by Kate Raworth
To this add a second shift in perspective: the economy’s fundamental resource flow is not a roundabout of money but, rather, a one-way street of energy – and nothing can move, grow or work without using that energy. This is where Bill Phillips’s MONIAC machine was fundamentally flawed. While brilliantly demonstrating the economy’s circular flow of income, it completely overlooked its throughflow of energy. To make his hydraulic computer start up, Phillips had to flip a switch on the back of it to turn on its electric pump. Like any real economy it relied upon an external source of energy to make it run, but neither Phillips nor his contemporaries spotted that the machine’s power source was a critical part of what made the model work. That lesson from the MONIAC applies to all of macroeconomics: the role of energy deserves a far more prominent place in economic theories that hope to explain what drives economic activity.
The vast majority of energy that powers today’s global economy is from the sun. Some of that solar energy, such as sunshine and wind, arrives in real time each day. Some has been stored in recent times, like the energy bound up in crops, livestock and trees. And some has been stored up since ancient times, particularly the fossil fuels of oil, coal and gas. Which of these sources of solar energy the economy uses matters a great deal, and here’s why. It was thanks to the balance between real-time solar energy entering Earth’s atmosphere and heat escaping back out into space that Earth maintained a steady and benevolent average temperature during the Holocene. Over the past 200 years, however, and especially since 1950, humanity’s use of ancient fossil-fuel energy has released carbon dioxide and other greenhouse gases into the atmosphere at an entirely unprecedented rate, with potentially dangerous consequences. Most of these gases occur naturally in the atmosphere and, together with water vapour, act like a blanket around the Earth, keeping its surface much warmer than it otherwise would be. Releasing more carbon dioxide, however, thickens that blanket and so further raises Earth’s temperature, resulting in human-induced global warming.24
This wider perspective of the throughflow of energy and materials invites us to imagine the economy as a super-organism – think giant slug – that demands a continual intake of matter and energy from Earth’s sources, and delivers a continual stream of waste matter and waste heat into its sinks. On a planet with intricately structured ecosystems and a delicately balanced climate, this begs a now obvious question: how big can the global economy’s throughflow of matter and energy be in relation to the biosphere before it disrupts the very planetary life-support systems on which our well-being depends? The nine planetary boundaries give a compelling first answer to that question and in Chapter 6 we will explore just how the economy’s use of matter and energy can be redesigned so that it works with, not against, the cycles of life that those boundaries seek to protect.
SOCIETY, which is foundational – so nurture its connections
When Thatcher declared that there is no such thing as society, it came as a surprise to many – not least to society. Political theorists such as Robert Putnam use the term ‘social capital’ to describe the wealth of trust and reciprocity that is created within social groups as a result of their networks of relationships.25 Whether through local sports teams or international festivals, faith groups or social clubs, we build norms, rules and relations that enable us to cooperate with and depend upon one another. These connections build social cohesion and help to meet our fundamental human needs such as for participation, leisure, protection and belonging. ‘Community connectedness is not just about warm fuzzy tales of civic triumph,’ writes Putnam; ‘In measurable and well-documented ways … social capital makes us smarter, healthier, safer, richer, and better able to govern a just and stable democracy.’26
It’s clear that an economy’s vibrancy depends upon the trust, norms and sense of reciprocity nurtured within society – just as every sport depends upon its players abiding by a shared set of rules. But a society’s vibrancy is, in turn, shaped by the structure of its economy: the relationships that it builds or weakens; the public spirit that it fosters or erodes; and the distribution of wealth that it generates, as Chapter 5 explores.
A thriving society, in addition, is more likely to build strong political engagement, starting with community meetings, grassroots organising, voting in elections, and joining social and political movements that hold political representatives to account. ‘Significant changes occur when social movements reach a critical point of power capable of moving cautious politicians beyond their tendency to keep things as they are,’ writes the American historian Howard Zinn, pointing to his own country’s nineteenth-century anti-slavery movement and twentieth-century civil rights movement.27 Democratic governance of society and the economy rests on the right and capacity of citizens to engage in public debate – hence the importance of ‘political voice’ within the Doughnut’s social foundation.
THE ECONOMY, which is diverse – so support all of its systems
Embedded within this rich web of society is the economy itself, the realm in which people produce, distribute and consume products and services that meet their wants and needs. One basic feature of the economy is rarely pointed out in Econ 101: that it is typically made up of four realms of provisioning: the household, the market, the commons and the state, as shown in the Embedded Economy diagram. All four are means of production and distribution, but they go about it in very different ways. Households produce ‘core’ goods for their own members; the market produces private goods for those willing and able to pay; the commons produce co-created goods for the communities involved; and the state produces public goods for all the populace. I wouldn’t want to live in a society whose economy lacked any of these four realms of provisioning because each one has distinct qualities and much of their value arises through their interactions. In other words, they work best when they work together.
What’s more, while the Circular Flow diagram identified people primarily as workers, consumers and capital owners, the Embedded Economy diagram invites us to acknowledge our many other social and economic identities. In the household we may be parents, carers and neighbours. In relation to the state we are members of the public, using public services and paying taxes in return. In the commons we are collaborative creators and stewards of shared wealth. In society we are citizens, voters, activists and volunteers. Every day we switch almost seamlessly between these different roles and relations: from customer to creator, from marketplace to meeting space, from bargaining to volunteering. So let’s consider each realm in turn.
THE HOUSEHOLD, which is core – so value its contribution
The Circular Flow diagram depicted labour appearing – hey presto! – fresh and ready for work each day at the office or factory door. So who cooked, cleaned up, and cleared away to make that possible? When Adam Smith, extolling the power of the market, noted that, ‘it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner’, he forgot to mention the benevolence of his mother, Margaret Douglas, who had raised her boy alone from birth. Smith never married so had no wife to rely upon (nor children of his own to raise). At the age of 43, as he began to write his opus, The Wealth of Nations, he moved back in with his cherished old mum, from whom he could expect his dinner every day. But her role in it all never got a mention in his economic theory, and it subsequently remained invisible for centuries.28
As a result, mainstream economic theory is obsessed with the productivity of waged labour while skipping right over the unpaid work that makes it all possible, as feminist economists have made clear for decades.29 That work is known by many names: unpaid caring work, the reproductive economy, the love economy, the second economy. However, as economist Neva Goodwin has pointed out, far from being secondary, it is actually the ‘core economy’ and it comes first every day, sustaining the essentials of family and social life with the universal human resources of time, knowledge, skill, care, empathy, teaching and reciprocity.30 And if you have never really thought of it before
, then it’s time you met your inner housewife (because we all have one). She lives in the daily dealings of making breakfast, washing the dishes, tidying the house, shopping for groceries, teaching the children to walk and to share, washing clothes, caring for elderly parents, emptying the rubbish bins, collecting kids from school, helping the neighbours, making the dinner, sweeping the floor, and lending an ear. She carries out all those tasks – some with open arms, others through gritted teeth – that underpin personal and family well-being and sustain social life.
We all have a hand in this core economy, but some people (like Adam Smith’s mum) spend far more time in it than others. Time may be a universal human resource but it varies hugely in terms of how we each get to experience and use it, how far we control it, and how it is valued.31 In sub-Saharan Africa and South Asia, time spent in the core economy is particularly visible because, when the state fails to deliver and the market is out of reach, householders have to make provision for many more of their needs directly. Millions of women and girls spend hours walking miles each day, carrying their body weight in water, food or firewood on their heads, often with a baby strapped to their back – and all for no pay. But this gendered division of paid and unpaid work is prevalent in every society, albeit sometimes less visibly so. And since work in the core economy is unpaid, it is routinely undervalued and exploited, generating lifelong inequalities in social standing, job opportunities, income, and power between women and men.
By largely ignoring the core economy, mainstream economics has also overlooked just how much the paid economy depends upon it. Without all that cooking, washing, nursing and sweeping, there would be no workers – today or in the future – who were healthy, well-fed, and ready for work each morning. As the futurist Alvin Toffler liked to ask at smart gatherings of business executives, ‘How productive would your workforce be if it hadn’t been toilet trained?’32 The scale of the core economy’s contribution is not to be dismissed lightly, either. In a 2002 study of Basle, a wealthy Swiss city, the estimated value of unpaid care being provided in the city’s households exceeded the total cost of salaries paid in all of Basle’s hospitals, daycare centres and schools, from the directors to the janitors.33 Likewise, a 2014 survey of 15,000 mothers in the USA calculated that, if women were paid the going hourly rate for each of their roles – switching between housekeeper and daycare teacher to van driver and cleaner – then stay-at-home mums would earn around $120,000 each year. Even mothers who do head out to work each day would earn an extra $70,000 on top of their actual wages, given all the unpaid care they also provide at home.34
Why does it matter that this core economy should be visible in economics? Because the household provision of care is essential for human well-being, and productivity in the paid economy depends directly upon it. It matters because when – in the name of austerity and public-sector savings – governments cut budgets for children’s daycare centres, community services, parental leave and youth clubs, the need for care-giving doesn’t disappear: it just gets pushed back into the home. The pressure, particularly on women’s time, can force them out of work and increase social stress and vulnerability. That undermines both well-being and women’s empowerment, with multiple knock-on effects for society and the economy alike. In short, including the household economy in the new diagram of the macroeconomy is the first step in recognising its centrality, and in reducing and redistributing women’s unpaid work.35
THE MARKET, which is powerful – so embed it wisely
Adam Smith’s great insight was to show that the marketplace can mobilise diffuse information about people’s wants and the cost of meeting them, thereby coordinating billions of buyers and sellers through a global system of prices – all without the need for a centralised grand plan. This distributed efficiency of the market is indeed extraordinary, and attempting to run an economy without it typically leads to short supplies and long queues. It was out of recognition of this power that the neoliberal scriptwriters put the market centre stage in their economic play. There is, however, a flip side to the market’s power: it only values what is priced and only delivers to those who can pay. Like fire, it is extremely efficient at what it does, but dangerous if it gets out of control. When the market is unconstrained, it degrades the living world by over-stressing Earth’s sources and sinks. It also fails to deliver essential public goods – from education and vaccines to roads and railways – on which its own success deeply depends. At the same time, as Chapter 4 will show, its inherent dynamics tend to widen social inequalities and generate economic instability. That is why the market’s power must be wisely embedded within public regulations, and within the wider economy, in order to define and delimit its terrain.
It is also why, whenever I hear someone praising the ‘free market’, I beg them to take me there, because I’ve never seen it at work in any country that I have visited. Institutional economists – from Thorstein Veblen to Karl Polanyi – have long pointed out that markets (and hence their prices) are strongly shaped by a society’s context of laws, institutions, regulations, policies and culture. As Ha-Joon Chang writes, ‘A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them.’36 From passports to medicines and AK-47s, many things cannot be legally bought or sold without official licence. Trade unions, immigration policies, and minimum wage laws all have an effect on a country’s going wage rate. Company reporting requirements, the culture of shareholder primacy, and state-funded bailouts all influence the level of corporate profits. Forget the free market: think embedded market. And, strange though it sounds, that means there is no such thing as deregulation, only reregulation that embeds the market in a different set of political, legal and cultural rules, simply shifting who bears the risks and costs and who reaps the gains of change.37
THE COMMONS, which are creative – so unleash their potential
The commons are shareable resources of nature or society that people choose to use and govern through self-organising, instead of relying on the state or market for doing so. Think of how a village community might manage its only freshwater well and its nearby forest, or how Internet users worldwide collaboratively curate Wikipedia. Natural commons have traditionally emerged in communities seeking to steward Earth’s ‘common pool’ resources, such as grazing land, fisheries, watersheds and forests. Cultural commons serve to keep alive a community’s language, heritage and rituals, myths and music, traditional knowledge and practice. And the fast-growing digital commons are stewarded collaboratively online, co-creating open-source software, social networks, information and knowledge.
Garrett Hardin’s description of the commons as ‘tragic’ – which fitted so neatly into the neoliberal script – arose from his belief that, if left as open access to all, then pastures, forests and fishing grounds would inevitably be overused and depleted. He was most probably right about that, but ‘open access’ is far from how successful commons are actually governed. In the 1970s, the little-known political scientist Elinor Ostrom started seeking out real-life examples of well-managed natural commons to find out what made them work – and she went on to win a Nobel-Memorial prize for what she discovered. Rather than being left ‘open access’, those successful commons were governed by clearly defined communities with collectively agreed rules and punitive sanctions for those who broke them.38 Far from tragic, she realised, the commons can turn out to be a triumph, outperforming both state and market in sustainably stewarding and equitably harvesting Earth’s resources, as Chapters 5 and 6 illustrate.
The triumph of the commons is certainly evident in the digital commons, which are fast turning into one of the most dynamic arenas of the global economy. It is a transformation made possible, argues the economic analyst Jeremy Rifkin, by the ongoing convergence of networks for digital communications, renewable energy and 3D printing, creating what he has called ‘the collaborative commons’. What makes the convergence of these technologies so powerfully disruptive is the
ir potential for distributed ownership, networked collaboration, and minimal running costs. Once the solar panels, computer networks and 3D printers are in place, the cost of producing one extra joule of energy, one extra download, one extra 3D printed component, is close to nothing, leading Rifkin to dub it ‘the zero-marginal-cost revolution’.39
The result is that a growing range of products and services can be produced abundantly, nearly for free, unleashing potential such as open-source design, free online education, and distributed manufacturing. In some key sectors the twenty-first-century collaborative commons has started to complement, compete with, and even displace the market. What’s more, the value generated is enjoyed directly by those who co-create in the commons, and it may never be monetised – with intriguing implications for the future of GDP growth, as Chapter 7 explores.
Despite their creative potential – and sometimes because of it – the commons have, for centuries, been encroached upon by the market and the state alike, through the enclosure of common land, the division of enterprise into workers and owners, and the rise of market-versus-state rivalry. All of this was aided by economic theory which purported to show that the commons were doomed to fail. But, thanks to Ostrom, widely documented evidence of success in the commons has generated growing interest in their resurgence – and that is why they must be drawn clearly into the Embedded Economy diagram.
THE STATE, which is essential – so make it accountable
As lead author of the neoliberal script, Milton Friedman was determined to limit the state’s economic role to defending the nation, policing its streets, and enforcing its laws. Its legitimate purpose, he believed, was simply to secure private property and legal contracts, which he saw as the prerequisites for smoothly functioning markets.40 In effect, he sought to relegate the state to a non-speaking part in the economic play: mentioned in the storyline, seen fleetingly on stage, but permitted little action. His rival, Paul Samuelson, strongly disagreed with that view. ‘The creative role of government in economic life is vast and inescapable in an interdependent and crowded world,’ he wrote in later editions of his textbook, but Friedman’s stance still prevailed among those keen to ‘roll back’ the state.41