Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist

by Kate Raworth

‘It is not only the world economy that is in crisis,’ they declared in an open letter in 2014: The teaching of economics is in crisis too, and this crisis has consequences far beyond the university walls. What is taught shapes the minds of the next generation of policymakers, and therefore shapes the societies we live in . . .

‘You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.’

The Twenty-First-Century Challenge The word ‘economics’ was coined by the philosopher Xenophon in Ancient Greece. Combining oikos meaning household with nomos meaning rules or norms, he invented the art of household management, and it could not be more relevant today. This century we need some pretty insightful managers to guide our planetary household, and ones who are ready to pay attention to the needs of all of its inhabitants. There have been extraordinary strides in human well-being over the past 60 years. The average child born on planet Earth in 1950 could expect to live just 48 years; today such a child can look forwards to 71 years of life.6 Since 1990 alone, the number of people living in extreme income poverty—on less than $1.90 a day—has fallen by more than half. Over two billion people have gained access to safe drinking water and toilets for the first time. All this while the human population has grown by almost 40 percent.7 That was the good news. The rest of the story, of course, has not turned out so well so far. Many millions of people still lead lives of extreme deprivation. Worldwide, one person in nine does not have enough to eat.8 In 2015, six million children under the age of five died, more than half of those deaths due to easy-to-treat conditions such as diarrhoea and malaria.9 Two billion people live on less than $3 a day, and over 70 million young women and men are unable to find work.10 Deprivations such as these have been exacerbated by growin...

Humanity’s journey through the twenty-first century will be led by the policymakers, entrepreneurs, teachers, journalists, community organisers, activists and voters who are being educated today. But these citizens of 2050 are being taught an economic mindset that is rooted in the textbooks of 1950, which in turn are rooted in the theories of 1850. Given the fast-changing nature of the twenty-first century, this is shaping up to be a disaster.

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?

The essence of the Doughnut: a social foundation of well-being that no one should fall below and an ecological ceiling of planetary pressure that we should not go beyond. Between the two lies a safe and just space for all.

equations were for the specialists; pictures for the masses.

analytic effort is of necessity preceded by a preanalytic cognitive act that supplies the raw material for the analytic effort. In this book, this pre-analytic cognitive act will be called Vision.

Pre-analytic vision. Worldview. Paradigm. Frame. These are cousin concepts. What matters more than the one you choose to use is to realise that you have one in the first place, because then you have the power to question and change it.

‘the map is not the territory’, as the philosopher Alfred Korzybski put it: every model can only ever be a model, a necessary simplification of the world, and one that should never be mistaken for the real thing.

‘All models are wrong, but some are useful.’39 Rethinking economics is not about finding the correct one (because it doesn’t exist); it’s about choosing or creating one that best serves our purpose—reflecting the context we face, the values we hold, and the aims we have. As humanity’s context, values and aims continually evolve, so too should the way that we envision the economy.

it is absolutely essential to have a compelling alternative frame if the old one is ever to be debunked. Simply rebutting the dominant frame will, ironically, only serve to reinforce it. And without an alternative to offer, there is little chance of entering, let alone winning, the battle of ideas.

the notion of ‘tax relief’ widely used by US conservatives: in just two words, it frames tax as an affliction, a burden to be lifted by a heroic rescuer. How should progressives respond? Certainly not by arguing ‘against tax relief’, because repeating that phrase merely strengthens the frame (who could be against relief, after all?). But, says Lakoff, progressives too often try to set out their own views on tax with lengthy explanations, precisely because no concise alternative frame has been developed.40 They desperately need an alternative two-word phrase to encapsulate their view and counter the other. In fact the frame of ‘tax justice’—which instantly invokes community, fairness and accountability—has been fast gaining traction internationally as global scandals over tax havens and corporate tax avoidance have hit the headlines. Having a powerful way to frame the matter has no doubt helped to channel public outrage and mobilise widespread demand for change.41

this book aims to reveal the power of visual framing and to use it to transform twenty-first-century economic thinking.

At the heart of mainstream economic thinking is a handful of diagrams that have wordlessly but powerfully framed the way we are taught to understand the economic world—and they are all out of date, blinkered, or downright wrong. They may lie hidden from view, but they deeply frame the way we think about economics in the classroom, in government, in the boardroom, in the media and in the street.

For over 70 years, economics has been fixated on GDP, or national output, as its primary measure of progress. That fixation has been used to justify extreme inequalities of income and wealth coupled with unprecedented destruction of the living world.

meeting the human rights of every person within the means of our life-giving planet.

Instead of pursuing ever-increasing GDP, it is time to discover how to thrive in balance.

Today we have 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.

Measured as the market value of goods and services produced within a nation’s borders in a year, GDP (Gross Domestic Product) has long been used as the leading indicator of economic health. But in the context of today’s social and ecological crises, how can this single, narrow metric still command such international attention?

In the twentieth century, economics lost the desire to articulate its goals: in their absence, the economic nest got hijacked by the cuckoo goal of GDP growth.

Though claiming to be value-free, conventional economic theory cannot escape the fact that value is embedded at its heart: it is wrapped up with the idea of utility, which is defined as a person’s satisfaction or happiness gained from consuming a particular bundle of goods.9 What’s the best way to measure utility? Leave aside for a moment the catch that billions of people lack the money needed to express their wants and needs in the marketplace, and that many of the things we most value are not for sale. Economic theory is quick—too quick—in asserting that the price people are willing to pay for a product or service is a good enough marketplace proxy for calculating their utility gained. Add to this the apparently reasonable assumption that consumers always prefer more to less, and it is a short step to concluding that continual income growth (and therefore output growth) is a decent proxy for ever-improving human welfare. And with that, the cuckoo has hatched.

national income captured only the market value of goods and services produced in an economy, he pointed out that it therefore excluded the enormous value of goods and services produced by and for households, and by society in the course of daily life. In addition, he recognised that it gave no indication of how income and consumption were actually distributed between households.

the visionary systems thinker Donella Meadows—one of the lead authors of the 1972 Limits to Growth report—and she didn’t mince her words. ‘Growth is one of the stupidest purposes ever invented by any culture,’ she declared in the late 1990s; ‘we’ve got to have an enough.’ In response to the constant call for more growth, she argued, we should always ask: ‘growth of what, and why, and for whom, and who pays the cost, and how long can it last, and what’s the cost to the planet, and how much is enough?’

Below the Doughnut’s social foundation lie shortfalls in human well-being, faced by those who lack life’s essentials such as food, education and housing. Beyond the ecological ceiling lies an overshoot of pressure on Earth’s life-giving systems, such as through climate change, ocean acidification and chemical pollution. But between these two sets of boundaries lies a sweet spot—shaped unmistakably like a doughnut—that is both an ecologically safe and socially just space for humanity. The twenty-first-century task is an unprecedented one: to bring all of humanity into that safe and just space.

Since the mid-twentieth century, global economic development has already helped many millions of people worldwide escape deprivation. They have become the first generations in their families to lead long, healthy and educated lives, with enough food to eat, clean water to drink, electricity in their homes and money in their pockets—and, for many, this transformation has been accompanied by greater equality between women and men, and greater political voice. But global economic development has also fuelled a dramatic increase in humanity’s use of Earth’s resources, at first driven by the resource-intensive lifestyles of today’s high-income countries, and more recently redoubled by the rapid growth of the global middle class. It is an economic era that has come to be known as the Great Acceleration, thanks to its extraordinary surge in human activity. Between 1950 and 2010, the global population almost trebled in size, and World GDP increased sevenfold. Worldwide, freshwater use more than trebled, energy use increased fourfold, and fertiliser use rose over tenfold.

In 2009, an international group of Earth-system scientists, led by Johan Rockström and Will Steffen, took on this question and identified nine critical processes—such as the climate system and the freshwater cycle—that, together, regulate Earth’s ability to maintain Holocene-like conditions (all nine are described more fully in the Appendix). For each of these nine processes, they asked how much pressure it can take before the stability that has allowed humanity to thrive for thousands of years is put in jeopardy, tipping Earth into an unknown state in which novel and unexpected changes are likely to happen. The catch, of course, is that it is not possible to pinpoint exactly where danger lies and, given that many of the shifts could be irreversible, we’d be wise not to find out the hard way. So the scientists proposed a set of nine boundaries, like guard-rails, where they believe each danger zone begins—equivalent to placing warning signs upstream of a river’s treacherous but hidden waterfalls. What do those warning signs say? To avoid dangerous climate change, for example, keep the concentration of carbon dioxide in the atmosphere below 350 parts per million (ppm). In terms of limiting land conversion, ensure that at least 75 percent of once-forested land remains forested. And when it comes to using chemical fertilisers, add at most 62 million tonnes of nitrogen and 6 million tonnes of phosphorus to Earth’s soils each year. There are, of course, many uncertainties behind...

Knock-on effects can, of course, be positively reinforcing too. Reforesting hillsides tends to enrich biodiversity, increase soil fertility and water retention, and help sequester carbon dioxide. And the benefits for local communities may be many: more diverse forest food and fibre to harvest; greater security of water supply; improved nutrition and health; and more resilient livelihoods. It may be tempting, for simplicity’s sake, to seek to devise policies addressing each one of the planetary and social boundaries in turn, but that simply won’t work: their interconnectedness demands that they each be understood as part of a complex socio-ecological system and hence be addressed within a greater whole.30

Growing sufficient, nutritious food for all requires healthy, nutrient-rich soils, ample fresh water, biodiverse crops and a stable climate. Ensuring clean, safe water to drink depends upon the local-to-global hydrological cycle generating plentiful rainfall and continually recharging Earth’s rivers and aquifers. Having clean air to breathe means halting emissions of toxic particulates that create lung-choking smog. We like to feel the warmth of the sun on our backs but only if we are protected from its ultraviolet radiation by the ozone layer and only if greenhouse gases in the atmosphere are not turning the sun’s warmth into catastrophic global warming.

Despite unprecedented progress in human well-being over the past 70 years, we are far beyond the Doughnut’s boundaries on both sides. Many millions of people still live below each of the social foundation’s dimensions.

we have transgressed at least four planetary boundaries: those of climate change, land conversion, nitrogen and phosphorus loading, and biodiversity loss.

Billions of people still fall far short of their most basic needs, but we have already crossed into global ecological danger zones that profoundly risk undermining Earth’s benevolent stability.

What might the words for that new vision be? A first suggestion: human prosperity in a flourishing web of life.

What if we each were to mentally map our own lives on to the Doughnut, asking ourselves: how does the way that I shop, eat, travel, earn a living, bank, vote and volunteer affect my personal impact on social and planetary boundaries?

Ours is the era of the planetary household—and the art of household management is needed more than ever for our common home.

what determines whether or not we can actually move into its safe and just space? Five factors certainly play key roles: population, distribution, aspiration, technology and governance.

although the global population is still growing, since 1971 its growth rate has been falling sharply. What’s more, for the first time in human history, its fall has been due not to famine, disease or war but to success.42 Decades of public investment in infant and child health, in girls’ education, in women’s reproductive healthcare, and in women’s empowerment have at last enabled women to manage the size of their families.

the most effective way to stabilise the size of the human population is to ensure that every person can lead a life free of deprivation, above the social foundation.

the top 10 percent of emitters—think of them as the global carbonistas living on every continent—generate around 45 percent of global emissions, while the bottom 50 percent of people contribute only 13 percent.

Food consumption is deeply skewed too. Around 13 percent of people worldwide are malnourished. How much food would it take to meet their caloric needs? Just 3 percent of the global food supply. To put that in context, 30–50 percent of the world’s food gets lost post-harvest, wasted in global supply chains or scraped off dinner plates and into kitchen bins.44 Hunger could, in effect, be ended with just 10 percent of the food that never gets eaten.

getting into the Doughnut calls for a far more equitable distribution of humanity’s use of resources.

we are ‘persuaded to spend money we don’t have on things we don’t need to make impressions that won’t last on people we don’t care about’.45 Given a fast-growing global middle class, the lifestyles that people aspire to will have clear ramifications for our collective pressure on planetary boundaries.

Around 60 percent of the area expected to be urban by 2030 has yet to be built so the technologies used to create that infrastructure will have far-reaching social and ecological implications.46

So what message does this model convey about which actors count and which to ignore when it comes to economic analysis? Centre stage is the market relationship between households and business. Households supply their labour and capital in return for wages and profits, and then spend that income buying goods and services from firms. It is this interdependence of production and consumption that creates income’s circular flow. And that flow would be uninterrupted if it were not for three outer loops—involving commercial banks, government and trade—that divert some income for other uses. The model shows banks siphoning off income as savings and then returning it as investment. Government extracts income as taxes but re-injects it as public spending. Overseas traders need to be paid for the nation’s imports but in turn pay out for its exports. All three of these diversions create leakages from and injections into the market’s circular flow but, taken as a whole, the system is closed and complete—not unlike a circular set of plumbed pipes with water flowing round and round, as Samuelson first depicted it.

insight into how economies can spiral into recession: if household spending starts to fall (say, due to fear of hard times ahead), then firms need fewer workers; as they lay staff off, they cut the nation’s take-home pay, so reducing demand even further. The result is a self-fulfilling recession, which—Keynes argued—could best be averted by boosting government spending until things got moving again and confidence was restored.

The trouble, however, lies in what it leaves invisible. In the words of the systems thinker John Sterman, ‘The most important assumptions of a model are not in the equations, but what’s not in them; not in the documentation, but unstated; not in the variables on the computer screen, but in the blank spaces around them’.4

The Circular Flow diagram certainly needs to be introduced with this caveat. It makes no mention of the energy and materials on which economic activity depends, nor of the society within which those activities take place: they are simply missing from its cast of characters.

Economics: The Twentieth-Century Neoliberal Story (in which we go to the brink of collapse) Staging by Paul Samuelson Script by the Mont Pelerin Society Cast, in order of appearance: THE MARKET, which is efficient—so give it free rein. As Adam Smith famously wrote, ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.’8 When the market’s invisible hand is set free to work its magic of allocative efficiency, it harnesses the self-interest of households and business to provide all the goods and jobs that are wanted. BUSINESS, which is innovative—so let it lead. ‘The business of business is business’, summed up Milton Friedman’s influential philosophy in the 1970s. Firms bring together labour and capital to produce novel goods and services and to maximise their profits. There is no need to look at what goes on in their factories and farms, so long as they play within the legal rules of the game. FINANCE, which is infallible—so trust in its ways. Banks take people’s savings and dutifully turn them into profitable investments. Furthermore, according to Eugene Fama’s influential ‘efficient-market hypothesis’ of 1970, the price of financial assets always fully reflects all relevant information.9 Hence, financial markets are ever adjusting but always ‘right’—and their smooth operation should not be distorted by regulation. TRADE, which is win-win—so open your borders. David Ricardo’s ninetee...

Other characters not required on stage: THE HOUSEHOLD, which is domestic—so leave it to the women. The household supplies labour and capital to the market, but there’s no need to lift the roof and ask what goes on within its four walls: wives and daughters kindly take care of domestic affairs and they belong in the home, as does this matter. THE COMMONS, which are tragic—so sell them off. In the 1960s, Garrett Hardin described ‘the tragedy of the commons’ in which shared resources—such as grazing land and fish stocks—tend to be over-exploited by individual users and so are depleted for all.12 Managing such resources sustainably therefore calls for government regulation or, better still, private ownership. SOCIETY, which is non-existent—so ignore it. ‘There is no such thing as society,’ Margaret Thatcher famously declared in the 1980s. ‘There are individual men and women, and there are families.’13 And it is the market that connects them, as workers and as consumers. EARTH, which is inexhaustible—so take all you want. There will be no shortage of Earth’s resources, claimed the laissez-faire economist Julian Simon in the 1980s, if markets are permitted to do their job. A shortage of, say, copper or oil will raise its price, spurring people to use it more sparingly, search for new sources and discover substitutes.14 POWER, which is irrelevant—so don’t mention it. The only economic power to be worried about, argued Friedman, is monopoly power granted by the state when it meddl...

Economics: The Twenty-First-Century Story (in which we create a thriving balance) Staging and script: a work in progress by economic re-thinkers everywhere Cast in order of appearance: EARTH, which is life giving—so respect its boundaries SOCIETY, which is foundational—so nurture its connections THE ECONOMY, which is diverse—so support all of its systems THE HOUSEHOLD, which is core—so value its contribution THE MARKET, which is powerful—so embed it wisely THE COMMONS, which are creative—so unleash their potential THE STATE, which is essential—so make it accountable FINANCE, which is in service—so make it serve society BUSINESS, which is innovative—so give it purpose TRADE, which is double-edged—so make it fair POWER, which is pervasive—so check its abuse