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

From the frustrations of students who don't find the answers in their taught courses, Raworth recounts some of her own experience, from university to working in Zambia, writing the Human Development Report at the UN and deciding to start by looking at economics by its goals rather than its mechanisms. She also reflects on the power of images.

Economics claims to be value-free, but by the end of the 1950s, output growth had become the overriding policy objective in industrial countries, with the concept of utility at its heart. It is normally represented by the Gross Domestic Product, despite the very partial picture this provides of the whole. Nobel economists Amartya Sen and Joseph Stiglitz and 23 other leading economists concluded that “those attempting to guide the economy and our society are like pilots trying to steer a course without a reliable compass”. The Doughnut is an attempt to provide such a compass. The inner ring sets out 12 social foundations for humanity identified as sustainable development goals; the outer ring is formed of 9 planetary boundaries that earth system scientists have identified as being necessary for planetary stability. It replaces an impossible goal of endless growth by one of thriving in balance.

This chapter contrasts the standard neoliberal agenda staged by Samuelson's circular flow diagram and scripted by the Mont Pelerin Society of Friedman, Hayek et al., with the Embedded Economy which sets the economy within society and the living world. It points out that the economy's fundamental resource flow is not a roundabout of money, but a one-way street of energy. The economy also depends on a properly functioning society, households with all their unpaid elements and the commons, which Elinor Ostrom had rescued from tragedy.

Rational economic man was a portrait sketched by Adam Smith—solitary, calculating, competing and insatiable—refined by John Stuart Mill, elaborated by Jevons and made into a cartoon character by Frank Knight, founder of the Chicago School, who endowed him with perfect knowledge and perfect foresight. But it turns out that homo sapiens is the most cooperative species on the planet and the economy develops via interdependency.

From Alfred Marshall’s supply and demand graph of the 1870’s, economists have preferred simple equations to express economic ideas. Prompted by 2008 crash new dynamic models are being developed and there is a need for economists to work ethically.

Thomas Piketty finally destroyed the optimism of the Kuznets Curve which suggested that inequality would be automatically solved by rising affluence. As a consequence, issues including higher marginal rates of taxation and land value taxes need to be reconsidered. Other concerns include the digital revolution, robotics, intellectual property rights and the effect on the Global South.

The fact that more advanced economies have at least partially solved pollution problems faced by developing societies led some economists to believe this was inevitable rather than a determined effort and used it to mock studies such as Limits to Growth. Industrial systems have been built around an extract-manufacture-use-throwaway sequence and economics has developed a system of quotas, taxes and tiered pricing to alleviate the problems, although corporations lobby hard against them.

Although indefinite growth is the assumption of modern economics, it’s rare to find an exponential graph in a textbook. Rostow’s influential Five Stages of Growth pictures a plane journey whose fifth stage (the age of high mass consumption) leaves us in the air without a landing point. In practice, most natural systems follow an S-curve as a particular niche is filled. It is hard to predict a successful landing point for growth which meets the financial addiction to growth. Various ideas, such as Steady-state economy, demurrage and breaking out of consumerism, are explored.

“The twenty-first century task is clear: to create economies that promote human prosperity in a flourishing web of life, so that we can thrive in balance with the Doughnut’s safe and just space.”