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

by Kate Raworth

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

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?

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.

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.

It’s time to stop searching for the economy’s elusive control levers and start stewarding it as an ever-evolving complex system.

But inequality, it turns out, is not an economic necessity: it is a design failure.

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.

continual income growth (and therefore output growth) is a decent proxy for ever-improving human welfare. And with that, the cuckoo has hatched.

One person who was willing to risk political suicide was 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?’

the philosopher Michael Sandel has called a ‘moral vacancy’ at the heart of public policymaking.

That country is the richest which nourishes the greatest numbers of noble and happy human beings.’

‘It is difficult to overestimate the scale and speed of change,’ says Will Steffen, the scientist who led the study documenting these trends. ‘In a single lifetime humanity has become a planetary-scale geological force . . . This is a new phenomenon and indicates that humanity has a new responsibility at a global level for the planet.’

What if every company strategised around a Doughnut table, asking itself: is our brand a Doughnut brand, whose core business helps to bring humanity into that safe and just space?

Five factors certainly play key roles: population, distribution, aspiration, technology and governance.

As economist Tim Jackson deftly put it, 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’.

As a result, mainstream economics is still taught today with scant attention paid to the living planet that supports us and the blazing star whose energy we depend upon.

So let’s restore sense from the outset and recognise that, far from being a closed, circular loop, the economy is an open system with constant inflows and outflows of matter and energy.

In short, including the household economy in the new diagram of the macroeconomy is the first step in recognising its centrality, and in reducing and redistributing women’s unpaid work.

There is, however, a flip side to the market’s power: it only values what is priced and only delivers to those who can pay. Like fire, it is extremely efficient at what it does, but dangerous if it gets out of control. When the market is unconstrained, it degrades the living world by over-stressing Earth’s sources and sinks. It also fails to deliver essential public goods—from education and vaccines to roads and railways—on which its own success deeply depends.

Forget the free market: think embedded market. And, strange though it sounds, that means there is no such thing as deregulation, only reregulation that embeds the market in a different set of political, legal and cultural rules, simply shifting who bears the risks and costs and who reaps the gains of change.37

For the twenty-first-century economic story, the state’s role must be rethought. Put it this way: in the film of the play, the state should be aiming all-out to win Best Supporting Actor at the Oscars—starring as the economic partner that supports the household, the commons and the market alike.

In the words of Ha-Joon Chang, ‘If we remain blinded by the free market ideology that tells us only winner-picking by the private sector can succeed, we will end up ignoring a huge range of possibilities for economic development through public leadership or public-private joint efforts.’43 Such state leadership is now needed worldwide to catalyse public, private, commons and household investments in a renewable energy future.

Just as there is no such thing as the free market, it turns out that there is no such thing as free trade: all cross-border flows are set against the backdrop of national history, current institutions and international power relations.

First, rather than narrowly self-interested, we are social and reciprocating. Second, in place of fixed preferences, we have fluid values. Third, instead of isolated, we are interdependent. Fourth, rather than calculate, we usually approximate. And fifth, far from having dominion over nature, we are deeply embedded in the web of life.

We are embedded in the living world, not separate from or above it: we live within the biosphere, not on the planet.

‘As markets reach into spheres of life traditionally governed by nonmarket norms, the notion that markets don’t touch or taint the goods they exchange becomes increasingly implausible,’ warns Sandel. ‘Markets are not mere mechanisms; they embody certain values. And sometimes, market values crowd out nonmarket norms worth caring about.’

We wasted two hundred years staring at the wrong portrait of ourselves: Homo economicus, that solitary figure poised with money in his hand, calculator in his head, nature at his feet, and an insatiable appetite in his heart. It is time to redraw ourselves as people who thrive by connecting with each other and with this living home of ours that is not ours alone.

So if we are to have half a chance of bringing ourselves into the Doughnut, then it is essential to shift the economist’s attention from the apple as it falls to the apple as it grows, from linear mechanics to complex dynamics. Bid farewell to the market as mechanism and discard the engineer’s hard hat: it’s time to don a pair of gardening gloves instead.

As Donella Meadows, one of the early champions of systems thinking, put it, ‘Let’s face it, the universe is messy. It is nonlinear, turbulent, and chaotic. It is dynamic. It spends its time in transient behaviour on its way to somewhere else, not in mathematically neat equilibria. It self-organises and evolves. It creates diversity, not uniformity. That’s what makes the world interesting, that’s what makes it beautiful, and that’s what makes it work.’

Today’s economy is divisive and degenerative by default. Tomorrow’s economy must be distributive and regenerative by design.

An economy that is distributive by design is one whose dynamics tend to disperse and circulate value as it is created, rather than concentrating it in ever-fewer hands. An economy that is regenerative by design is one in which people become full participants in regenerating Earth’s life-giving cycles so that we thrive within planetary boundaries.

Say farewell to economy-as-machine and embrace economy-as-organism. Let go of the imaginary controls that promised to pull markets into equilibrium and, instead, get a feel for the pulse of the feedback loops that keep them continually evolving. It is time for economists to make a metaphorical career change too: discard the engineer’s hard hat and wrench, and pick up some gardening gloves and pruning shears instead.

Liver cells serve the liver, which in turn serves the human body; if those cells start to multiply rapidly, they become a cancer, no longer serving but destroying the body on which they depend. In economic terms, healthy hierarchy means, for example, ensuring that the financial sector is in service to the productive economy, which in turn is in service to life.50

If the global economy’s current dynamics continue—with their divisive and degenerative effects—then we face the very real risk of heading towards collapse. This overriding generational challenge calls on the twenty-first-century economist to embrace complexity and draw on its insights in order to transform economies—local to global—to make them distributive and regenerative by design, as the following chapters explore. If he were alive today, I bet that Newton, apple in hand, would be up for the task.

Wide inequalities lead to poverty in high-income countries too, where the gap between the rich and the poor is now at its highest level for 30 years, leaving a striking number of people short of their essential needs.

The East Asian ‘miracle’—from the mid 1960s to 1990—saw countries such as Japan, South Korea, Indonesia and Malaysia combine rapid economic growth with low inequality and falling poverty rates. It was achieved largely thanks to rural land reform that boosted the incomes of smallholder farmers, coupled with strong public investments in health and education, and industrial policies that raised workers’ wages while restraining food prices.

Contrary to the founding theories of development economics, inequality does not make economies grow faster: if anything, it slows them down. And it does so by wasting the potential of much of the population: people who could be schoolteachers or market traders, nurses or micro-entrepreneurs—actively contributing to the wealth and well-being of their community—instead have to spend their time desperately trying to meet their families’ most basic daily needs.

Such intuitive reasoning is backed by analysis: economists at the IMF have found strong evidence that, across a wide range of countries, inequality undercuts GDP growth.26 ‘More unequal societies have slower and more fragile economic growth,’ writes Jonathan Ostry, the lead economist behind the IMF study. ‘It would thus be a mistake to imagine that we can focus on economic growth and let inequality take care of itself.’

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.

And citizens—from Australia and the United States to South Africa and Slovenia—are campaigning for a national basic income paid unconditionally to all, in order to ensure that, job or no job, every person has sufficient income to meet life’s essentials.33

These are the foundations of a dynamic and inspiring movement, but critics point out that mainstream corporate practice, driven by shareholder primacy, still dominates. ‘Ultimately we will need to change the operating system at the heart of major corporations,’ Kelly acknowledges. ‘But if we begin there, we will fail. The place to begin is with what’s doable, what’s enlivening—and what points toward bigger wins in the future.’

‘We have designed an expensive and unfair intellectual property regime,’ writes economist Joseph Stiglitz, ‘that works more to the advantage of patent lawyers and large corporations than to the advancement of science and small innovators.’80

‘Our goal is decentralized production,’ he explains. ‘I’m talking about a business case for efficient enterprise where the traditional concept of scale becomes irrelevant. Our new concept of scale is about distributing economic power far and wide.’

In essence, it will soon be feasible to create a phone book of the world’s ‘bottom billion’ and to text digital cash directly to them. Contrary to concerns that a guaranteed basic income would make people lazy or even reckless, cross-country studies of cash transfer schemes show no such effect: if anything, people tend to work harder and seize more opportunities when they know they have a secure fallback.

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.

Across a wide range of countries—and particularly in low-income ones—they found that environmental quality is higher where income is more equitably distributed, where more people are literate, and where civil and political rights are better respected.5 It’s people power, not economic growth per se, that protects local air and water quality.

Why simply take nothing when you could also give something? That’s the essence of the fifth business response: be generous by creating an enterprise that is regenerative by design, giving back to the living systems of which we are a part.

Yet even these forms of wealth eventually dissipate: tractors rust, trees decompose, people die, ideas are forgotten. Only one form of wealth persists through time and that is the regenerative power of life, powered by the sun.

How can a city be as generous as a forest?