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Doughnut Economics – Solving Inequality & Ecological Degradation with a New Economic Model
Doughnut Economics by Kate Raworth's might have an answer for some of the 21st-Century most pressing challenges

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At “Fridays for Future” protests, young people vent their frustration with the ongoing environmental crisis. And for quite some time now, the degrowth movement has been calling for an economic and social transformation, rejecting the primacy of endless growth. Yet mainstream economics fails to provide answers to the pressing issues of our time, challenging the future of globalization: How can we avert the destruction of our planet earth while meeting the social needs of all?

In Doughnut Economics, Kate Raworth uncovers mainstream economics flawed assumptions and advocates for seven ways to not only rethink but also redesign economics. At the core of Rawoth’s book lies the notion of a circular economy, one that has become the goal of a social movement and now is part of active policy-making like in the New Industrial Strategy of the European Union. In the following, we present the main takeaways of Rathworth’s work.

 

Starting with the Doughnut

For Raworth, economics lost sight of its social goal while trying to align with physics’ laws of motion, with GDP being the most prominent proxy for wealth.

But even after years of global economic growth, problems of extreme inequality persist, and the destruction of the environment has emerged as a by-product of this economic model. This is where the doughnut comes into the picture – the economic model drawn by Raworth, where GDP is displaced from the core of economics.

The doughnut’s inner ring represents a social foundation consisting of the SDG’s minimum social standards such as food, health, political voice, and gender equality. The outer ring illustrates the ecological ceiling beyond which lies nine planetary boundaries, tipping points, and unacceptable environmental degradation like climate change, land conversion, and biodiversity loss. The task is now to bring humanity into what Raworth calls the “doughnut’s safe and just space” to prevent social shortfall and ecological overshoot.

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There’s more to economics than the market

Raworth critiques economics’ narrow focus on markets which has created and perpetuated an image of a self-contained market, state’s incompetence, and market efficiency. As emblematic not only of this constraint but also of the outdated idea of the economy as a closed system, she sees a diagram of circular flow. She argues that focusing on the market leaves several blind spots, such as unpaid household labor and ecological distress.

Raworth introduces the households, the state, and the commons (e.g., open-source software) as important forms of provisioning into this narrowed picture. To further broaden the view, she replaces the image of the economy as a closed system with an understanding of the economy as embedded in the earth’s system, heavily dependent on the earth’s sources and the power of the sun.

A new portrait of humanity

Economics portrait of “rational economic man” as an isolated, self-interested, calculating human being that is fixed in taste and values and dominant over nature is in Raworth’s opinion, not only flawed in its assumptions but also damages the society and living world.

In her opinion, a new portrait of humanity that recognizes mutual aid and empathy of people, and acknowledges their interconnection, must be drawn. One that accepts people’s constant change of roles and, thus, wants and values and comprehends that humanity is deeply dependent upon the earth’s life-giving systems.

Embracing economic complexity

Raworth argues that the limited model of a self-balancing market, like the mechanical equilibrium of the market’s supply and demand curves, oversimplifies the economy’s dynamic. To her, the myth of a self-equilibrating market became obvious during the 2008 crash, when economics failed to anticipate the real problems of the financial sector.

By encouraging economists to get savvy with systems, Raworth wants to equip economists with tools for grasping economics’ complexity. According to Raworth, the individual components of an economy interact in a system, connected by feedback loops that either reinforce their effect or bring stability to the system by balancing them. Thinking in systems may, for instance, help to better understand the dynamics that reinforce inequality, such as the ‘Success to the Successful’ trap.

Distributive and regenerative by design

To tackle the goal of bringing everyone into the doughnut and decreasing ecological overshoot, Raworth promotes an economic design that is distributive and regenerative. Most importantly, she calls for debunking the twentieth-century message that things have to get worse to get better and that people have to wait for growth to solve the problem of extreme inequalities and ecological degradation.

To her, achieving this goal means going beyond the redistribution of income, but also proactively designing measures for redistributing wealth from various sources such as knowledge, technology, enterprise, and ownership of land.

As a substitute for the degenerative linear industrial economy, Raworth supports the design of a circular economy: industrial products are recycled, reused, repurposed, and repaired, and biological nutrients are utilized in multiple ways, such as deploying used coffee ground as a breeding ground for mushrooms.

What about growth?

In the very beginning, Raworth replaced mainstream economics’ long-term goal of endless growth, represented by the continuous increase of GDP, with the doughnut. In her view, this is not enough since we still need to overcome what she calls “our addiction to growth.” According to Raworth, we have created ‘economies that need to grow, whether or not they make us thrive: what we need are economies that make us thrive, whether or not they grow.’ She suggests being agnostic about growth to cut our dependence on it.

To be able to thrive without GDP growth, Raworth believes that it is necessary to redesign the social, financial, and political lock-ins to growth, for example, by promoting well-being without the dominance of the culture of consumerism in public-private life.

To find new measures for a thriving economy in which everyone’s social needs are met, and environmental degradation is stopped, economics needs to broaden the view for alternative approaches and turn the outdated mindset of growth upside down. Thinking about “The Doughnut” might help.

Doughnut Economics. Seven Ways to Think Like a 21st-Century Economist. Kate Raworth. Random House Business. 2017.

If you are interested in more GED-reads, don’t forget to check our latest posts where we talk about the global effects of digitization on inflation, the need of a gender perspective on globalization and the relationship between globalization, technology and the labor market.

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