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

by Kate Raworth

Don’t wait for economic growth to reduce inequality—because it won’t. Instead, create an economy that is distributive by design. Such an economy must help to bring everyone above the Doughnut’s social foundation. To do so, however, it must alter the distribution not only of income but also of wealth, time and power.

Nature’s networks are structured by branching fractals, ranging from a few larger ones to many medium-sized ones and then myriad smaller ones, just like tributaries in a river delta, branches in a tree, blood vessels in a body or veins in a leaf.28 Resources such as energy, matter and information can flow through these networks in ways that achieve a fine balance between the system’s efficiency and its resilience. Efficiency occurs when a system streamlines and simplifies its resource flow to achieve its aims, say by channelling resources directly between the larger nodes. Resilience, however, depends upon diversity and redundancy in the network, which means that there are ample alternative connections and options in times of shock or change. Too much efficiency makes a system vulnerable (as global financial regulators realised too late in 2008) while too much resilience makes it stagnant: vitality and robustness lie in a balance between the two.

What design principles can nature’s thriving networks teach us for creating thriving economies? In two words: diversity and distribution. If large-scale actors dominate an economic network by squeezing out the number and diversity of small and medium players, the result will be a highly unequal and brittle economy. This certainly sounds familiar, given the current scale of corporate concentration across many industrial sectors, from agribusiness, pharmaceuticals and the media to the banks that are deemed too big to fail.

the best way to restore robustness today would be to revitalize our small-scale fair-enterprise root system,’

‘Economic development must become more focused on developing human, community, and small-business capital because long-term, cross-scale vitality depends on these.’

how to design economic networks so that they distribute value—from materials and energy to knowledge and income—in a far more equitable way.

Redistributing Income—and Redistributing Wealth In the latter half of the twentieth century, policies aimed at national redistribution fell into three broad categories: progressive income taxes and transfers; labour market protections such as a minimum wage; and providing public services such as health, education and social housing. Beginning in the 1980s, the authors of the neoliberal script pushed back on each one. Fierce debate rose up over whether higher income taxes discouraged the high-paid from working more, and whether higher welfare payments trapped the low-paid into not working at all. Minimum wages and labour unions were portrayed not as protection for the poorest of workers but as a barrier to their employment. And the state’s role in providing quality education, universal healthcare and affordable housing was depicted as an increasingly prohibitive public expense that simultaneously encouraged dependency. Thanks to international public outrage over widening inequalities, ambition for greater redistribution has returned in the early twenty-first century. Many mainstream economists in high-income countries now advocate raising top marginal income tax rates along with higher taxes on interest, rent and dividends. Social activists worldwide have put companies and governments under pressure to pay living wages; the Asia Wage Floor Alliance, for example, is demanding a living wage for garment workers across Asia.30 Others call for a maximum wage too, set within each...

Such redistributive policies can be life-changing for those who benefit from them. But they still may not get to the root of economic inequalities because they focus on redistributing income, not the wealth that generates it.

Distributive design has an unprecedented opportunity this century to transform the dynamics of wealth ownership. Five opportunities stand out, concerning who controls land, the power to create money, enterprise, technology and knowledge—and

as populations and economies grow, the price of land rises, but no more of it can be supplied and so that shortage generates ever-higher rents for landowners.

instead of encouraging his fellow citizens to buy land, he called on the state to tax it. On what grounds? Because much of land’s value comes not from what is built on the plot but from nature’s gift of water or minerals that may lie beneath its surface, or from the communally created value of its surroundings: nearby roads and railways; a thriving economy, a friendly neighbourhood; good local schools and hospitals.

money is not merely a metal disc, piece of paper or electronic digit. It is, in essence, a social relationship: a promise to repay that is based on trust.45

In the majority of countries, the privilege of creating money has been handed to commercial banks, which create money every time they offer loans or credit. As a result, more money is made available only by their issuing more interest-bearing debt, and that debt is increasingly being channelled into activities such as buying houses, land or stocks and shares. Investments such as these do not create new wealth that generates additional income with which to pay the interest, but instead earn a return simply by pushing up the price of existing assets.

When such debt increases, a growing share of a nation’s income is siphoned off as payments to those with interest-earning investments and as profit for the banking sector, leaving less income available for spending on products and services made by people working in the productive economy.

State-owned banks could, furthermore, use money from the central bank to channel substantial low- or zero-interest loans into investments for long-term transformation, such as affordable and carbon-neutral housing and public transport.

central banks could channel new money into national investment banks for ‘green’ and social infrastructural projects, such as community-based renewable energy systems, as part of the long-term infrastructural transformation that is urgently needed—an idea now known as ‘Green QE’.53 Such ideas for state-led monetary redesign at first seem radical, but they are increasingly looking feasible. And at the same time as promoting greater economic stability, they would promote greater equality, tending to favour the low-income and indebted rather than favouring banks and asset owners.

One fast-rising digital currency that uses blockchain technology is Ethereum, which, among its many possible applications, is enabling electricity microgrids to set up peer-to-peer trading in renewable energy. These microgrids allow every nearby home, office or institution with a smart meter, Internet connection, and solar panel on its roof to hook in and sell or buy surplus electrons as they are generated, all automatically recorded in units of the digital currency. Such decentralised networks—ranging from a neighbourhood block to a whole city—build community resilience against blackouts and cut long-distance energy transmission losses at the same time. What’s more, the information embedded in every Ethereum transaction allows network members to put their values into action in the microgrid market, for example by opting to buy electricity from the nearest or greenest suppliers, or only from those that are community-owned or not-for-profit.59 And this is just one example of its potential.

These very different examples illustrate a few of the myriad possibilities of monetary redesign involving the market, the state and the commons. But each one makes clear that the way that money is designed—its creation, its character and its intended use—has far-reaching distributional implications. Recognising this invites us to escape the monoculture of money and put the potential of distributive design at the heart of a new financial ecosystem.

The rise of shareholder capitalism entrenched the culture of shareholder primacy, with the belief that a company’s primary obligation is to maximise returns for those who own its shares. There’s a deep irony to this model. Employees who turn up for work day-in, day-out are essentially cast as outsiders: a production cost to be minimised, an input to be hired and fired as profitability requires.

For enterprise to be inherently distributive of the value it creates, she argues, two design principles are particularly key: rooted membership and stakeholder finance, and together they flip the dominant ownership model on its head.65 Imagine if labour ceased to be the expendable outsider and became, instead, the ultimate insider, rooted in employee-owned firms. Imagine, too, if those enterprises raised finance not by issuing shares to outside investors but by issuing bonds, promising their stakeholder-investors not a slice of ownership but a fair fixed return. No need only to imagine, of course: such enterprises are growing fast. Employee-owned companies and member-owned cooperatives have long been a cornerstone of distributive enterprise design,

the digital revolution has given rise to the network era of near zero-marginal-cost collaboration, as we saw in the dynamic rise of the collaborative commons in Chapter 2. It is essentially unleashing a revolution in distributed capital ownership. Anyone with an Internet connection can entertain, inform, learn and teach worldwide. Every household, school or business rooftop can generate renewable energy and, if enabled by a blockchain currency, can sell the surplus in a microgrid. With access to a 3D printer, anyone can download designs or create their own and print-to-order the very tool or gadget they need. Such lateral technologies are the essence of distributive design, and they blur the divide between producers and consumers, allowing everyone to become a prosumer, both a maker and user in the peer-to-peer economy. So far, so empowering. But a parallel process of winner-takes-all dynamics is also in play. Instead of promoting a diversity of web-based enterprises and information providers, the Internet’s strong network effects (with everyone wanting to be on the networks that everyone else is on) have transformed individual providers—such as Google, YouTube, Apple, Facebook, eBay, Paypal and Amazon—into digital monopolies that sit at the heart of the network society. They are now effectively running the global social commons in the interest of their own commercial ventures, while aggressively arming themselves with patents to guard that privilege.70 The global governan...

So how could distributive design help to prevent the economic segregation that technology appears to be driving? An obvious starting point is to switch from taxing labour to taxing the use of non-renewable resources: it would help to erode the unfair tax advantage currently given to firms investing in machines (a tax-deductible expense) rather than in human beings (a payroll tax expense). At the same time, invest far more in skilling people up where they beat robots hands-down: in creativity, empathy, insight and human contact—skills that are essential for many kinds of work, from primary school teachers and artistic directors to psychotherapists, social workers and political commentators.

Human-niche work for some and a guaranteed income for all would make a smart start to handling the rise of the robots, but it would leave low-wage workers and the workless forever lobbying to maintain such high levels of redistribution year on year. Far more secure is for every person to have a stake in owning the robot technology itself. What might that look like? Some advocate a ‘robot dividend’, an idea inspired by the Alaska Permanent Fund, which grants every Alaskan citizen, through a state constitutional amendment, an annual slice of the state’s income arising from the oil and gas industry, a dividend that exceeded $2,000 per resident in 2015.76

Who owns the ideas? The international regime of intellectual property rights has significantly shaped the control and distribution of knowledge for hundreds of years.

The rise of patents, followed by copyright and trademarks, created intellectual property regimes that initially spurred on the industrial revolution but then began colonising the commons of traditional knowledge, with a growing number of patents seeking to monopolise know-how that had been collectively developed.

Mainstream economic theory claims that without intellectual property protection, innovators lack the incentive to bring new products to market because they cannot recoup their costs. But in the collaborative commons, millions of innovators are defying this received wisdom, co-creating and using free open-source software, known as FOSS, as well as free open-source hardware, or FOSH.

the Open Building Institute, which aims to make open-source designs for ecological, off-grid, affordable housing available to all.

Just as corporate capitalism has long depended on the backing of government policies, public funding and pro-business legislation, so now the commons need the backing of a Partner State whose aim is to enable the creation of common value.84 How can the state start helping the knowledge commons to realise its potential? In five key ways. First, invest in human ingenuity by teaching social entrepreneurship, problem-solving and collaboration in schools and universities worldwide: such skills will equip the next generation to innovate in open-source networks like no generation before them. Second, ensure that all publicly funded research becomes public knowledge by contractually requiring it to be licensed in the knowledge commons, rather than permitting it to be locked away under patents and copyright for private commercial gain. Third, roll back the excessive reach of corporate intellectual property claims in order to prevent spurious patent and copyright applications from encroaching on the knowledge commons. Fourth, publicly fund the set-up of community makerspaces—places where innovators can meet and experiment with shared use of 3D printers and essential tools for hardware construction. And lastly, encourage the spread of civic organisations—from cooperative societies and student groups to innovation clubs and neighbourhood associations—because their interconnections turn into the very nodes that bring such peer-to-peer networks alive.

For several centuries we have been encouraged to identify ourselves foremost as nations, each one with its own economy, looking over the border or across the water at ‘others’. If we take the inevitable twenty-first-century step and each consider ourselves as part of a global community too, connected in a multi-layered but interdependent economy, what possibilities for globally redistributive design might emerge?

GiveDirectly. For the next 10–15 years, 6,000 of the poorest people in Kenya will regularly receive a guaranteed income that is enough to meet their family’s basic needs, sent via their phone. By running such an extended pilot scheme, the charity hopes to give recipients the security needed to take longer-term life-changing decisions—and to prove that a universal basic income is an idea whose time has come.92 There’s only one caution: that private incomes are no substitute for public services. The market works best in tackling inequality and poverty when it complements, rather than replaces, the state and the commons. Accompanied by free-at-the-point-of-use provision of education and primary healthcare, such a basic income would be a direct investment in the potential of every woman, man and child, significantly advancing the prospects of achieving the Doughnut’s social foundation for all.

How could additional funds—on top of 0.7 percent ODA—be raised in the spirit of global redistribution? Through a global tax on extreme personal wealth, for starters. There are now more than 2,000 billionaires living in 20 countries from the United States, China and Russia to Turkey, Thailand and Indonesia.93 An annual wealth tax levied at just 1.5 percent of their net worth would raise $74 billion each year: that alone would be enough to fill the funding gap to get every child into school and deliver essential health services in all low-income countries.94 Match that with a global corporate tax system that treats multinational corporations as single, unified firms and closes tax loopholes and tax havens, so boosting public revenue for public purposes worldwide.95 Supplement these with taxes on destabilising and damaging industries, such as a global financial transactions tax to curb speculative trading, and a global carbon tax levied on all oil, coal and gas production.

there are ready innovators and experimenters in every community who, with access to the Internet, the knowledge commons and a makerspace, could copy, modify and invent technologies for tackling their own communities’ most pressing needs, from rainwater harvesting and passive solar housing to agricultural tools, medical equipment and, yes, wind turbines. What’s still missing, however, is a dedicated global digital platform enabling them to collaborate with researchers, students, enterprises and NGOs worldwide to develop free open-source technologies.

Imagine such a peer-to-peer platform built on all the features that make for top-quality collaborative networks: ‘resource recipes’ listing the tools, materials and skills required to replicate each item; user ratings and reviews of every design; photographs and diagrams tracking how those designs evolve; and portals for similar communities—such as solar-rich urban slums or drought-prone villages—to learn alongside each other’s errors and successes.

Rather than wait (in vain) for growth to deliver greater equality, twenty-first-century economists will design distributive flow into the very structure of economic interactions from the get-go. Instead of focusing on redistributing income alone, they will also seek to redistribute wealth—be it the power to control land, money creation, enterprise, technology or knowledge—and will harness the market, the commons and the state alike to make it happen.

Prakash, a student from India who was studying for an advanced engineering degree in Germany. When I asked whether he had opted to learn about ecologically smart technologies, he just shook his head and replied, ‘No, India has other priorities —we are not rich enough to worry about that yet.’ Surprised, I pointed out that almost half of India’s land is degraded, the nation’s groundwater levels are falling fast, and air pollution is the worst in the world.

Rather than wait for growth to clean it up—because it won’t—it is far smarter to create economies that are regenerative by design, restoring and renewing the local-to-global cycles of life on which human well-being depends.

mainstream economists mocked what they called the ‘alarmist cries’ of environmental critics who argued that economic growth was severely degrading Earth’s soils, oceans, ecosystems and climate. Still, they acknowledged that there was no proof of a direct link between economic growth and environmental clean-up, so they put forwards three possible explanations for it. First, as countries grow, they argued, their citizens can afford to start caring about the environment and so begin to demand higher standards; second, the nation’s industries can afford to start using cleaner technologies; and third, those industries will shift from manufacturing to services,

It’s people power, not economic growth per se, that protects local air and water quality. Likewise it is citizen pressure on governments and companies for more stringent standards, not the mere increase in revenue, that compels industries to switch to cleaner technologies. Third, cleaning up a nation’s air and water by shifting from manufacturing to service industries doesn’t eliminate those pollutants: it sends them overseas, letting someone else, somewhere else, feel the burn while those back home can import the neatly packaged finished product. That means it is a strategy for environmental clean-up that cannot be followed by all countries because eventually there will be nowhere left to outsource the pollution.

The extraction and processing of Earth’s materials within the borders of high-income countries has indeed been falling, leading to triumphant claims across the EU and the OECD of rising resource productivity and the decoupling of GDP growth from resource use—both touted as early evidence of the ‘green growth’ dream. But the celebrations have come too soon. ‘These trends make developed countries look more resource-efficient,’ warns Tommy Wiedmann, one of the experts spearheading the analysis of international resource flows, ‘but they actually remain deeply anchored to a material foundation underneath.’6 Recently compiled international data reveal that when a nation’s global material footprint is taken into account—by adding up all of the biomass, fossil fuels, metal ores and construction minerals used worldwide to create the products that the country imports—then the success story seems to evaporate. From 1990 to 2007 as GDP grew in high-income countries, so did their global material footprints.

even if these alternative data turned out to be close to accurate, there would still be a problem: the UK’s consumption would have peaked at an unfeasibly high level. If other countries were to follow suit—trusting that growth would eventually lead them to a similar peak and decline—it would require the resources of at least three planet Earths, pushing the global economy into extreme overshoot beyond planetary boundaries.

It’s time to put aside the search for economic laws demonstrating that growing national output will eventually deliver ecological health. Economics, it turns out, is not a matter of discovering laws: it is essentially a question of design.

the last two hundred years of industrial activity have been based upon a linear industrial system whose design is inherently degenerative. The essence of that industrial system is the cradle-to-grave manufacturing supply chain of take, make, use, lose: extract Earth’s minerals, metals, biomass and fossil fuels; manufacture them into products; sell those on to consumers who—probably sooner rather than later—will throw them ‘away’. When drawn in its simplest form, it looks something like an industrial caterpillar, ingesting food at one end, chewing it through, and excreting the waste out of the other end.

its design is fundamentally flawed because it runs counter to the living world, which thrives by continually recycling life’s building blocks such as carbon, oxygen, water, nitrogen and phosphorus. Industrial activity has broken these natural cycles apart, depleting nature’s sources and dumping too much waste in her sinks. Extracting oil, coal and gas from under land and sea, burning them, and dumping carbon dioxide in the atmosphere. Turning nitrogen and phosphorus into fertiliser, then offloading the effluent—from agricultural run-off and sewage—into lakes and oceans. Uprooting forests to mine metals and minerals which, once packed into consumer gadgets, will be cast onto e-waste dumpsites, with toxic chemicals leaching out into the soil, water and air.

the theory advises, put a cap on total pollution, assign property rights with quotas, and allow market trading to put a price on the right to pollute. Or impose a tax equivalent to the ‘social cost’ of pollution, and then let the market decide how much pollution it is worth emitting.

From 1999 to 2003, Germany’s eco-tax raised the price of fossil fuels used for transport, heating and electricity, while lowering payroll taxes by an equivalent amount: it cut fuel consumption by 17 percent and carbon emissions by 3 percent, increased car sharing by 70 percent, and created 250,000 jobs.

Tiered pricing is growing in use too, ensuring that the more that people use, the more they pay.

Every household pays a low rate for its initial daily supply, intended for essentials such as drinking, bathing, and washing dishes and clothes. Beyond that—whether it is for cleaning cars, irrigating lawns or filling swimming pools—further water use is charged at three or four times higher rates.

Taxes, quotas and tiered pricing can clearly help to ease humanity’s pressure on Earth’s sources and sinks, but here’s the trouble with believing that they will do the whole job. In practice they fall short because they are rarely set to the level required: corporations lobby hard to delay their introduction, to lower the tax rate, to increase the quota and to get permits given for free, not auctioned. Governments, in return, too often concede, fearing that their nation will lose competitiveness—and that their political parties will lose corporate backing. These policies fall short in theory too: from a systems-thinking perspective, quotas and taxes to limit the stock and reduce the flow of pollution are indeed leverage points for changing a system’s behaviour—but they are low points of leverage. Far greater leverage comes from changing the paradigm that gives rise to the system’s goals.

What’s needed in its place is a paradigm of regenerative design—and

Self-determined fair shares never quite get the job done—as the world’s governments have demonstrated with their woefully inadequate, nationally determined pledges to cut their greenhouse gas emissions. More worryingly, ‘doing our fair share’ can too easily slip into ‘taking our fair share’. On first encountering the Doughnut, many businesses seem to look upon its outer ring of planetary boundaries as if it were a cake to be sliced up and handed out. And, like all kids at a birthday party, they want their fair share.