The author of Doughnut Economics ruminates on the urgent question of how we might meet the needs of all people, within the means of the planet
Do we need to radically rethink our economic structures?
The fundamental question in economics is ‘what is the purpose of the economy?’ If we don’t know what the purpose of the economy is then we don’t know what progress looks like; we don’t even know what metrics we should be using. To frame the purpose of the economy, I drew a little picture – it comes out looking a bit like a doughnut, crazy as it sounds. The purpose is to meet the needs of all people, within the means of this incredible, delicately balanced living planet.
With that as a starting point, what can we keep and what needs to change?
We need to make a lot of changes because we have inherited economies from the 20th century that are degenerative by design. Our industries are structured in a linear way. We take materials from the Earth, we make them into stuff we want, we use it for a while – often only once – and then we throw it away. And that Take-Make- Use-Lose structure cuts against the cycles of the living world. The cost of this throwaway industrial process is externalised from the business model and spewed out onto the Earth. We need to transform from a linear degenerative model to a circular regenerative model, where there’s no such thing as throwing things away: there’s no ‘away’, and there’s no such thing as waste – the waste from one process becomes food for another. We need an economy that regenerates with and within the cycles of the living world. I’m not even talking about economic instruments at this point, I’m talking about the fundamental re-conception of the production systems we use to meet our wants and needs, within the means of the planet.
‘The economy is more like a flock of birds flying in the sky’
What shifts in thinking are you suggesting and how might they be implemented?
The 21st-century economy has become fixated on growth – that’s what we hear our politicians talk about. Growth, as if that is the purpose and the object of our economy – ‘it’s growing!’ Instead, we need to realise that that economy exists within society, within the living world. We need to protect the Earth’s systems in order to thrive. We need to revisit who we think we are. Last century’s economics told us we’re homo economicus or ‘rational economic man’; that we are self-interested, calculating, always looking to get the best deal and make the most money. That is just such a narrow view of who we are and the dangerous thing about it is that the more students learn about it, the more they start to mimic it. I think most people aren’t money seeking; they’re purpose seeking. Just as much as we can be self-interested and competitive, we can also be collaborative. We are deeply social animals and we need to tap into that much wider understanding of who we are.
We also need to realise that the economy is complex. The original creators of economics made it a static analysis, jumping from one moment in time to another, but actually the economy is more like a flock of birds flying in the sky. You can never quite predict where they’re going to head next. They can swoop up and dip down, a bit like financial markets or fashion trends can.
What kind of economic model do we need?
We need to get away from the idea that a growing economy means that we might go through a period of inequality but ‘don’t worry, we’ll all come out better on the other side’. This was a dominant myth in the second half of the 20th century. Economies don’t become more equal. We’ve seen an extraordinary concentration of resources in the hands of a global one per cent. We need to create economies that are distributive by design – distributing opportunities to generate your own electricity, to have access to the internet, to have access to open source ideas. Today, we are structurally dependent on endless growth; financially, politically and socially.
Why are we locked into a need for GDPs to grow or, at the least, not shrink?
This is one of our structural dependencies. Our economies have had a long run of growth, broadly 100 years, and it’s become so normalised that we’ve structured it into the design of our institutions. Financially, we have a system that pursues the maximum rate of return. That means that any company that’s owned by shareholders is under pressure every quarter to show that it has growing sales, growing market share and growing profits – otherwise it’s under threat. We’ve also got a design of a banking system that creates money by issuing debt bearing interest. We have lots of drivers built into the financial sector that push for growth.
Then there are political lock-ins to growth. I like to look at the photograph of the G20 leaders who get together every year and stand on a platform and have their photo taken. I call it the G20 family photo. No political leader wants to lose their place in the family photo but if any one of those economies stops growing while the rest keep growing, within a few years they’ll be booted out by the next emerging powerhouse, be it Malaysia or Nigeria. We have an extraordinary problem in political collective action, in that every economy needs to keep growing to keep its place at the geopolitical table.
This is a global governance question really. But we’ve also got a conundrum that every government in the world would also like to raise tax revenue without raising the tax rate, and a growing economy is the surest, fastest way to do that. There is also the crucial issue that during recessions, or when the economy isn’t growing so fast, there are businesses that are really good at chasing labour productivity (ie, making the same amount of stuff but employing fewer people) and consequently you start to get an unemployment queue. Another example is the way our pensions are funded; on the presumption of shares that are going to grow in value. Put a nest-egg in now and it’ll be plenty to live off when you retire. All of these are designed assuming that economies will grow endlessly.
‘We currently have economies that need to grow whether or not they make us thrive. We need economies that make us thrive, whether or not they grow’
What happens if endless growth is not possible?
I was never invited to ask this question as a student, and I don’t think today’s students are either. Environmentally we have not figured out how to sufficiently decouple GDP growth from environmental impact. There is no country in the world that is showing it can happily maintain rising GDP yet is simultaneously on track to come back within the global carbon budget and other ecological boundaries that we need for a thriving planet. The inventor of GDP himself, a brilliant economist called Simon Kuznets, became his own greatest critic. He said ‘the national income can scarcely be taken as the measure of the welfare of a nation’. GDP just tells you the financial value of the goods and services that are sold. It tells you nothing of the value created by the community, nothing of the unpaid caring work that goes on in homes, it tells you nothing of what’s happening to the living planet on which we depend.
So, either growth isn’t possible because it is a threat to the integrity of the planet we depend on, or in some countries growth just isn’t coming. The IMF have forecast what they very politely call ‘flat growth’ for a number of countries. Suddenly there is a question about what happens when the long run of growth and the presumption of future growth has gone. To me, these are the existential economic questions of the century because it’s so far from what any politician wants to talk about. When you listen to a politician talking, the word growth appears all the time because it’s a proxy for progress and success. We need to move away from the paradigm that growth is progress. We currently have economies that need to grow whether or not they make us thrive. I believe this century we need economies that make us thrive, whether or not they grow. It’s a different challenge, and I’m not saying we have all the answers of how we get there but I think it’s a very real question.
Do we need another crisis?
Big ideas often emerge from crisis. Out of the Depression came Keynesian economics, out of stagflation in the 1970s Thatcher and Reagan turned to neoliberalism, and the GFC of 2008 certainly shook up the complacent idea of finance as infallible, and the notion that financial markets were acting to stabilise the economy – it turned out to be the opposite. Today, we find ourselves in the middle of a massive ecological crisis, of climate breakdown and loss of biodiversity. We’re in the middle of a social crisis. Globally, the richest one per cent of the people in the world own half the world’s wealth. This is insane! US writer William Burroughs once wrote: ‘After taking one look at this planet any visitor from outer space would say “I want to see the manager”’. We’ve become used to the situation we’re in but it’s become extraordinarily extreme.
‘After taking one look at this planet any visitor from outer space would say “I want to see the manager”’
Is there hope for the future?
There’s something crazy about penalising companies for hiring people. They pay labour taxes for the employees they hire. Instead, we should be charging companies for using new materials and producing waste. Apply taxes in a way that actively encourages companies to stop chasing labour productivity and employ as few people as possible, and instead chase resource productivity – to use resources for as long and efficiently and thoughtfully as is possible. This is one obvious way that transforming the paradigm can be achieved by transforming tax policy.
There is hope when a really progressive business says: ‘You know what? We’re going to have net zero carbon in our supply chains, actually, no, scratch that, we’re going to be a net positive company and we’re going to sequester more carbon dioxide than we emit’. Change starts to happen when ambitious governments dare to set a different vision – New Zealand has just introduced a well-being budget – when communities create transition towns, and when students march worldwide.
This piece is based on a longer audio recording originally published on rnz.co.nz
Doughnut Economics by Kate Raworth, Random House Business Books, 2017
Index image: Gilles Clément’s ‘Third Landscape’ encourages nature to colonise spaces left over by man and, in so doing, stimulate biodiversity credit: Dominique Dubois
This piece is featured in the AR September issue on money – click here to purchase your copy today