Economics needs a major rethink, according to Kate Raworth, author of Doughnut Economics.
In the book, released last year, economist and researcher Raworth peels back the layers of outdated assumptions that underpin our current economic system. In their place, she proposes a new set of seven principles to guide us towards an economic system that works for both people and planet.
In this post, you’ll find:
- An overview of the seven principles proposed by Raworth
- Three key lessons I took from Doughnut Economics
- Three questions I have after reading the book
Seven key concepts
Change the goal
The push for endless economic growth shapes much of today’s economy, but Raworth points out that this narrow measurement ignores many of the important functions of any economic system. For example, how is wealth distributed? What quality of life do people have?
That’s where the book’s namesake, the Doughnut, steps in (or should that be rolls in?). Raworth pictures the economy as two circles, one within the other – pictured on the book’s cover.
If resource use and environmental pollution are so high that they damage the planet, then the economy is stepping above the planet’s ecological ceiling – going outside the outer ring of the Doughnut.
On the other hand, if people cannot meet their basic needs such as food, housing and education, then we have fallen inside the inner ring of the Doughnut.
Both social and environmental impacts have to be measured across a range of different factors – climate change, biodiversity, health, energy access and more.
Staying within the Doughnut – the “safe and just space for humanity”, as the book puts it – means guaranteeing minimum social welfare while avoiding excessive environmental damage.
See the big picture
Instead of viewing markets as isolated, Raworth points out the importance of considering other segments of the economy: households, governments and the commons (i.e. things owned collectively by everyone, such as the knowledge in Wikipedia). Furthermore, the entire economy is embedded within larger systems: society, the earth and the solar system.
Nurture human nature
Conventional economics views people as calculating, self-interested and rational. Raworth discusses the many facets of human nature that this view ignores: our desire to help others, the way our values can change depending on the situation, our brains’ often irrational decision-making processes, and our dependence on others.
Get savvy with systems
Raworth shows that the economy is a complex, constantly changing system, which often behaves in counterintuitive ways – in contrast to models which view markets as simple, stable systems. For example, wealth inequality is fed by a reinforcing feedback loop: it’s easier to make more money if you’re rich than if you’re poor.
Design to distribute
Raworth goes on to demolish the influential notion that economic growth will eventually inevitablybenefit everyone by reducing wealth inequality. Instead, she says, we need to intentionally design economic systems that distribute income, wealth, time and power right from the outset.
Create to regenerate
A study on local air and water pollution showed that, for some countries, pollution increased as the country started to climb out of poverty but then decreased as the country became even richer. However, Raworth shows that these findings have been overgeneralised and misused to prioritise growth over environmental protection – when, in fact, more recent data show that material use is still growing in rich countries.
Instead of using a business model that eats up resources and spits out waste, Raworth says that businesses need to take a more “circular” approach, turning waste back into valuable goods. Then, beyond simply reducing harm, businesses can start asking what other benefits they can provide to the communities around them.
Be agnostic about growth
Is economic growth necessary to provide human welfare, and does growth necessarily harm the planet? Raworth suggests that, rather than aiming for a particular rate of growth or degrowth, we should design an economy that provides sustainable human welfare regardless of whether it is growing, staying the same or shrinking.
Three key lessons from Doughnut Economics
I really recommend reading the book in full to understand its arguments. Quite apart from the book’s value in weaving together so many relevant strands of thought, Raworth’s writing is clear, succinct and a joy to read. Here are the three main messages that I took from Doughnut Economics.
There’s a long way to go
The scale of change that the economic system needs is huge.
In some cases, it feels daunting.
For example, Raworth points out that few countries have managed to unlink their rate of economic growth from their resource use and environmental impacts. Even for those that have, impacts are not falling quickly enough. Carbon emissions, for example, are falling by only 1-2% per year in high income countries, but they need to be cut by 8-10% per year to protect the climate.
A recent study from the University of Leeds uses the Doughnut framework to show how bad the situation is. Based on a scoring system of 11 social measures and 7 environmental measures, not a single country meets all social and environmental targets simultaneously. In other words, no countries are in the Doughnut. What’s worse, as countries achieve better social welfare, they generally do more damage to the planet. For more details, see the summary of the paper that I wrote for the Food Climate Research Network.
In other cases, it feels like an opportunity.
Reducing waste in the first place and creating value from waste are both cases where there’s a strong business case for choosing the more sustainable option.
For example, WRAP has recently reported that hotels could save $7 for every $1 they invest in reducing food waste – and most would get their investment back within a year or two.
Furthermore, a recent report showed that the global economy is only 9% circular – in other words, only 9% of material gets recycled, with the other 91% going to waste or being dispersed into the environment. There’s money to be made for any business that can figure out how to turn some of that waste stream into useful goods.
Doughnut Economics shows just how pervasive outdated economic mindsets are. Politicians are reluctant to question the paradigm of endless economic growth. Businesses often assume that their only mission is profit. Worryingly, the chapter on human nature even suggests that students behave more selfishly after studying economics courses where it is taken for granted that humans are driven purely by self-interest.
To reform the economic system, therefore, we must learn to question the assumptions that we take for granted and develop new mindsets that follow the seven principles of Doughnut Economics. Only then will we be able to see beyond the status quo.
Change inspires change
One of the great things about Doughnut Economics is the sheer variety of initiatives, experiments, social enterprises and different ways of doing things that it mentions – some new, some old. You’ve probably heard of some of them, such as open source software or local currencies, but I certainly hadn’t heard of them all.
The book shows that change is already happening. Economics students are realising the limitations of their traditional curriculum and demanding better education. “Nudge theory” is being used to protect the environment: for example, a study in Copenhagen found that littering could be reduced by 46% simply by painting green footprints leading up to the bin. Some cities are using tiered pricing for goods such as water, which ensures that it’s not expensive to buy the amount needed for daily essentials but penalises excessive use.
The point is not that all of these economic experiments will succeed; on the contrary, I’m sure many will fail. But some will work – and that demonstrates that there are alternatives to the present system, which will in turn inspire more experimentation.
While Doughnut Economics is inspiring, it can’t give all the answers. Here are three questions I have after reading it:
Don’t expect to find a complete blueprint for society: Doughnut Economics is more of a wish list than a recipe book, giving general principles instead of specific policy prescriptions. Raworth herself says that her principles “promise no immediate answers for what to do next, and they are not the whole answer”.
The chapter on designing economies to distribute, for instance, touches on several options including land value tax, alternative currencies and shared designs for 3D printed items, but I didn’t finish the chapter with a clear sense of what it would be like to live in a redistributive economy.
This is not necessarily a weakness – after all, we have to figure out where we want to go before we can decide how to get there – but it shows how much work is left to do.
So my question is: what would life actually be like in the Doughnut? The answer so far seems to be: we don’t know, so let’s experiment.
Is a Doughnut economy possible?
Without a concrete, specific vision for how the seven Doughnut principles could be used in a fair economic system, it’s very difficult to assess whether it’s even possible to put all seven principles into practice. Can it be done?
The systems that turn raw resources into social wellbeing have to become at least two to six times more efficient, if we want to give all humans a decent standard of living without wrecking the planet (according to The University of Leeds study I mentioned above). It’s a big task. Can it be done without dramatic lifestyle changes?
Raworth does give many examples of individual initiatives that use one or two of the principles, such as startups which collect food waste in cities to make compost – an example of extracting value from waste streams.
But it’s harder to test schemes that need wider action such as government intervention. Universal Basic Income, for example, is hard to trial because some effects (for example, on house prices) probably won’t be seen until everyone in an area is receiving an unconditional income, rather than just a few study participants.
There is, of course, a big difference between whether it’s physically possible to provide everyone with sustainable wellbeing, and whether it’s politically and economically possible. As Raworth points out, perhaps it’s time to stop viewing economics in terms of inevitable laws, and start designing systems that do what we want.
Where do we start?
So we know that the economy needs change, we’ve readjusted our mindset and we’re ready to start experimenting. But what are the next steps for individuals who want to help make the economy fit for the modern age?
It’s hard to know where to begin. Vested interests often resist change, particularly if they might lose out financially. Businesses might not want to invest in sustainability initiatives beyond their legal requirements, particularly if they operate in an industry with tight margins. Governments might be more interested in their popularity ratings than pursuing ambitious but uncertain economic experimentation.
The good news is that we aren’t starting from scratch, proven by the long list of projects and initiatives in Doughnut Economics. The book also shows the importance of finding “leverage points” in a complex system – points where a tiny push can cause a far bigger change, like lighting a fire or toppling a set of dominoes.
Here are my guesses for what individuals can do to help bring the economy into the Doughnut:
- Spread the word about sustainability. It’s becoming mainstream to consider the environmental and ethical impacts of our purchases – look how much influence Blue Planet II had on public discussion of plastic waste! Public awareness creates a strong incentive for businesses to go green.
- Actively engage with politicians and businesses. Let them know that achieving sustainable wellbeing for everyone is of the utmost importance. Tweet or email the brands you buy from to ask what they’re doing to have a beneficial impact on society.
- Get involved in local or online initiatives. Does your town have a local currency, a food donation scheme, a campaign group, or an entrepreneur community? Are there newsletters or discussion groups where you can stay informed and join the debate on environmental, social and economic sustainability?
- If you want advice on how to make an impact with your career, I recommend the website 80,000 hours.
Have you read Doughnut Economics? What did you think of it? Please do share your comments using the form at the bottom of the page – and don’t forget to sign up for email updates!