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

by Kate Raworth

Meanwhile over 80 percent of the world’s fisheries are fully or over-exploited and a refuse truck’s worth of plastic is dumped into the ocean every minute: at this rate, by 2050, there will be more plastic than fish in the sea.14

‘Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.’19

Why? Because, he told the assembled crowd, ‘the Nobel Prize confers on an individual an authority which in economics no man ought to possess’, particularly, he said, because ‘the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally’.20

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

If humanity’s twenty-first-century goal is to get into the Doughnut, what economic mindset will give us the best chance of getting there?

With the Doughnut in hand, I pushed my old textbooks aside and sought out the best emerging ideas that I could find, exploring new economic thinking with open-minded university students, progressive business leaders, innovative academics and cutting-edge practitioners. This book brings together the key insights I have discovered along the way—insights into ways of thinking that I wish had crossed my path at the outset of my own economics education, and that I believe should be part of every economist’s toolkit today. It draws on diverse schools of thought, such as complexity, ecological, feminist, institutional and behavioural economics.

They are all rich with insight, but there is still a risk that they will remain separated in silos, each school of thought nestled in its own journals, conferences, blogs, textbooks and teaching posts, cultivating its niche critique of last century’s thinking. The real breakthrough lies, of course, in combining what they each have to offer and to discover what happens when they dance on the same page, which is just what this book sets out to do.

Sounds like an exciting project!

it. 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.

Back in Ancient Greece, when Xenophon first came up with the term economics, he described the practice of household management as an art. Following his lead, Aristotle distinguished economics from chrematistics, the art of acquiring wealth—in a distinction that seems to have been all but lost today.

But when political economy was split up into political philosophy and economic science in the late nineteenth century, it opened up what the philosopher Michael Sandel has called a ‘moral vacancy’ at the heart of public policymaking. Today economists and politicians debate with confident ease in the name of economic efficiency, productivity and growth—as if those values were self-explanatory—while hesitating to speak of justice, fairness and rights. Talking about values and goals is a lost art waiting to be revived.

GDP. But now faced with a globally connected economy, it is time for this generation of thinkers to take the inevitable next step. Ours is the era of the planetary household—and the art of household management is needed more than ever for our common home.

What does this mean for SA 2021? Assg 2020 focused only on the market component. But with all the instrumentation we have, can SP tackle the comprehensive picture?

What’s more, while the Circular Flow diagram identified people primarily as workers, consumers and capital owners, the Embedded Economy diagram invites us to acknowledge our many other social and economic identities. In the household, we may be parents, carers and neighbours. In relation to the state, we are members of the public, using public services and paying taxes in return. In the commons, we are collaborative creators and stewards of shared wealth. In society, we are citizens, voters, activists and volunteers. Every day we switch almost seamlessly between these different roles and relations: from customer to creator, from marketplace to meeting space, from bargaining to volunteering. So let’s consider each realm in turn.

Does this imply a "multi-conscious" modeling if humans, as opposed to the current unitary models?

Adam Smith’s great insight was to show that the marketplace can mobilise diffuse information about people’s wants and the cost of meeting them, thereby coordinating billions of buyers and sellers through a global system of prices—all without the need for a centralised grand plan. This distributed efficiency of the market is indeed extraordinary, and attempting to run an economy without it typically leads to short supplies and long queues. It was out of recognition of this power that the neoliberal scriptwriters put the market centre stage in their economic play. 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

Criticism for A2020. Look at overall GG for GBO

It is also why, whenever I hear someone praising

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

A2020 proposed moving from Soviet style central planning to market. Can we make better on it with SA 2021?

THE COMMONS, which are creative—so unleash their potential The commons are shareable

Collateral? Crowd sourced opps?

What makes the convergence of these technologies so powerfully disruptive is their potential for distributed ownership, networked collaboration and minimal running costs.

First, by providing public goods—ranging

Second, by supporting the core caring role of the household,

Third, by unleashing the dynamism of the commons, with

encroachment. Fourth, by harnessing the power of the market by embedding

To avoid the tyranny of the state and the tyranny of the market alike, democratic politics are key—thus reinforcing the foundational role played by society in generating the civic engagement

Lastly, far from playing a supporting role to the productive economy, finance has come to dominate it. In many countries, a small financial elite—based in just a handful of banking and financial firms—controls the public good of money creation and profits handsomely from it, while too often destabilising much of the wider economy in the process. It is time to turn this upside-down scenario the right way up and redesign finance so that it flows in service of the economy and society. Such a redesign also invites a rethink of how money could be created—not just by the market but by the state and the commons too—and Chapters 5, 6 and 7 explore some possibilities for that.

Manager

Wherever people are present, so too are power relations: think of them as running throughout the Embedded Economy diagram, within each of its domains and at the interface between them too.

This new vision prompts new questions. Instead of immediately focusing on making markets work more efficiently, we can start by considering: when is each of the four realms of provisioning—household, commons, market and state—best suited to delivering humanity’s diverse wants and needs? What changes in technology, culture and social norms might alter that? How can these four realms most effectively work together—such as the market with the commons, the commons with the state, or the state with the household? Likewise, rather than focusing by default on how to increase economic activity, ask how the content and structure of that activity might be shaping society, politics and power. And just how big can the economy become, given Earth’s ecological capacity?

Its preparatory sketches are under way and, just as in Leonardo’s workshop, many artists are collaborating in piecing them together, from psychologists, behavioural scientists and neurologists to sociologists, political scientists and, yes, economists.

‘It is concerned with him solely as a being who desires to possess wealth’. To

With this move, Jevons placed utility at the heart of economic theory —a spot it occupies to this day—and from it he derived the law of diminishing returns: the more of a thing that you consume (be it bananas or shampoo), the less you will desire still more of it. But,

If utility is to be criticised, should we think of a Kantian approach?

which opened the way to new kinds of economic reasoning. But still it was not enough: the nineteenth-century model of economic man may have been ever-calculating, but he was not all-knowing, and his inherent uncertainty (which forced him to act upon opinion rather than knowledge) barred the way to complete mathematical modeling. Hence in the 1920s, Chicago-school economist Frank Knight decided to endow economic man with two godlike traits—perfect knowledge and perfect foresight—enabling him to compare all goods and prices across all time.

Why does it matter? Because, explains the media and cultural analyst Justin Lewis, ‘Unlike the citizen, the consumer’s means of expression is limited: while citizens can address every aspect of cultural, social and economic life . . . consumers find expression only in the market place.’20 The Twenty-First-Century Portrait

People’s sense of reciprocity appears to co-evolve with their economy’s structure:

Evidence from a wide range of policy initiatives—from school enrolments to forest conservation—raises a warning signal around introducing cash incentives in social spaces: their deeper effects are still so little understood and the evidence to date shows that they can so often go wrong.

For collaboration and innovation

What are the values, heuristics, norms and networks that currently shape human behaviour—and how could they be nurtured or nudged, rather than ignored and eroded? With

At the heart of systems thinking lie three deceptively simple concepts: stocks and flows, feedback loops, and delay.

The systems dynamics expert John Sterman concurs. ‘There are no side effects—just effects,’ he says, pointing out that the very notion of side effects is just ‘a sign that the boundaries of our mental models are too narrow, our time horizons too short’.

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

‘think of policy as an adapting portfolio of experiments that helps to shape the evolution of the economy and society over time.’ It’s an

profits. 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

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,

Yes, some of these tax proposals sound unfeasible now, but so many once-unfeasible ideas—abolishing slavery, gaining the vote for women, ending apartheid, securing gay rights—turn out to be inevitable.

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.14

Policies for heading in that direction, suggests Fullerton, include separating customers’ deposit accounts from the speculative activities of securities firms; introducing taxes and regulation that make it unprofitable to be too big, too leveraged and too complex; and a global financial transactions tax to rein in high-frequency trading.52

Lietaer’s first move was to ask the residents of Rabot what they actually wanted. The resounding answer: little plots of land for growing food. So a five-hectare derelict factory site was soon converted into allotments available for rent, which was payable only in a new currency, Torekes, meaning ‘little towers’, named after the district’s ubiquitous tower blocks. And they can be earned by volunteering to collect litter, replant public gardens, and repair public buildings, or by using

If the twenty-first-century goal is to get into the Doughnut by ending deprivation and degradation at the same time, what are the implications for GDP growth? Contemplating this question takes us to a new level in rethinking growth. It is one thing to move beyond using GDP as the primary indicator of a nation’s economic success, but it is another thing altogether for that nation to overcome its financial, political and social addiction to GDP growth. This chapter takes on that challenge and makes the case for creating economies that are agnostic about growth. By agnostic, I do not mean simply not caring whether GDP growth is coming or not, nor do I mean refusing to measure whether it is happening or not. I mean agnostic in the sense of designing an economy that promotes human prosperity whether GDP is going up, down, or holding steady.

as the nuclear physicist Al Bartlett warned, ‘The greatest shortcoming of the human race is our inability to understand the exponential function.’

As ever, the core ideas of systems thinking (set out in Chapter 4) will be a useful tool. GDP growth, like all growth, arises out of a reinforcing feedback loop, and it will eventually come up against a limit—a balancing feedback—that will most probably emerge from the larger system in which the economy is embedded. Based on the evidence available to date, it looks as if that limit lies in the carrying capacity of the living world. Must this encounter lead to collapse, or could we pre-empt that future by transforming the economy from ever-growing on an unstable trajectory to ever-oscillating within a stable range? What advice would a systems thinker offer?

What kind of currency, then, could be aligned with the living world so that it promoted regenerative investments rather than pursuing endless accumulation? One possibility is a currency bearing demurrage, a small fee incurred for holding money, so that it tends to lose rather than gain in value the longer it is held.