Doughnut Economics (2017) is a call to arms for a new approach to economics that is based on doughnuts. As inequality continues to rise and the threat of environmental catastrophe looms, the book's core issue has never felt more timely. So, how can we create a fair economic system that enables us to prosper while also protecting the environment? Kate Raworth thinks that a good place to start is to dispel some of the old misconceptions that have influenced economic thought for so long. This book, which focuses on the doughnut-shaped "sweet spot" in which human demands may be fulfilled in a sustainable manner, is a thought-provoking read that just could help rescue the planet from itself.
Who is it that reads the book Doughnut Economics?
- Anyone who is worried about the future of the Earth as a result of climate change should read this.
- Economic innovators on the lookout for new models for the twenty-first century Those who like new perspectives on important issues
What is Kate Raworth's background?
Kate Raworth is a senior visiting research associate at the University of Oxford's Environmental Change Institute, where she studies climate change and other environmental issues. Raworth, a self-described renegade in the economics profession, focuses his research on the social, economic, and environmental sustainability of the twenty-first century. She was named one of the top 10 tweeters in her profession by the Guardian newspaper, and she has presented her views to a wide range of audiences, including the United Nations General Assembly and the Occupy movement.
What exactly is in it for me? An environmental ambassador offers a fresh perspective on economics.
If it is human to make errors, economists are no different from the rest of us in that they make blunders. Theories that enchant us in textbooks often lead us wrong in the actual world, and vice versa. It turns out that even the most famous minds have clumsy feet. Economic concepts, on the other hand, may have remarkable staying power. As the British economist John Maynard Keynes famously observed, “practical men” who value their independence of thought are often “the slaves of some dead economist,” according to his observations. Despite the fact that they have passed their sell-by date, deceptive statements continue to sit on the shelf in the marketplace of ideas.
Doughnut Economics, written by Kate Raworth, takes aim at a concept that has long preoccupied both economists and policymakers: the promise of unending growth. Her purpose, on the other hand, is not purely theoretical. It is her contention that if we don't get rid of our addiction to development, we will eventually destroy the earth. Never-ending economic growth is not only a dead concept, but it is also very hazardous. What is required right now is a bold, forward-thinking attitude. It's time to say goodbye to the old and hello to the new. If we want to live and flourish on this planet, we must begin to think and act as if we are living in the twenty-first century. In these notes, you'll learn why the solution to our current issues looks like a doughnut, how a brilliant economist neglected to give credit to his mother's cuisine, and why a feeling of justice may triumph over self-interest in a variety of circumstances.
The Doughnut represents a radical shift in how we think about economic sustainability in the twenty-first century.
Economics is the universal language, used by both business and government across the globe. However, many of its fundamental assumptions are incorrect. Economic crises such as the 2008 financial collapse have shown this point - experts just could not foresee it coming. Climate change and global inequality, on the other hand, are problems that have been simmering for some time. In order to face the problems of the twenty-first century head-on, economics must undergo a radical transformation. The need for new ideas is the rule of the day. So, where should we begin? One notion proposed by author Kate Raworth, known as the Doughnut, that has the potential to assist us out of our present situation.
Consider the image of a traditional doughnut with a hole in the center. This design is comprised of two circles - one that forms the inner edge and another that forms the outer edge. Alternatively, the former may be considered the social basis, while the latter can be looked of as the ecological roof. Between these two rings – or, to continue with our metaphor, inside the dough – lies what the author refers to as "a secure and just home for mankind." A location characterized by a dynamic equilibrium. All of our social requirements may be fulfilled within it without putting an undue strain on the environment. The first idea should be explained as follows: The social basis of the Doughnut contains all that people need in order to survive. Access to basic necessities such as clean water and food is covered, but there is much more to it than that.
More than merely survival, we want people to flourish in their environment. It takes more than simply having adequate food to live a fulfilling human existence. More abstract social goods such as support networks, a feeling of belonging to a community, political representation, and gender equality are also necessary. What about the ecological ceiling, do you think it exists? Essentially, this is the ecological limit that we must adhere to if we are to ensure that the planet continues to flourish. Earth system experts headed by Johan Rockström and Will Steffen identified nine processes that are critical to our planet's capacity to support human existence in 2009. They are jeopardized by factors such as ozone depletion, ocean acidification, nitrogen and phosphorus loading, chemical pollution, freshwater depletion, land conversion, air pollution, global warming, and biodiversity loss.
The outer ring of the Doughnut serves as a "guardrail," ensuring that these critical processes are not compromised. If we go over it, we run the danger of causing environmental disaster. What's the issue, though? We've already jumped over the railing at least four times! Climate change, nitrogen and phosphorus loading, land conversion, and biodiversity loss are all well underway at the present time. The clock is already ticking, and there is a limited amount of time left. If we want to bring mankind into the Doughnut, we need to move quickly and decisively. Doch we must first alter our perspective on the world before we can take any further action. And the first step is to confront our preoccupation with unending expansion.
Even while economic growth is the most important measure, it is a limited one that does not convey the entire picture.
It's important to realize that economics hasn't always been about unending expansion. Take, for example, the ancient Greeks. For them, economics was defined as the skill of running a family home. Understanding how to make the most of limited resources was essential to mastering the subject. Making money and accumulating wealth were two completely distinct types of endeavors, as was gaining wealth. In fact, they had a separate term for it - chrematistics – to describe it. The mid-eighteenth century was a watershed moment in the history of economics, when economists started to reframe their profession as a science rather than an art. As early as the eighteenth century, economists like as John Stuart Mill were reorienting the emphasis of their respective disciplines. They moved the focus away from resource management and toward the study of the general principles of economic life.
Economic thinkers like Milton Friedman, the most prominent exponent of the school known as the Chicago school of economics, later adopted this new way of looking at the world. In their opinion, the discipline should refrain from attempting to alter the course of history and instead just explain things as they now exist. As a result, there was a vacuum at the core of economics. It didn't seem to have any sense of direction any more. As a result, economists became obsessed with something else: growth. By the end of the twentieth century, the discipline had become hooked to the measurement of how much money countries were producing on the global stage. However, the measure employed to assess economic success – gross domestic product, or GDP for short – does not provide a comprehensive picture of the situation. It's a quote by American economist Simon Kuznets, for example.
In the 1930s, the United States government commissioned Kuznets to devise a technique of calculating national income that would be widely accepted. His answer was the Gross National Product (GNP), which was originally a measure of value generated in nations that was subsequently replaced by the GDP. Kuznets, on the other hand, became more suspicious of GDP. Towards the end of the 1960s, he began to bring out its flaws. Most crucially, he said, it only recorded a portion of a nation's overall wealth - other portions were completely absent from the equation. This is due to the fact that the idea was limited to a single economic sector: the market. It makes no consideration for the value of products and services created by other players, such as families, society, or the government. Kuznets stated that if you desire greater growth, you need “specify more growth of what and for what.” He was a pioneer in his field. Unfortunately for us, few people have taken his counsel to heart.
In addition to the market, there is more to the economy than meets the eye, and it is not self-contained, as many orthodox economists assert.
The circular flow diagram is a classic economic model that is often used to describe the universe. A closed system is shown in which revenue flows between companies and families, with banks, governments, and commerce acting as intermediaries between the two groups. It is a strong picture that has shaped the way we think about the economy and continues to do so. There's just one problem: it's completely incorrect! Regardless of how strong the market is, it is not the only economic sector that generates value in the world. The state contributes commodities and labor to the construction of roads and the education of children. In addition to it, there are shared resources such as public land or Wikipedia. Individual homes have an important part in the economy, despite the fact that this is often overlooked by the general public. This may be seen in the life of the renowned Scottish economist Adam Smith, who is an excellent illustration of this.
According to Smith's writings, markets mobilize individual self-interest to provide for the general good, such as when a grocery store is driven to sell someone everything they need to prepare a meal. So, where did Smith create his monumental book, The Wealth of Nations, in the first place? According to Smith's viewpoint, he should have been paying someone for the service of providing him with a nice place to stay, right? In reality, he returned home to live with his mother. While he was writing, she was busy preparing meals and doing household duties. To put it another way, his job was dependent on unpaid labor. He would have been unable to focus on his novel if it had not been for it. Despite this, he makes no mention of it in his writing. Perhaps he was simply too busy to notice. That has remained mostly unchanged since the seventeenth century. When it comes to unpaid home work, mainstream economic theory has a blind spot that has to be addressed.
Another problem in the circular flow model is that it does not account for time. The economy is not a closed system in the traditional sense. Everything that we do in the world relies on the resources supplied by the sun and our own planet. In the 1970s, Herman Daly and other ecological economists coined a helpful word to explain what they were seeing. Those who believe in the economy believe that it is an open subsystem of the earth's closed system. Economic life would come to a grinding stop if we did not have access to the energy and raw materials provided by the sun and the planet. It is a "full world" when we take more from the planet than it can provide for us and expect it to absorb more trash than it is capable of absorbing. As Daly contends, we are already living in a fully realized world. There is no way on earth that we can restore critical resources at the same rate as we deplete them. That is another another cause for us to rethink our approach to the economy!
The study of economics is often based on faulty and incorrect assumptions about human behavior.
When researching large topics, it is common for fields to begin by seeking for the smallest unit in a system. For physicists, this is referred to as the atom. The Rational Economic Man is a fictional character created by economists. So, who is this mysterious figure? He is, in essence, a theoretical representation of the individual customer. In its early stages of development, in the eighteenth century, this paradigm offered a reasonably detailed depiction of human behavior and thought. When it came to the 1970s, it had evolved into something much less complex. Selfish, lonely, hungry, and always calculating, Rational Economic Man has become a parody of himself in the eyes of the public. As a matter of fact, the concept grew so absurd that even the caricaturists themselves were compelled to acknowledge its shortcomings.
In his Essays on Some Unsettled Questions of Political Economy, published in 1844, John Stuart Mill embellished this cartoonish figure with a number of embellishments. Mill said that the character of the Rational Economic Man was likewise characterized by his disdain of labor and his love of luxury. As he himself pointed out, even this amounted to "an arbitrary definition of man" in the first place. However implausible, this simple sketch of human conduct ended up having a profound impact on society and history. According to the American economist Robert Frank, "our ideas about human nature contribute to the shaping of human nature itself."
This viewpoint was backed by research conducted in Germany, Israel, and the United States. Student participants who had spent time studying economics – and therefore had gotten to know Rational Economic Man intimately – were more likely than other students to approve of selfishness, according to the findings. They acted in a selfish manner and expected others to react in the same manner. This point of view has even influenced the manner in which we speak about the world. Take, for example, the term "citizen." For a long time, it was a frequent phrase in newspapers and literature across the English-speaking globe. After the 1970s, however, the term "consumer" quickly supplanted it as the dominant term. There's an issue with that. Modern economics must be more in tune with the way people really react in everyday situations. Although Rational Economic Man is an excellent model, people's conduct is not quite as selfish or uniform as the model would have you believe.
Take, for example, the Ultimatum Game. The rules are straightforward: The game is played by two complete strangers. Both parties offer a portion of a certain sum of money to the other. If the latter decides to reject the proposition, neither player will get any compensation. It's been performed many times all around the globe, and the outcomes are always interesting to see. According to the concept of the Rational Economic Man, the second player should always accept the first player's offer in every situation. Free money, no matter how small the sum, should not be overlooked. In practice, though, athletes often refuse to accept a contract if they believe it is unjust. College students in North America often reject job offers that are less than 20 percent of the entire compensation package. They are willing to punish selfishness, even if it means sacrificing their own interests. That simply goes to demonstrate that justice may take precedence over self-interest in certain situations.
The real world economy is a complex network of interconnected systems that operates on a global scale.
The term "supply and demand" is well-known. Take a look inside any first-year economics textbook, and you're sure to discover a straightforward graphic illustrating how it works. There is an ascending line on one side of the diagram. On the other hand, there is a falling line. They come together at the moment when pricing are aligned with what customers are prepared to pay for goods and services. This is referred to as the equilibrium point by economists. In the same way that a swinging pendulum is controlled by the rules of physics that strive to achieve balance, markets are governed by economic laws that seek to achieve equilibrium. At least, that's how the theory goes. Unfortunately, in the actual world, equilibrium does not operate in this manner at all. In reality, the models used by economists are often oversimplified to the point that they no longer make sense. This is due to the fact that they often seek models that are similar to those used by scientists, such as physicists.
However, in order to iron out the messy realities of the world, it is necessary to make simple assumptions that do not reflect the way things really function. One of those assumptions is that a representative consumer would react to events in predictable ways, which is hazardous since it ignores the unpredictable boom-and-bust cycles of the market. Take, for example, the financial crisis of 2008. Due to conventional economists' belief that markets would automatically stabilize themselves, they failed to see the warning signals. They neglected to take into consideration the banking industry's particular complexity and weaknesses. The Federal Reserve of the United States of America did not even include private banks in its models! They were taken off guard when the accident occurred. Because they were wearing imaginary notepads, they were unable to anticipate what was about to happen. So, what can be done to prevent such disasters?
The economic system of the twenty-first century must be transformed. That entails abandoning mechanical analogies in favor of seeing economies as complex systems. It is necessary to understand economies for what they are – vast systems of linked variables – in order to do this. In these types of systems, equilibrium is not likely to occur. Individual components, on the other hand, interact with one another, strengthening one another. It is beneficial to use the tools of system thinking in order to comprehend this. Consider the use of feedback loops. These have the potential to have two effects: Positive loops are used to promote anything in a system in the first instance. Balancing loops are used to discourage something in the latter case.
Consider the following scenario: a flock of hens is living close to a busy road and you want to learn how it works. Chickens like doing two things in particular: crossing highways and laying eggs. The greater the number of eggs they deposit, the greater the number of chickens. As a result, there will be an increase of traffic crossings. That is an example of a positive – or reinforcing – feedback loop. However, suppose the route is very congested. More crossings equate to more chickens being ran over, which reduces the overall number of chickens in the herd. That is an example of a balancing loop. Thinking in terms of feedback loops allows us to keep track of the intricate interactions that occur in an economy, which is a much superior approach than placing blind trust in the market's capacity to maintain equilibrium!
Inequality is not a necessary prerequisite for economic development.
While “no pain, no gain” is often associated with bodybuilders, it is also a phrase that many mainstream economists have taken to heart. They argue that if you want to create a better economy, you must be willing to suffer through difficult times. And recognizing inequity is a necessary part of that. The Kuznets curve is a mathematical model that is intended to demonstrate this. It's another another standard concept in economics textbooks. You can locate a bell-shaped graphic illustrating the relationship between income inequality and per capita incomes in almost any edition by flipping through the pages. Initial evidence suggests that inequality is becoming worse and worse. Once the line reaches the top of the bell, however, it starts to fall precipitously in length. According to the concept, once a country's economy becomes sufficiently prosperous, money starts to trickle down and inequality diminishes.
It seems to be too wonderful to be true, doesn't it? That's because it is, after all. Simon Kuznets himself acknowledged that this was the case. It was in the 1950s that he conducted his research on inequality, which was based on little data and a lot of educated guesses. The amount of data available to economists has increased significantly by the 1990s. In testing the hypothesis – by searching for historical instances of nations becoming more equal as they were wealthier - they discovered that they couldn't identify a single example. If the Kuznets curve is correct, we should expect to see extremely low levels of inequality in the wealthiest nations, according to the data. Contrary to popular belief, evidence indicates that high-income nations are facing the greatest levels of inequality in 30 years!
Take, for example, the United States. Despite the fact that the United States had over 500 billionaires as of 2015, one out of every five children lived below the federal poverty threshold. In the absence of increasing wages, what more can be done to make society more equal? Better design is an excellent place to begin. The Bangla-Pesa demonstrates how this may be accomplished. Initially launched in the Bangladesh district of Mombasa, Kenya — a region known for its unstable business conditions and frequent shortages of cash - the currency has since grown in popularity. The Bangla-Pesa was not intended to be a substitute for Kenya's official money, the Kenyan shilling, but rather to serve as a supplementary tender. This would be used to purchase and sell products among the district's network of about 200 merchants, according to the plan.
It enabled customers to save their shillings in order to pay for utilities like as power, which must be paid for in cash. Purchases of everyday necessities like as bread or the services of a carpenter may be made using the Bangla-Pesa. Trading companies could still make ends meet for themselves and their families as a result of this secondary currency, even if their primary company suffered. When a power outage occurred in 2014, local business owners such as barber John Wacharia were still able to purchase food and other necessities using the Bangla-Pesa mobile money system.
Economies in the twenty-first century have the potential to be more sustainable while also contributing to environmental regeneration.
Given the impending environmental catastrophe, you'd expect countries to be rushing to create environmentally viable policies, wouldn't you? Unfortunately, many nations continue to turn a blind eye to the dangers posed by climate change. The economics of the situation is often a contributing factor. Many economists consider a natural environment that is free of pollution to be a luxury. Environmental protection is seen as something that civilizations can only afford after they have achieved a particular level of development, just as greater equality is regarded. However, this is a mistake. In the 1990s, American economists Gene Grossman and Alan Krueger crunched the data to figure out what was going on. They made a comparison between GDP growth and air and water pollution. A trend soon emerged: as GDP rose, pollution increased at first, before gradually diminishing over time.
That, on the other hand, was deceptive. As the authors themselves acknowledged, they had failed to account for global pollution levels in their calculations. Despite its weak underpinnings, the notion that GDP expansion would inevitably result in lower pollution levels was difficult to dismiss. Between 1990 and 2007, the GDP of high-income nations increased in tandem with the expansion of their environmental footprints. When all ecological variables are taken into consideration, the footprints of the United Kingdom and New Zealand rose by 30 percent over the same time, whereas the footprints of Spain and the Netherlands climbed by more than 50 percent during same period. That's a long distance from the safe haven of the Doughnut, which we had previously explored. So, what exactly do we have to do in order to get there? First and foremost, our linear economy must be transformed into a circular economy.
Essentially, this implies shifting away from the production of throwaway items toward the production of reusable things. No matter whether it's biological stuff such as plants and soil or technological commodities such as synthetics and metals, most things may be given a second chance at life. Using coffee grounds, for example, may be utilized for an incredible number of different things. You may use them to produce mushrooms, which you can then use as livestock feed. This is particularly useful since animal dung returns them to the soil in the form of natural fertilizer, which is very beneficial. This method has the potential to transform a significant quantity of "trash" into useful resources. Not bad considering that less than one percent of the nutrient-dense bean makes its way into a cup of coffee! A similar argument may be made for industrial goods.
Workshops in the Togolese city of Lomé recycle abandoned computer equipment to create 3D printers based on open-source designs, converting waste goods into a main raw resource. It is not only ecologically beneficial, but it also has the potential to save lives since physicians can use the devices to print medical equipment, which is much less expensive and faster than ordering instruments from overseas, saving them time and money. As a result, reuse, repurposing, and intelligent design are no longer considered luxuries — they are instead considered necessary!
Because growth is not an infinitely steep upward slope, we must start asking ourselves what comes next.
In what way does economics serve a purpose? An economist would most certainly tell you that discipline is beneficial to the economy's overall growth. Growth, on the other hand, cannot endure indefinitely. At the end of the day, something needs to be sacrificed. So, what do we do when the unavoidable occurs and our economies begin to contract rather than grow? It's an interesting topic to ponder. After all, our present growth objectives are not compatible with environmental sustainability. According to the Organization for Economic Cooperation and Development's 2014 report, the global economy will expand at a modest pace over the long run. Even this "mediocre" increase, however, would result in a doubling of global greenhouse gas emissions by 2060! And it isn't the only issue at hand. Other data indicates that growth in high-GDP, low-growth countries such as Japan and Germany is reaching a plateau or has plateaued.
The million-dollar issue is whether or not GDP can be maintained throughout the transition to a "green growth" paradigm of economic development. Is it possible for economies to continue to develop while transitioning away from fossil fuels and toward renewable energy sources such as wind and solar power? The only other alternative is to embrace "de-growth," which means accepting the possibility that GDP could slow down, flatten out, or possibly reverse. Perhaps the greatest course of action is to become less reliant on economic development in the first place. One approach would be to eliminate tax loopholes, which would be a significant step forward.
Gross domestic product (GDP) is the obsession of governments since it enables them to increase income without raising taxes. However, a large amount of money simply does not get taxed. The tax haven industry is projected to lose approximately $156 billion each year, which is more than double the amount required to eradicate severe poverty in the world. Using demurrage as an alternative is another possibility. At the present, the value of the currency is increasing as a result of interest. If you have money, it makes sense to hang on to it as long as possible. The financial industry operates on the premise that the longer you leave something alone, the more it increases. However, as a result, money ends up being stuck in one industry rather than being invested in other ventures. But what if your savings didn't grow in value over time, but instead grew less valuable as time passed by without being spent? That is the fascinating premise of demurrage, to put it simply.
It has the potential to be a game changer. Instead of putting their money in a savings account, people would have an incentive to spend their money. Despite the fact that it seems to be a revolutionary new strategy, it was nearly adopted in the United States during the Great Depression! These are only a few of the techniques that may be used to bring us into the sweet spot inside the Doughnut. Regardless of the method used, we must break our addiction to unending economic development. It is essential for the survival of our world.
The fundamental theme of this book is that, in order to face the problems of the twenty-first century, we must reinvent economics. The Doughnut is a model that has the potential to set us on the right track. It demonstrates how we may develop economies that meet our societal demands without placing an undue strain on the planet's finite resources. In the event that we are successful in entering the Doughnut's safe zone, we will have made significant progress toward a future in which both mankind and environment will not only survive, but flourish. A piece of actionable advice: Think globally while acting locally. Making significant changes to something as large and complicated as the global economy is a difficult undertaking to undertake. Smaller adjustments, on the other hand, may make a significant impact. Purchases of sustainable coffee or banking services from ethical financial institutions may make the world a better place. It's possible that once you start exploring, you'll be astonished at how many diverse options there are for changing the environment around you!
Written by BrookPad Team based on Doughnut Economics by Kate Raworth