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

by Kate Raworth

  Contents

  About the Book

  About the Author

  Title Page

  Who Wants to be an Economist?

  1. Change the Goal

  from GDP to the Doughnut

  2. See the Big Picture

  from self-contained market to embedded economy

  3. Nurture Human Nature

  from rational economic man to social adaptable humans

  4. Get Savvy with Systems

  from mechanical equilibrium to dynamic complexity

  5. Design to Distribute

  from ‘growth will even it up again’ to distributive by design

  6. Create to Regenerate

  from ‘growth will clean it up again’ to regenerative by design

  7. Be Agnostic about Growth

  from growth addicted to growth agnostic

  We Are All Economists Now

  Appendix: The Doughnut and its Data

  Notes

  Bibliography

  Acknowledgements

  Index

  Picture Acknowledgements

  Copyright

  ABOUT THE BOOK

  Economics is broken. It has failed to predict, let alone prevent, financial crises that have shaken the foundations of our societies. Its outdated theories have permitted a world in which extreme poverty persists while the wealth of the super-rich grows year on year. And its blind spots have led to policies that are degrading the living world on a scale that threatens all of our futures.

  Can it be fixed? In Doughnut Economics, Oxford academic Kate Raworth identifies seven critical ways in which mainstream economics has led us astray, and sets out a roadmap for bringing humanity into a sweet spot that meets the needs of all within the means of the planet. En route, she deconstructs the character of ‘rational economic man’ and explains what really makes us tick. She reveals how an obsession with equilibrium has left economists helpless when facing the boom and bust of the real-world economy. She highlights the dangers of ignoring the role of energy and nature’s resources – and the far-reaching implications for economic growth when we take them into account. And in the process, she creates a new, cutting-edge economic model that is fit for the 21st century – one in which a doughnut-shaped compass points the way to human progress.

  Ambitious, radical and rigorously argued, Doughnut Economics promises to reframe and redraw the future of economics for a new generation.

  ABOUT THE AUTHOR

  Kate Raworth is an economist focused on exploring the economic thinking needed to address the twenty-first century’s social and ecological challenges. She teaches at Oxford University’s Environmental Change Institute, where she is a senior visiting research associate. She is also a senior associate of the Cambridge Institute for Sustainability Leadership, and teaches on the Economics for Transition programme at Schumacher College.

  Her internationally acclaimed idea of Doughnut Economics has been widely influential amongst sustainable development thinkers, progressive businesses and political activists, and she has presented its core ideas to audiences ranging from the UN General Assembly to the Occupy movement.

  Over the past 20 years, Kate’s career has taken her from working with micro-entrepreneurs in the villages of Zanzibar to co-authoring flagship reports for the United Nations Development Programme in New York, followed by a decade as Senior Researcher at Oxfam.

  Named by the Guardian as ‘one of the top ten tweeters on economic transformation’, her media work includes articles and interviews for the Financial Times, the Wall Street Journal, the New Statesman, CNN, and Al-Jazeera. Her academic research has appeared in journals including Nature Climate Change, Sustainability, Gender and Development, and the Journal of Ethics and International Affairs.

  Kate has a BA in Politics, Philosophy and Economics, and an MSc in Economics for Development, both from Oxford University. She is a member of the Club of Rome and serves on several advisory boards, including the Stockholm School of Economics’ Global Challenges programme, the University of Surrey’s Centre for the Understanding of Sustainable Prosperity, and Oxford University’s Environmental Change Institute.

  www.kateraworth.com

  www.facebook.com/doughnuteconomics

  @kateraworth

  DOUGHNUT ECONOMICS

  Seven Ways to Think Like a 21st-Century Economist

  Kate Raworth

  The most powerful tool in economics is not money, nor even algebra. It is a pencil. Because with a pencil you can redraw the world.

  WHO WANTS TO BE AN ECONOMIST?

  In October 2008, Yuan Yang arrived at Oxford University to study economics. Born in China and raised in Yorkshire, she had the outlook of a global citizen: passionate about current affairs, concerned about the future, and determined to make a difference in the world. And she believed that becoming an economist was the best way to equip herself to make that difference. She was eager, you could say, to become just the kind of economist that the twenty-first century needs.

  But Yuan soon got frustrated. She found the theory – and the maths used to prove it – absurdly narrow in its assumptions. And since she began her studies just as the global financial system was heading into free fall, she could not help but notice it, even if her university syllabus didn’t. ‘The crash was a wake-up call,’ she recounted. ‘On the one hand we were being taught as if the financial system was not an important part of the economy. And on the other hand, its markets were clearly wreaking havoc, so we asked, “Why is there this disconnect?” ’ It was a disconnect, she realised, that ran far beyond the financial sector, visible in the gulf between the preoccupations of mainstream economic theory and growing real-world crises such as global inequality and climate change.

  When she put her questions to her professors, they assured her that insight would come at the next level of study. So she enrolled for the next level – a Master’s degree at the prestigious London School of Economics – and waited for that insight to come. Instead, the abstract theories intensified, the equations multiplied, and Yuan grew more dissatisfied. But with exams on the horizon, she faced a choice. ‘At some point,’ she told me, ‘I realised that I just had to master this material, rather than trying to question everything. And I think that’s a sad moment to have as a student.’

  Many students coming to this realisation would have either walked away from economics, or swallowed its theories whole and built a lucrative career out of their qualifications. Not Yuan. She set out to find like-minded student rebels in universities worldwide and quickly discovered that, since the millennium, a growing number had publicly started to question the narrow theoretical framework that they were being taught. In 2000, economics students in Paris had sent an open letter to their professors, rejecting the dogmatic teaching of mainstream theory. ‘We wish to escape from imaginary worlds!’ they wrote, ‘Call to teachers: wake up before it is too late!’1 A decade later, a group of Harvard students staged a mass walk-out of a lecture by Professor Gregory Mankiw – author of the world’s most widely taught economics textbooks – in protest against the narrow and biased ideological perspective that they believed his course espoused. They were, they said, ‘deeply concerned that this bias affects students, the University, and our greater society’.2

  When the financial crisis hit, it galvanised student dissent worldwide. It also spurred Yuan and her fellow rebels to launch a global network connecting over 80 student groups in more than 30 countries – from India and the US to Germany and Peru – in their demand for economics to catch up with the current generation, th
e century we are in, and the challenges ahead. ‘It is not only the world economy that is in crisis,’ they declared in an open letter in 2014:

  The teaching of economics is in crisis too, and this crisis has consequences far beyond the university walls. What is taught shapes the minds of the next generation of policymakers, and therefore shapes the societies we live in … We are dissatisfied with the dramatic narrowing of the curriculum that has taken place over the last couple of decades … It limits our ability to contend with the multidimensional challenges of the 21st century – from financial stability, to food security and climate change.3

  The more radical among these student protestors have been targeting highbrow conferences with their counter-cultural critiques. In January 2015, as the American Economic Association’s annual meeting got under way in Boston’s Sheraton Hotel, students from the Kick It Over movement plastered accusatory posters in the hotel’s corridors, elevators and toilets, projected giant subversive messages on to the conference centre’s street facade, and stunned the incredulous conference-goers by occupying their sedate panel discussions and hijacking question time.4 ‘The revolution of economics has begun,’ the students’ manifesto declared. ‘On campus after campus we will chase you old goats out of power. Then in the months and years that follow, we will begin the work of reprogramming the doomsday machine.’5

  In January 2015 rebel economics students commandeered the street front of the Boston Sheraton to greet the American Economic Association’s annual conference with their counter-cultural critique.

  It’s an extraordinary situation. No other academic discipline has managed to provoke its own students – the very people who have chosen to dedicate years of their life to studying its theories – into worldwide revolt. Their rebellion has made one thing clear: the revolution in economics has indeed begun. Its success depends not only on debunking the old ideas but, more importantly, on bringing forth the new. As the ingenious twentieth-century inventor Buckminster Fuller once said, ‘You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.’

  This book takes up his challenge, setting out seven mind-shifting ways in which we can all learn to think like twenty-first-century economists. By revealing the old ideas that have entrapped us and replacing them with new ones to inspire us, it proposes a new economic story that is told in pictures as much as in words.

  The twenty-first-century challenge

  The word ‘economics’ was coined by the philosopher Xenophon in Ancient Greece. Combining oikos, meaning household, with nomos, meaning rules or norms, he invented the art of household management, and it could not be more relevant today. This century we need some pretty insightful managers to guide our planetary household, and ones who are ready to pay attention to the needs of all of its inhabitants.

  There have been extraordinary strides in human well-being over the past 60 years. The average child born on planet Earth in 1950 could expect to live just 48 years; today such a child can look forward to 71 years of life.6 Since 1990 alone, the number of people living in extreme income poverty – on less than $1.90 a day – has fallen by more than half. Over two billion people have gained access to safe drinking water and toilets for the first time. All this while the human population has grown by almost 40%.7

  That was the good news. The rest of the story, of course, has not turned out so well so far. Many millions of people still lead lives of extreme deprivation. Worldwide, one person in nine does not have enough to eat.8 In 2015 six million children under the age of five died, more than half of those deaths due to easy-to-treat conditions like diarrhoea and malaria.9 Two billion people live on less than $3 a day and over 70 million young women and men are unable to find work.10 Deprivations such as these have been exacerbated by growing insecurities and inequalities. The 2008 financial crash sent shock waves through the global economy, robbing many millions of people of their jobs, homes, savings and security. Meanwhile, the world has become extraordinarily unequal: as of 2015 the world’s richest 1% now own more wealth than all the other 99% put together.11

  To these extremes of human circumstance, add the deepening degradation of our planetary home. Human activity is putting unprecedented stress on Earth’s life-giving systems. Global average temperature has already risen by 0.8°C and we are on track for an increase of almost 4°C by 2100, threatening a scale and intensity of floods, droughts, storms and sea-level rise that humanity has never before witnessed.12 Around 40% of the world’s agricultural land is now seriously degraded and by 2025 two out of three people worldwide will live in water-stressed regions.13 Meanwhile over 80% of the world’s fisheries are fully or over-exploited and a refuse truck’s worth of plastic is dumped into the ocean every minute: at this rate, by 2050 there will be more plastic than fish in the sea.14

  These are already overwhelming facts, but growth projections add to the challenge ahead. Global population stands today at 7.3 billion and is expected to reach almost 10 billion by 2050, levelling off at around 11 billion by 2100.15 Global economic output is – if you believe business-as-usual projections – expected to grow by 3% per year from now until 2050, doubling the global economy in size by 2037 and almost trebling it by 2050.16 The global middle class – those spending between $10 and $100 a day – is set to expand rapidly, from 2 billion today to 5 billion by 2030, bringing a surge in demand for construction materials and consumer products.17 These are the trends that shape humanity’s prospects at the start of the twenty-first century. So what kind of thinking do we need for the journey ahead?

  The authority of economics

  However we tackle these interwoven challenges, one thing is clear: economic theory will play a defining role. Economics is the mother tongue of public policy, the language of public life, and the mindset that shapes society. ‘In these early decades of the twenty-first century, the master story is economic: economic beliefs, values and assumptions are shaping how we think, feel and act,’ writes F. S. Michaels in her book Monoculture: How One Story is Changing Everything.18

  Perhaps this is why economists carry an air of authority. They take front-row seats as experts in the international policy arena – from the World Bank to the World Trade Organization – and are rarely far from the ear of power. In the US, for example, the President’s Council of Economic Advisers is by far the most influential, high-profile and long-running of all the White House’s advisory councils, while its sibling councils for environmental quality and science and technology are barely known beyond the Beltway. In 1968, the prestige of Nobel Prizes awarded for scientific advances in physics, chemistry and medicine was controversially extended: Sweden’s central bank successfully lobbied and paid for a Nobel-Memorial prize to be awarded annually in ‘Economic Sciences’ too, and its laureates have become academic celebrities ever since.

  Not all economists have been comfortable with this apparent authority. Back in the 1930s, John Maynard Keynes – the Englishman whose ideas would transform post-war economics – was already worrying about the role played by his profession. ‘The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else,’ he famously wrote. ‘Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.’19 The Austrian economist Friedrich von Hayek, best known as the 1940s father of neoliberalism, disagreed violently with Keynes on almost all questions of theory and policy, but on this matter they concurred. In 1974 when Hayek was awarded that Nobel-Memorial prize, he accepted it with the remark that, had he been consulted on its creation, he would have advised against it. Why? Because, he told the assembled crowd, ‘the Nobel Prize confers on an individual an authority which in economics no man ought to possess’, particularly, he said, because, ‘the influence of the economist that mainly matters is an influence over laymen: politicians, jour
nalists, civil servants and the public generally’.20

  Despite such misgivings from the twentieth century’s two most influential economists, the dominance of the economist’s perspective on the world has only spread, even into the language of public life. In hospitals and clinics worldwide, patients and doctors have been recast as customers and service-providers. In fields and forests on every continent, economists are calculating the monetary value of ‘natural capital’ and ‘ecosystem services’, ranging from the economic worth of the world’s wetlands (said to be $3.4 billion per year) to the global value of insect pollination services (equivalent to $160 billion per year).21 Meanwhile, the financial sector’s importance is constantly reinforced by media reporting, with daily radio and print headlines announcing the latest corporate quarterly results, while stock prices roll tickertape-style across the TV news.

  Given the dominance of economics in public life, it is no surprise that so many university students, if given the chance, opt to study a little as part of their education. Every year, around five million college students in the United States alone graduate with at least one economics course under their belts. A standard introductory course that originated in the USA – and is widely known as Econ 101 – is now taught throughout the world, with students from China to Chile learning from translations of the very same textbooks used in Chicago and Cambridge, Massachusetts. For all of these students, Econ 101 has become a staple part of a broad education, whether they then head off to become an entrepreneur or doctor, journalist or political activist. Even for those who never study economics, the language and mindset of Econ 101 so pervades public debate that it shapes the way that we all think about the economy: what it is, how it works, and what it is for.