DOUGHNUT ECONOMICS by Kate Raworth

When the sub-prime crash hit the financial markets in 2008 it seemed like the economic version of the Apocalypse. Within days, financial institutions that had seemed too big to fail failed, and pictures of bankers carrying their boxes of personal belongings out of glass edifices from Canary Wharf to New York were plastered across the front pages of the newspapers. Governments coughed up staggering handouts to keep banks afloat, but to the layman on the street these banks were still doing business as usual, though getting a mortgage required much more than just the pound of flesh previously required. More importantly, no-one was blamed for these enormous equity losses – few bankers were convicted, few companies failed and the real long-lasting change was felt more in the pension pots of those individuals whose money had been lost than for the people who actually lost it.

I’m not an economist and to me the events of 2008 were unsettling, not only because the financial goalposts of my world had suddenly shifted but because I didn’t really understand why the knock-on effects were happening. I didn’t study economics at school and my economic covenant, learned from my mother (who grew up during the Great Depression) is: if you want something, first earn the money to buy it. Buying a house, the ultimate financial aspiration for most of us, is different and there I had to learn about mortgages, refinancing and the evils of compound interest (hence my nerves when the goalposts changed). But generally, finance and economics are necessary evils that I approach with caution. After all, we are told that economics is a science that one must study, with complex principles and a plethora of intimidating acronyms, all within a labyrinthine virtual world of money, debt and leverage, where empathy or altruism has no value and the shareholder is king. Right?

We are now more than a decade on from the sub-prime crash, and to laymen such as myself it seems as though despite all this financial upheaval little has really changed. Is this true, and if so, why not? Lessons must surely have been learned but, if so, what are they? The economic status quo and subsequent sub-prime crash did crystallise one idea for me, which had been growing along with my increasing awareness of humanity’s impact on our environment: why are all of our metrics of success calculated in terms of growth? Why is more always better and in this system can we ever have enough? Current economics says that success equals the constant growth of GDP, but what if it’s not? Do we in fact have any alternatives to the system that created the events of 2008? More importantly, do we have any alternatives that are fit for purpose for the 21st Century and beyond, or should we be content to remain tinkering around the edges of the flawed economic systems of the past?

With these questions in mind I picked up Doughnut Economics, and for the first time in my life my picture of the economic landscape became clear. The book starts by outlining where our current economic models came from, how they changed with the changing needs and fads of our societies, and why they are now as they are (and who’s responsible for that narrative). Here’s the story so far:

Original thinkers looked at economics as an art, differentiated between the practice of household management and the art of acquiring wealth. By the late 18th Century, the concept of ‘political economy’ (in other words household management on a national scale) had taken hold. At this stage, economics had a defined goal; that of providing a secure living and jobs for all in a mutually thriving community, one in which intangibles such as happiness, purpose and nature were all still included.  Over the next century or so, economists strove to make their field more scientific (and therefore more respectable and forward-thinking), by proposing and proving ‘laws’ that would be able to map their economic landscapes and predict how they would evolve, and by the 1930s, mainstream economics had been redefined as ‘the study of how society manages its scarce resources’, which not only removed the goal completely but also had the side-effect of taking the intangibles (happiness etc.) out of the equation altogether. This was the decade of the Great Depression in the USA, and economist Simon Kuznets was commissioned to devise a system to measure the value of America’s annual output and income, which could be used to monitor the impact and effectiveness of government policies. Further, when the Second World War started, this data was invaluable in planning how to turn an industrial economy into a military economy. The measurement came to be known as Gross National Product. New, more simplistic economic principles (such as supply and demand) quickly became accepted truisms, and GNP (now GDP) became an easy way for other countries to measure success in their own policies, as well as their success against other countries - without ever referring back to the goal of economics, challenging the underlying assumptions that these models were based on (such as infinite natural resources), or putting the non-measurable intangibles back into the equation.  [This is not to say there weren’t economic thinkers who wanted to do this, but until now the ‘easy’ calculations of continued growth have outweighed the trickier prospect of putting humanity back into the heart of economic thinking.]

After half a century or so of using growth economics as the general rule, the last several of decades have seen the rapid rise of environmental awareness in the face of catastrophic climate change. Under many of the current economic models, the planet on which we live and for which we rely for our existence has been treated as a continuing and inexhaustible resource that we can use and discard without consequence. Alongside this, it is increasingly evident that our current systems are creating and contributing to a widening gap between the small percentage of Haves vs the massive majority of Have-Nots. Social inequality in food, education, sanitation, race, in fact almost all facets of our lives, stares at us from the front pages of the papers every day, and the current economic model not only is not combating these issues but indeed seems actively to be encouraging them. The short-sighted consequences of modern mainstream economics are now abundantly clear, and economists who stand up and ask what other way there can be to moderate our growth, to curb our excesses and to bring us on to a new and more balanced economic model are finally gaining traction. Going back to my original question for a moment - why did nothing seem to change after 2008? – this book suggests it may have been because there was nothing different and/or sufficiently authoritative to replace it. However, reading Doughnut Economics, it seems that thankfully this is no longer true.

So, what is doughnut economics? Imagine a doughnut – one of those with a hole in the middle. The outside of doughnut represents all the resources of our planet (the ecological ceiling*) and is the point at which the earth stops being able to sustain us indefinitely. Currently, the WEIRD countries of the world (Western, Educated, Industrialised, Rich and Democratic) are consuming around three planets’ worth of resources, and the rest of the world is working hard to catch up with our level of consumption. This is clearly unsustainable. On the other hand, the hole in the middle of the doughnut is the area in which we are denied those basic things which we consider necessary to live a fulfilling life. In effect it’s the baseline (social foundation**) below which no one wants to go; lack of access to clean water, for example, or education, or contraception, or the right to decide how we are governed, or who we marry. The doughnut itself is the sweet spot (no pun intended): the point at which the human population can live in reasonable comfort and security without denuding our planet beyond its ability to heal itself. It’s a brilliant concept which takes into account not only our desire to live well but also puts nature and other intangibles back into the economic equation.

And this is why it’s so important – because perhaps for the first time in more than a generation we have an alternative, aspirational AND achievable economic narrative, at a time when we (particularly WEIRD countries) are finally starting to factor quality of life – both ours and our planet’s - into our list of economic life essentials. Not only are we starting to see what is missing from modern economic models, we are recognising that the ‘fluffy’ concepts of well-being, natural balance, diversity and a connection with each other and with nature, previously often dismissed as the province of ‘primitive’ cultures, are vital to our long-term survival. For those WEIRD countries who have embraced growth economics to the exclusion of all else, visualising a simple economic model such as a doughnut, with concrete aims and demonstrable measures of success, gives us a clear and more ‘scientific’ goal, while also including the less measurable concepts for which they have little vocabulary. It’s also a message of hope and a clear blueprint for a sustainable future, which encourages and incorporates the positive, creative and unconventional ideas we need to get us out of the toxic pond that we have made for ourselves and for our planet.

I, the non-economist, devoured this book with a sense of relief that there may actually be a plausible and sensible alternative to the broken system we have now. It explains economics clearly and in language that I understand, and will appeal to anyone who wants a different path: one in which fairness and equality and care for the environment and for ourselves are all finally assigned value in the economic equation. It’s for anyone interested in a more enlightened and relevant model of economics, and best of all it provides practical suggestions for how to make it happen, without having to wait for another crash, economic, environmental or otherwise.

* The ecological ceiling, or outer boundary of the doughnut, consists of the following nine, most of which are measurable: climate change, ocean acidification, chemical pollution, nitrogen and phosphorus loading, freshwater withdrawals, land conversion, biodiversity loss, air pollution and ozone layer depletion.

** The social foundation, or inner ring of the doughnut, consists of the following twelve criteria, all of which are measurable through institutions such as WHO, UNESCO and the World Bank: food, health, education, income and work, water and sanitation, energy, networks, housing, gender equality, social equity, political voice and peace and justice.