought us to the brink of an environmental catastrophe. 
  
• Neoliberalism views the market as the most efficient way to allocate resources in society, and therefore opposes government interference through taxes or regulation. 
  
• In order for free-markets to function efficiently, the financial sector must also be given total freedom to allocate capital to its most productive uses. 
  
• As for the planet, it is merely a resource to be pillaged and polluted by the industrial operations of business. 
  
• Neoliberals believe that prices contain all the relevant information that people need to make informed decisions, and that the aggregate of these decisions will be the best outcome for society. 
  
• These ideas came to prominence in the Thatcher-Reagan era and became popular among the political class. Although they may sound conservative, neoliberal ideas became so entrenched that decades later even the policies of left-leaning politicians, such as Tony Blair in the UK and Bill Clinton in the US, were mostly in alignment with them. ​
  
• The flaws of neoliberal ideas became most apparent with the Great Recession of 2008, with the unregulated financial sector being the primary cause of this crisis. 
  
• But there was plenty of evidence before this that leaving the invisible hand of the market entirely unrestrained will not bring about socially optimal outcomes. 
  
• For starters, inequality has been increasing in most of the nations that implemented neoliberal economic policies. As Raworth notes, there is only a certain amount of inequality a society can handle before it starts to become unstable. 
  
• Furthermore, the invisible hand is dangerously short-sighted. When it comes to climate change, we should be thinking decades and even centuries into the future. But markets are primarily focused on quarterly returns and have little incentive to look further into the future. The fact of continually rising emissions is a sure sign that unregulated markets are incapable of addressing climate change. 
  
• There is clearly a need for a different approach to free-markets, the financial sector, and the role of government in the 21st century, and Raworth offers a few suggestions.
  
• She argues that we should recognise that free markets are powerful and embed them in our economy wisely. 
  
• We should recognise that finance should be in service to society and should work to promote social and environmental stability. 
  
• We should recognise that the state is essential, and that there is no hope of us facing the challenges of the 21st century without organised and effective governance. We should therefore focus on making the government as efficient and accountable as possible so that citizens can come to trust it. 
  
• To do all this, we need to change our approach to economics. We are using the wrong metrics to measure our progress and using flawed ideas to guide our approach to policy-making and civic life. 
  
• Raworth offers us a new vision, one which seeks to help make our societies more just, stable and sustainable. This vision fully incorporates the need to achieve a decent standard of living for all while respecting planetary boundaries. This vision is the doughnut. 
  

Image courtesy of Voices of Youth website

• In this model of our economy, there are two fundamental considerations. First is the social foundation on which prosperous human life depends, shown by the dark green inner circle. Second is the ecological ceiling beyond which the planet will not be able to support our societies. With regard to the inner circle, we are concerned with shortfalls, and for the outer circle overshoots. The area between the two is ‘the ecologically safe and socially just space in which humanity can thrive’ [2]. ​
  
• The social foundation is divided into 12 sections, and includes natural resources such as water, food and energy, as well as societal resources such as housing, education and peace. They are based on the United Nation’s Sustainable Development Goals, a set of global goals to achieve a more prosperous life for all by 2030. 
  
• The image shown uses global data, and the red chunks in the hole of the doughnut show the size of the shortfall for each category. We can see that overall we are falling short on all of these dimensions, meaning that millions of people across the globe do not have the necessary requirements for a decent life. 
  
• The ecological ceiling, represented by the dark green outer circle, is based on the work of an international group of Earth-system scientists led by Johan Rockström and Will Steffen. These scientists constructed a set of nine planetary boundaries and used environmental data to quantify their limits. 
  
• As the doughnut shows, we are dangerously overshooting 4 of the 9 boundaries: climate change, biodiversity loss, nitrogen and phosphorous loading, and land conversion.
  
• The doughnut provides a clear message: we have much work to do to ensure our societies provide a decent life for all, while respecting the boundaries of the planet which supports us. 
  
• Some may view the doughnut as too simplistic, reducing several complex issues into one insufficient diagram. 
  
• However, far from being a weakness, the doughnut’s simplicity is its greatest strength. It is an image of our economy that every person can understand and incorporate into their decision making. It is an image that entrepreneurs can consider when they found a new business. It is an image that politicians can consider when they construct new policies. It is an image that citizens can consider when they participate in civic life. 
  
• It is a concise, compelling, and coherent representation of how our economy should function in the 21st century which stands in stark contrast to neoliberal ideas. While neoliberalism views profit-maximisation as the highest value, the doughnut incorporates the resources we need and the values we truly care about.
  
• Several cities, businesses and organisation have been working with Raworth’s “Doughnut Economics Action Lab” team to see how their operations can be adjusted to move society closer to the sweet spot of the doughnut. 
  
• For instance, in April 2020 the city of Amsterdam formally embraced the doughnut model as their guide for policy making. The municipal government have analysed how Amsterdam contributes to the violation of planetary boundaries, and where it falls short of providing a social foundation. They aim to be climate neutral by 2050 by reducing CO2 emissions from buildings, transport, and electricity [3]. 
  
• Several other cities, from Sydney to Berlin, are developing plans to follow suit. 
  
• The doughnut is no silver bullet, and it may not be appropriate for all nations. Several developing nations are currently experiencing significant reductions in poverty rates, and it is unlikely they will want to change their economics systems as long as they continue doing so. 
  
• But developed nations are long overdue a new economic model. 
  
• A neoliberal approach to economics is insufficient to provide a decent life for all while respecting planetary boundaries.
  
• Our narrowly defined measures of social welfare and inability to imagine alternative systems mean that we have failed to protect the things we truly value and depend upon.  
  
• 20th century thinking must be abandoned if we are to thrive in the 21st century, and the doughnut is a tasty step in the right direction. 
  

Sources
[1] Raworth, Kate. Doughnut Economics.
[2] Raworth, Kate. Doughnut Economics. 
[3] https://www.amsterdam.nl/en/policy/sustainability/circular-economy/