Doughnut Economics

Like so many others who suffered the dispiriting experience of studying economics at  A Level (or even worse, at university), I had to plough through reams of economic diagrams in the standard textbooks like Samuelson’s dreary tome, writes Sean Thompson. The central image in mainstream economics is the circular flow diagram. It depicts a closed flow of income cycling between households, businesses, banks, government and trade, operating in a social and ecological vacuum. There is, according to received neo-classical wisdom, no reason for that closed system not to go on and on in endless equilibrium.

 

According to Kate Raworth, in her book Doughnut Economics: Seven Ways to Think like a 21st Century Economist, there’s only one problem with the circular flow diagram: it’s wrong. Energy, materials, the natural world, human society, power, the wealth we hold in common, all are missing from the model. The unpaid work of carers – principally women – is ignored, though no economy could function without them. Like rational economic man, this representation of economic activity bears little relationship to reality.

 

Raworth does an excellent job in demolishing the received wisdom of orthodox modern economics, echoing many of the arguments of other more well known heterodox economists like   Hyman Minsky and Joseph Stiglitz. However, her distinct contribution is in her emphasis on environmental themes. Too many writers, even radical ones, tend to treat “the economy” and “the environment” as separate issues, even though they admit that the one has an impact on the other. Yet, as she rightly stresses, the conventional notion of “externalities”, or economic side effects, serves to imply that problems such as pollution and climate change are not ones that economists need to make central to their concerns.

 

Raworth asks: “What if we started economics not with its long-established theories, but with humanity’s long-term goals, and then sought out the economic thinking that would enable us to achieve them?” So she sets out to redraw the economy, embedding it in the Earth’s systems and in human society. This leads her to what I think is a really valuable and original contribution to a popular understanding of sustainable economics: a graphic representation of the social and environmental challenges we face and the limits on the time and options we have to deal with them – the doughnut model.

 

Like all the best ideas, Raworth’s model seems so simple and obvious that you wonder why you didn’t think of it yourself. It consists of two concentric rings. The inner one (which she calls the Social Foundation) represents the resources humanity needs for a decent life: food, housing, energy, employment, education, clean water, sanitation, healthcare, democracy and civil rights. Anyone living within that ring, in the ‘hole in the doughnut’, is being denied basic and universal human rights. The outer ring (which she labels the Ecological Ceiling) represents the Earth’s environmental limits. The area between the two circles – the doughnut itself – is the ‘ecologically safe and socially just space’ in which we must try to live. In Raworth’s view ‘the purpose of economics should be to help us enter that space and stay there.’

 

The measures she uses haven’t just been dreamt up from nowhere. The Social Foundation comprises 12 quantifiable human needs derived from the social priorities specified in the United Nations’ 2015 Sustainable Development Goals.  They are; Food, Health, Education, Income and work, Water and sanitation, Energy, Social and communications networks, Housing, Gender equality, Social equality, Political voice and Peace and justice. None of hits the target and some of them, such as health, sanitation, gender and social equality, political voice and peace and justice come nowhere near. The Ecological Ceiling comprises nine planetary boundaries proposed by an international group of Earth-system scientists: Climate change, Ocean acidification, Chemical pollution, Nitrogen and phosphorus loading, Freshwater withdrawals. Land conversion, Bio diversity,  Air pollution and Ozone layer depletion.  Ozone layer depletion is (just) within limits and improving.  All the others are getting worse and four (biodiversity, nitrogen and phosphorus loading, land conversion and climate change) are already above the Ecological Ceiling.

The aim of economic activity, says Raworth, should be ‘meeting the needs of all within the means of the planet’. Instead of economies that need to grow, whether or not they make us thrive, we need economies that ‘make us thrive, whether or not they grow’. Unfortunately, although she has a number of valuable and interesting things to say about designing redistribution into the economy (‘Don’t wait for economic growth to reduce inequality – because it won’t’) and on the concept of the circular economy, she is a bit light on the nuts and bolts of how we might effect those necessary changes and particularly what the forces are that are blocking that transformation.

For example, she says that:
‘we have transgressed at least four planetary boundaries, billions of people still have extreme deprivation, and the richest 1% own half of the world’s financial wealth. These are ideal conditions for driving ourselves towards collapse. If we are to avoid such a fate we clearly need a transformation and it can be summed up like this: Today’s economy is divisive and degenerative by default. Tomorrow’s economy must be distributive and regenerative by design.’

Yes, but how do we achieve that? And how do we think that the 1% will react to the polite suggestion that its concentrated wealth has to be redistributed for the benefit of the planet and its most deprived inhabitants? Raworth, for all that she is on the side of the angels, doesn’t address the irrationalities of corporate capitalism and the brutal realities class society on either a national or international level.

But it would be churlish to criticise her for failing to come up with a fully worked up programme for eco-socialist revolution. Her doughnut model allows us to see, in an immediate and comprehensible way, both the state in which we find ourselves and the space that we must aim for. She demonstrates that, even in the area of critical economics, a picture really can be worth a thousand words.

One thought on “Doughnut Economics”

  1. I feel Kate has produced the economic gem that is our only chance of survival. If Labour did adopt this then we really can think about walking away from the Trade Deal based global economics and lead the West. Am I dreaming?

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