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

by Kate Raworth

Travelling through Europe in 2015, I met 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. A flicker of recognition crossed his face but he just smiled and repeated his words, ‘We still have other priorities.’ In one quick conversation, Prakash summed up the economic story that has been circulating for decades: poor countries are too poor to be green. What’s more, they don’t need to be because economic growth will eventually clean up the very pollution that it creates, and replace the resources that it runs down. It’s a story that once appeared to be backed up by data, along with an iconic diagram to embed its message. But, despite its continuing grip on the imagination of politicians and publics alike, it has turned out to be a myth, in India just as in the rest of the world. ‘India has performed remarkably economically,’ points out Muthukumara Mani, a World Bank senior environmental economist, ‘but that’s not reflected in its environmental outcomes. “Grow now, clean up later” really doesn’t work.’

Despite those careful caveats their hypothesis soon turned into a widely cited economic mantra, repeated in policy briefings, newspaper op-eds, and economics lectures worldwide: when it comes to pollution, growth – like a well-trained child – will clean up after itself. Some, like the pro-market economist Bruce Yandle, twisted this message into the much stronger claim that ‘economic growth helps to undo the damage done in earlier years. If economic growth is good for the environment, policies that stimulate growth (trade liberalisation, economic restructuring, price reform) ought to be good for the environment.’4 Yes, ‘no pain, no gain’ economics was back in town, this time recommending a perverse fitness regime for the living world. If you want clean air and water, healthy forests and oceans, then here’s the deal: it’s got to get worse before it gets better – and growth will make it better. So grit your teeth and feel the burn.

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. And not just by a little bit: the US, the UK, New Zealand and Australia all saw their footprints grow by more than 30% over that period; in Spain, Portugal and the Netherlands they grew by over 50%. Japan’s footprint, meanwhile, grew by 14% and Germany’s by 9%: impressively lower than the rest, but still growing.7 Far from the promised rise and fall of the Environmental Kuznets’ Curve, these data point to a disturbing rise and rise.

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.9 In other words, if it turns out to exist at all, then the Environmental Kuznets Curve is a mountain that humanity simply cannot afford to climb because we cannot survive its peak.

Facing up to the degenerative linear economy 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. And the reason why even the world’s richest countries are still making us all feel the burn is because the last two hundred years of industrial activity have been based upon a linear industrial system whose design is inherently degenerative.

This ubiquitous industrial model has delivered strong profits to many businesses and has financially enriched many nations in the process. But 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.

Or impose a tax equivalent to the ‘social cost’ of pollution, and then let the market decide how much pollution it is worth emitting. Such policies can have significant effect. 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% and carbon emissions by 3%, increased car sharing by 70%, and created 250,000 jobs.

When industry is based upon the degenerative linear design of take-make-use-lose, there is only so much that price incentives can do to mitigate its depleting effects. The visionary landscape architect John Tillman Lyle clearly recognised the limits inherent in such design. ‘Eventually a one-way system destroys the landscapes on which it depends,’ he wrote in the 1990s. ‘The clock is always running and the flows always approaching the time when they can flow no more. In its essence, this is a degenerative system, devouring the sources of its own sustenance.’15 What’s needed in its place is a paradigm of regenerative design – and that paradigm is now emerging, giving rise to a fascinating spectrum of business responses.

What we are doing is (mostly) legal and if we get fined, we tend to consider it a cost of business. For decades, the majority of companies worldwide took this tack, treating sustainability as a nice-to-have that they didn’t need to have because it did nothing for the share price. But times are changing fast. Many manufacturers who depend upon worldwide suppliers – such as cotton growers and coffee farmers, wine makers and silk weavers – now realise that their own product supply chains are vulnerable to the impacts of rising global temperatures and falling water tables, so recognise that doing nothing no longer seems such a smart strategy.

And, once you think about it, pursuing mission zero is an odd vision for an industrial revolution, as if intentionally stopping on the threshold of something far more transformative. After all, if your factory can produce as much energy and clean water as it uses, why not see if it could produce more? If you can eliminate all toxic materials from your production process, why not introduce health-enhancing ones in their place? Instead of aiming merely to ‘do less bad’, industrial design can aim to ‘do more good’ by continually replenishing, rather than more slowly depleting, the living world. 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. More than an action on a to-do checklist, it is a way of being in the world that embraces biosphere stewardship and recognises that we have a responsibility to leave the living world in a better state than we found it.20

We are big-brained animals, but we are newcomers on this planet, so we are still acting like toddlers expecting Mother Nature to clean up after us. I want us to take on this design task and become full participants in every one of nature’s cycles. Start with the carbon cycle – let’s learn to halt our industrial ‘exhale’ of carbon pollution, and then, by mimicking plants, learn to ‘inhale’ carbon dioxide into our products and store it for centuries in rich agricultural soils. Once we’ve cut our teeth on the carbon cycle, let’s apply what we have learned to the phosphorus, nitrogen, and water cycles, too.

The circular economy takes flight Industrial manufacturing has begun the metamorphosis from degenerative to regenerative design through what has come to be known as the ‘circular economy’. It is regenerative by design because it harnesses the endless inflow of the sun’s energy to continually transform materials into useful products and services.

coffee grounds are rich in cellulose, lignin, nitrogen, and sugars. It would be foolish to throw such organic treasure straight on to a compost heap or, far worse, into a rubbish bin, but this happens in homes, offices and coffee shops worldwide. Coffee grounds, it turns out, make an ideal medium for growing mushrooms, and then can be used as feed for cattle, chickens and pigs, and so are returned to the soil as manure. From the humble coffee bean, imagine scaling that principle up to all food, crops and timber, and scaling it out to every home, farm, firm and institution: it would start to transform our last-century forestry and food industries into regenerative ones that reap value from and then regenerate the living systems on which they depend.

In a degenerative industrial economy, value is monetary and it is created by searching for ever-lower costs and ever-greater product sales: the typical result has been intense material throughflow.

‘There is no wealth but life,’ as John Ruskin wrote in 1860. His words were poetic but they were prophetic too.

Pavements that absorb storm water then slowly release it into aquifers. Buildings that sequester carbon dioxide, cleanse the air, treat their own wastewater, and turn sewage back into rich soil nutrients. All connected in an infrastructural web that is woven through with wildlife corridors and urban agriculture.

Imagine if such a regenerative city were also distributive by design. Renewable energy microgrids would turn every household into an energy provider.

capturing methane emissions from dairy cows, turning them into bioplastic and making products – such as bottles and office chairs – which have been independently verified as carbon-negative, sequestering greenhouse gas emissions across their entire life cycle.

Janine Benyus knows the frustrations of this challenge at first hand. While collaborating with a large commercial land developer on designs for renovating the suburb of a major city, she proposed constructing buildings whose biomimetic living walls would sequester carbon dioxide, release oxygen, and filter the surrounding air. The developer’s first response? ‘But why should I provide clean air for the rest of the city?’ It’s an unsurprising question, indicative of the near ubiquitous business mindset that has arisen from the design of contemporary capitalism. And that design is the opposite of generous. It is focused instead on creating just one form of value – financial – for just one interest group: shareholders. While regenerative designers now ask themselves, ‘how many diverse benefits can we layer into this?’,

But with the average Westerner owning more than 10,000 objects made worldwide, such an individualised approach is highly unlikely to succeed, and furthermore it would lead to highly concentrated corporate control over the economy’s material round-flow.37 Here’s the nub of it: Regenerative industrial design can only be fully realised if it is underpinned by regenerative economic design.

Look, too, at the fast-evolving OSVehicle – the open-source future of 100% electric cars – whose parts can be quickly assembled to make an airport buggy, a golf cart, or even a smart city car.41

These open-source innovations are impressive but still fledgling, and to many the movement may look unfeasibly utopian. So remember the 21-year-old Finnish computer student, Linus Torvalds, who in 1991 was writing the kernel of an open-source operating system – just for a hobby, he said – which quickly morphed into Linux, now the most widely used computer operating system in the world. At the time, Microsoft’s CEO Steve Ballmer called Linux ‘a cancer’, but today even Microsoft has embraced the movement by using Linux in its own products.43 ‘The story of open-source software is a little portal to the future for us,’

Muirhead told me, and he is optimistic. ‘Once you put something in the commons, you can’t take it away,’ he explained, ‘so every single day the knowledge commons grows and becomes more useful. Once people get the idea – and see its circular economy potential – they really want to create solutions for it.’44

Redefining the business of business ‘The social responsibility of business is to increase its profits,’ said Milton Friedman back in 1970 and the mainstream business world willingly believed him.46 But Anita Roddick had a different take on that. In 1976, before the words to say it had been found, she set out to create a business that was socially and environmentally regenerative by design. Opening The Body Shop in the British seaside town of Brighton, she sold natural plant-based cosmetics (never tested on animals) in refillable bottles and recycled boxes (why throw away when you can use again?) while paying a fair price to the communities worldwide that supplied cocoa butter, brazil nut oil and dried herbs.

Roddick’s motivation? ‘I want to work for a company that contributes to and is part of the community,’ she later explained. ‘If I can’t do something for the public good, what the hell am I doing?’47 Such a values-driven mission is what the analyst Marjorie Kelly calls a company’s living purpose – turning on its head the neoliberal script that the business of business is simply business. Roddick proved that business can be far more than that, by embedding benevolent values and a regenerative intent at the company’s birth.

Anita Roddick certainly found this out the hard way. When the Body Shop first issued shares in 1986, she quickly encountered the clash between her regenerative-spirited enterprise and the narrow demands of shareholder finance. ‘One of the biggest mistakes I made was to go public and on the stock market,’

One unlikely financial rethinker who is taking on this design task is John Fullerton, a former managing director at JP Morgan. He walked away from Wall Street in early 2001 on an instinct that something was profoundly wrong with the way it worked and he started reading widely. Gradually, he says, ‘I came to the understanding that the economic system is actually the root cause of the ecological crisis, and that finance is what drives the economic system. So as a twenty-year finance veteran hotshot, I had some rethinking to do.’51 Starting with eight key principles that he believes underpin all complex living systems – including: taking a holistic view of wealth; being in ‘right relationship’; and seeking balance – Fullerton began using them to design what he calls ‘regenerative finance’ with the aim of creating finance that is in service to life.

Reining in short-term, speculative finance is a crucial start, but equally important is replacing it with long-term, investment finance. State-led development banks have an obvious role here in offering ‘patient capital’ for long-horizon investments such as renewable energy technologies and public transport systems. But there is a role, too, for private investors, ranging from the personal saver to institutional investors like pension funds and endowment funds. Community banks, credit unions, and ethical banks may sound like small players but they have taken the lead in this space.

Bring on the partner state The state’s role is key to ending the business-as-usual of degenerative economic design. And it has many ways to actively promote a regenerative alternative, including restructuring taxes and regulations, stepping up as a transformative investor, and empowering the dynamism of the commons.

In 2012, over 50% of tax revenue raised in the EU came from taxing labour; in the United States, the percentage was even higher.55 It’s no surprise that industry’s response has been to focus on increasing labour productivity – output per worker – by replacing as many workers as possible with automatons.

The Chinese government clearly shares her view of the state’s role as a risk-taking partner: over the past decade it has invested billions of dollars in a portfolio of innovative renewable energy companies, supporting not just their research and development costs but demonstration and deployment too. At the same time, the Chinese Development Bank, along with state-owned utilities, is financing the world’s biggest deployment to date of wind and solar photovoltaic parks.

use, electricity use, and the health of its river. One July evening, as I browsed the website from my UK home over 3,500 miles away, I could track minute-by-minute Oberlin’s local ecological flows: the real-time carbon emissions produced in the city per person that hour, the volume of drinking water used and of wastewater treated, and even the oxygen levels in nearby Plum Creek as the stream flowed past.62 Real-time data are a fun and engaging way to gain community interest but many of the deeper insights come from monitoring their dynamic trends year on year.63 Given Oberlin’s ambitions, I’ll bet that, once the data become available, the city will expand its Environmental Dashboard beyond the local to show Oberlin’s global material footprint, and use it to monitor its ambitious longer-term goal of full-spectrum sustainability.

Once a year I teach a class that divides friends, confronts ideologies, and challenges us all to change our minds. I get to the seminar room early, pull the chairs out of their neat rows and split the seating into two long columns divided by an aisle, rather like the seats on an airplane. As the students start arriving, they are confronted by a single question on the screen: Is green growth possible? Yes / No. I ask them to take a seat in answer to that question: for Yes, sit in the column by the window; for No, sit in the column by the door. And standing in the aisle is not allowed.

So as our discussions get going, I invite them to consider what it would take for them to switch sides, reminding them – with help from the poet Taylor Mali – that, ‘changing your mind is one of the best ways of finding out whether or not you still have one’.

Back in 2011 I was tasked by Oxfam to write a policy paper to help the organisation decide whether, in high-income countries, it should promote the concept of ‘green growth’, or side with those advocating ‘degrowth’.

I jumped at the chance because it took me back to the heart of macroeconomic thinking. But my excitement soon turned to paralysis as I dug into the debate and found that while both sides had some strong arguments, both too quickly dismissed the opposition’s case, and neither had a singularly compelling answer. As I attempted to come up with a clear policy position for Oxfam despite my own deepening uncertainty, my stomach tied itself in knots and my throat became so tight that I could barely breathe. I had been immobilised by one of the most existential economic questions of our age. So I called my project manager and explained the situation. ‘OK,’ she said. ‘What do you need – two more weeks?’

Back in Chapter 1 we booted the cuckoo goal of GDP growth out of the nest, but that doesn’t mean that it has simply flown from the story. Why? Here’s the conundrum: No country has ever ended human deprivation without a growing economy. And no country has ever ended ecological degradation with one.

Handed your pencil and paper, any mainstream economist of the last half-century will most likely draw the very same image that we encountered in Chapter 1: an ever-rising line, known as the exponential growth curve, in which GDP increases by a fixed percentage (be it 2% or 9%) of its current size every period. They would, however, instinctively leave its leading tip hanging mid-air, as if in suspended animation. The trouble for economists who produce this picture is the obvious question that is left hanging in the air with it: what happens next? There are essentially two options. Either the line keeps rising indefinitely, rapidly shooting up off the top of the page, or it must start to flatten out and eventually come to a level. For the mainstream economist, the first option is awkward, the second unconscionable, and here’s why. The exponential growth curve, revisited.

as the nuclear physicist Al Bartlett warned, ‘The greatest shortcoming of the human race is our inability to understand the exponential function.’2 That is because if something grows exponentially – be it algae on a pond, debt in the bank, or a nation’s energy use – it will get much bigger much faster than we expect. A 10% growth rate means that something will double in size every seven years. A 3% growth rate sounds far more modest but it still leads to doubling in size every 23 years. What would that imply for GDP growth? In 2015, World GDP – also known as Gross World Product – was around $80 billion and the global economy was growing at around 3% per year. If it continued indefinitely at that rate, the global economy would be nearly three times bigger by 2050, over ten times bigger by 2100, and – astonishingly – almost 240 times bigger by 2200. Take note: not a penny of that growth in value would be due to inflation; it is due only to the logic of compound growth.

Most economists, like the rest of us, would be hard pressed to envisage a thriving global economy of such extraordinary proportions, especially given the stress that human activity already puts on the planet, and so they may prefer to wave the implications off to the horizon. No one epitomised this approach so literally and influentially as the American economist Walt W. Rostow who, in 1960, published his seminal book, The Stages of Economic Growth, renowned for its dynamic theory of economic development. Every country, he claimed, must pass through five stages of growth so that it can come to ‘enjoy the blessings and choices opened up by the march of compound interest’.3 The five stages go like this: W.W. Rostow’s Five Stages of Growth (The twentieth-century journey) The traditional society The preconditions for take-off The take-off The drive to maturity The age of high mass-consumption

Rostow’s economic plane flight is the unmissable metaphor in this story, complete with its pre-flight procedural checks and its altitude signifying the economy’s growth rate. But it differs from every other plane flight in one crucial respect: the plane never actually lands, but cruises instead at a constant growth rate into the sunset of consumerism. Rostow hinted at his uncertainty of what might lie over that horizon, briefly acknowledging ‘the question beyond, where history offers us only fragments: what to do when the increase in real income itself loses its charm?’4 But he did not follow his own questioning through, and for understandable reasons: it was 1960 – the year of John F. Kennedy’s election bid on a promise of 5% growth – and for Rostow, a soon-to-be presidential adviser, it was wise to focus on keeping that plane in the sky, not on pondering when and how it would ever land.

Adam Smith believed that every economy would eventually reach what he called a ‘stationary state’ with its ‘full complement of riches’ ultimately being determined by ‘the nature of its soil, climate and situation’.

A full century on, John Maynard Keynes echoed Mill’s sentiments, asserting (rather wishfully) that ‘the day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems – the problems of life and of human relations, of creation and behaviour and religion’.

World GDP has increased more than fivefold since the Great Acceleration began in 1950 and, according to mainstream economic forecasts, it is likely to continue growing at around 3–4% per year at least in the near future.12 But global economic growth is made up of around two hundred national economies with widely differing growth rates. Their differences range from a fast-paced 7–10% per year in low-income countries like Cambodia and Ethiopia to a lethargic 0.2% per year in high-income countries like France and Japan.

It is, however, in today’s high-income but low-growth countries that the growth debate is most pressing, with some beginning to wonder whether the top of the S curve is coming within view. In many of these countries, population growth is already very low and in some – such as Japan, Italy and Germany – population size is expected to fall by 2050.

Does this suggest that, while aiming to get into the Doughnut, high-income countries should give up on the pursuit of GDP growth and accept that it might no longer be possible? That is not a comfortable question to consider. As Upton Sinclair famously noted, ‘It is difficult to get a man to understand something, when his salary depends on his not understanding it.’

In early 2016, Mark Carney, governor of the Bank of England, warned that the global economy risked being trapped in a ‘low growth, low inflation, low interest rate equilibrium’.

even when taking account of emissions embedded in the nation’s imports. According to available international data, between 2000 and 2013 Germany’s GDP grew by 16% while its consumption-based CO2 emissions fell by 12%. Likewise, the UK’s GDP grew by 27% while emissions fell by 9%, and GDP in the US grew by 28% while emissions fell by 6%.30 If

The implication? The last two centuries of extraordinary economic growth in high-income countries are largely due to the availability of cheap fossil fuels. It makes sense when you break it down: the energy contained in a single gallon of oil is equivalent to 47 days of hard human labour, making current global oil production equivalent to the daily work of billions of invisible slaves.37 What then are the implications for GDP in the post-fossil-fuel future that we must create? ‘We have to anticipate the possibility that economic growth will slow down or even turn negative,’ warn Ayres and Warr. ‘In short, future GDP growth is not only not guaranteed, it is more than likely to end within a few decades.’