The influential academic speaks to AIQ about the flaws in traditional economic thinking and how her revolutionary “Doughnut” offers a fresh approach to solving the world’s greatest problems.
Read this article to understand:
- The thinking behind Doughnut Economics
- The problems with GDP
- How redesigning companies can promote sustainability
When she first studied economics at Oxford University, Kate Raworth grew frustrated: the discipline seemed to have little relevance to the real-world challenges of poverty and environmental destruction.
After years spent working in international development, Raworth returned to economics determined to transform it. She drew a picture to convey her ideas and it looked like a doughnut: a pair of concentric circles denoting social and environmental objectives. Between the rings was a “safe and just space” where humanity can exist without falling short on human rights or breaching the planet’s environmental limits (see Figure 1). The phenomenon of Doughnut Economics was born.
Figure 1: The Doughnut of social and planetary boundaries
Source: Doughnut Economics Action Lab, September 2022
Developed in a 2012 report and later a bestselling book,1 Raworth’s ideas have proved hugely influential. Working with Raworth’s Doughnut Economics Action Lab (DEAL), Amsterdam has pledged to bring all its residents “inside the Doughnut” and achieve a fully circular economy by 2050. Other cities in Europe, the US and New Zealand have set similar targets.2
Now a senior associate at Oxford University’s Environmental Change Institute and Professor of Practice at Amsterdam University of Applied Sciences, Raworth says further progress is needed to put the world on a more sustainable path.
Doughnut Economics argues economies should stop fixating on GDP growth and instead target the Doughnut’s “safe and just space”. What are the key flaws with GDP and how can the Doughnut help move beyond them?
GDP is an entirely monetary metric; it merely reflects the price given to the goods and services produced in an economy in a year. It doesn’t tell you what you really need to know for humanity to thrive on this planet in the 21st century. GDP doesn’t reflect household care and other unpaid work, and it ignores what has been destroyed in order to produce goods to sell. In the classic line, it tells you the price of timber; it doesn’t tell you the value of the forest you’ve lost.
Too often, economics starts with market supply and demand. That puts price at the centre of our attention and makes us think of success in terms of increasing the value of bought and sold goods.
By contrast, Doughnut Economics starts with the life-supporting systems of our planetary home and the wellbeing of every person. By taking into account the fundamental social and natural metrics of life, the Doughnut asks how we can design an economy compatible with meeting the needs of all people, within the means of the living planet. The idea that ever-rising GDP is going to meet those needs, within those means, is a complete fallacy. So it’s time to replace GDP in the realm of policymaking with a dashboard of social and natural metrics that can far better reflect the essentials of a thriving economy.
How can systems thinking help solve the key issues of our time: climate change, social inequality, financial crises?
Thankfully, due to systems thinking, we now know far more about the dangers of tipping points in Earth’s climate and ecological systems. But since we have a generation of policymakers whose education didn’t include systems thinking, it is rarely translated into policy and practice. Amid the daily cut-and-thrust of politics and events, it’s a challenge to get the media, general public and politicians to respond at speed to the irreversible climate tipping-point effects we are on the verge of causing.3
Many social systems are dominated by reinforcing feedback loops
This is also an issue when it comes to addressing social inequalities. It is now clear many social systems are dominated by reinforcing feedback loops. The more you have, the more you get, whether in terms of privilege, income, opportunity, networks. Such reinforcing feedbacks tend to drive wider social inequalities; governments need to take a systems-thinking approach to design and intervene effectively with policies that serve to rebalance those dynamics.
More systems thinking is also needed in finance. Policymakers such as Gordon Brown and Ben Bernanke admitted they thought economies had entered a “great moderation” before 2008. They and the regulators did not see significant risks within any particular bank; the problem – they later realised – was they weren’t looking at the risky connections between the banks. The resulting financial crisis brought greater recognition of Hyman Minsky’s work and introduced systems thinking into the heart of financial regulation, thanks to analysts such as Andy Haldane at the Bank of England. But the financial system still hasn't been reformed sufficiently.
How can businesses be structured in a way that is more conducive to a distributive and regenerative economic system?
There is no single solution. Whether it is through steward ownership, employee ownership, cooperative ownership or other designs, we need alternative forms of enterprise design that attract financing aligned with, and in service to, the purpose of the company, as opposed to disrupting, diverting and undermining it.
The enterprise designs that the 21st century economy needs are only just being invented
The aim is to have an ecosystem of enterprise design, which will include a range of different kinds of business structures, appropriate to different kinds of companies. DEAL is now working with organisations like Purpose Economy that are supporting people interested in setting up steward-owned companies.4 Likewise, in the US, where many founder-owned firms soon face the CEO’s retirement, the Fifty By Fifty movement aims to work with them to grow the number of employee owners in the nation from ten million to 50 million by 2050.5 Initiatives such as these demonstrate, we believe, that the enterprise designs the 21st century economy needs are only just being invented. It will take innovations in finance to serve them.
The Ukraine-Russia war has highlighted the fragility of global supply chains and the limitations of our continued reliance on fossil fuels. What are the prospects these shocks could be catalysts for positive change over the longer term?
The energy crisis many countries face is clearly a huge source of near-term stress and suffering for households and businesses. But as the economist Milton Friedman said: “Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.”
Far-sighted countries will accelerate their move away from dependence on fossil fuels
In the face of this crisis, far-sighted countries will accelerate their move away from dependence on fossil fuels and invest faster in renewables and energy-demand reduction, such as through insulation. That route makes sense both now and for the long term. But other countries may simply double-down on producing fossil fuels. The new UK government, for example, has signalled its intention to restart fracking and develop new North Sea oil and gas fields, ignoring the climate emergency and the fact that, in a global market, additional UK gas production is not going to reduce prices for British consumers. I’m appalled at the direction the UK is now taking: once again, it speaks to a failure to see and respond to the bigger systemic challenges.
It's long been clear that high-income countries have the greatest responsibility to move first and fastest on climate change. A crisis like this is reason to redouble investment in the energy transition, not backtrack to outdated fossil-fuel generation. That path would be devastating to us all.