Wondering why our environment is falling into despair and so many people don’t seem to care? Maybe they don’t realize how intertwined environmental and economic prosperity are? Doughnut Economics suggests that we need to think more broadly about the true inputs and outputs of our economic cycle. Read on for a breakdown of Doughnut Economics by Kate Raworth and how it might help us rally support for protection of the world’s resources.
For some time I’ve grappled with the disconnect between capitalism and environmentalism. Why do the pursuits of financial fortune and environmental respect feel so diabolically opposed? Why do they seem to be mutually exclusive?
Some companies invest in greener alternatives, and occasionally these are in pursuit of profit. I’m not suggesting these two ideas are always in opposition. But these circumstances are the exception, not the rule. Usually, generating financial profits and managing environmental concerns are at odds with each other.
Can’t there be a better way?! Does financial wealth have to come at the expense of our planet?! We will never convince “the masses” to pay more or earn less on behalf of Mother Nature just to be nice or eco-friendly (at least not until we endure some massive crisis that challenges the very existence of humanity as we know it).
Doughnut Economics Connects the Dots
According to Kate Raworth, author of Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, we’re thinking about the economy all wrong. In the book, Raworth makes really compelling arguments about our over-simplified and egregiously flawed basic principles of economics. This book crystallized for me so many conflicting ideas about capitalism and social movements I couldn’t sort out on my own.
Raworth describes seven different foundational economic models and assumptions that drive global policy decisions today. Most of these models are so ingrained in our daily lives and baseline economic understanding that we don’t even realize how much they also drive individual decisions. She equates recognition of some of these principles in our lives to a fish seeing water. A fish might never realize the impact of water on its life because it’s such second nature that its very existence is overlooked. Consequently, some of the economic principles she challenges are difficult to replace because they are deeply rooted in our understanding of how the world works. But it doesn’t have to be this way.
For each economic model, Raworth provides an alternative model that drastically changes the way the economic principles are applied to our lives and governmental policy decisions.
Growth Doesn’t Equate to Prosperity
Currently, she argues government policy and human perception in the developed and modern world rest on the assumption that growth drives prosperity. As GDP (Global Domestic Product) increases and nations become wealthier, most economists believe that the well-being of people naturally rise. The pie grows and everyone gets a bigger share. More financial wealth inherently brings with it greater levels of health and happiness. Raworth wants to turn that notion on its head. It’s outdated, over-simplified economics that twenty first century economists desperately need to debunk. I wholeheartedly agree with her.
Instead of chasing perpetual growth, Raworth wants economists (and the entire human race) to find everyone a home in the “economic doughnut”. She depicts this idea with an illustration quite well in her book. Inside the center of the doughnut, we fall short of meeting humanity’s basics needs. Outside the doughnut, we exhaust ecological resources. Within the doughnut, we find the equilibrium of meeting basic social needs for everyone without exploiting and overusing the Earth’s resources. Her illustrations and descriptions make so much sense!
Her doughnut model illustrates how current economic models fail to account for all of the inputs and outputs of the economy. Additionally, today’s models rely on fundamentally flawed and limited definitions of humans within the economy. These fatal flaws result in significant errors in economic-driven decisions that cost humanity and our planet dearly.
Garbage In, Garbage Out
Our current economic model assumes each person is an all-knowing, perfectly rational human. We all know this is not true and, frankly, impossible. Famous behavioral economists like Amos Tversky and Daniel Kahnemann as well as Richard Thaler and Cass Sunstein have published extensive research disproving this notion, and certain of them have won Nobel prizes in economics for their work.
Individuals have a tendency to follow social norms, even if it’s not always in our best interest. We make stupid decisions for immediate gratification, even when we know the long-term costs probably outweigh the immediate benefit. We make decisions based on heuristics (or mental short cuts), stereotypes, and limited information because we don’t and can’t know everything.
We are much more complicated than the perfect rational economic man, and our actions as such result in an economy that doesn’t work as models intend. Are we surprised that our over-simplified models don’t work when the basic assumptions are all wrong? Even collectively, we don’t act as an all-knowing or perfectly rational human race, so why in the world are our most basic economic policies based on this notion?!
Further, a substantial amount of economic research relies on undergraduate students from WEIRD societies as its subjects. WEIRD reflects a community that is Western, educated, industrialized, rich and democratic. That might be most of us reading this article, but it’s a far cry from representative of the demography of the world. If our economic models are based on research that represents such a small and unique portion of the world’s population, how relevant can it actually be to real global economics?
What About All The Other The Players?
Current economic models also view markets as self-contained systems of exchanges between businesses and households. Work and goods are exchanged for currency, and this cycle flows continuously. There are, however, so many more players in this economic model of our world.
Our Earth provides resources like heat from the sun, fossil fuels, wind and other forms of energy, and biomass that we use to produce everything. The Earth also provides a dumping ground for all of our waste, be it in landfills, oceans or the air.
Domestic workers and the household provide incredible value to our economy for which we take no account. Consider all the efforts put forth to enable our workers to go to work each day. Nowhere in our simple economic model of exchanges between workers and businesses do we account for the effort and resources put forth to allow workers to show up at their place of employment.
Even more egregious, how do we attach value to the energy and resources put forth to raise our children to prepare them to become workers? In many respects, we don’t. I suspect every mom (and many parents) can relate to the limited value assigned to domestic work. Yet this is a really important input that ultimately ensures our economy works. It’s imperative to a functioning economy but no where is it “counted” in our current market model between businesses and workers.
What about the value of the creative cohort, or The Commons as Raworth describes it? Social interaction and collaboration are great sources of innovation and community that bring extensive value to our economy, and yet again, no value is assigned to nor do we include this source of value in our current economic model.
These are just a few of the many components of our economic system, which Raworth calls the Embedded Economy, that are left out of current economic models and policy discussions. Current economic models drive governmental policy and business decisions around the globe. Even well-intentioned organizations like the United Nations rely on these flawed economic models to influence global humanitarian and environmental policy. Thinking more inclusively about the inputs and outputs is imperative to finding an equilibrium that supports prosperity of more than just our bank accounts.
We must think beyond being just “consumers” of good and services within the market model and instead consider ourselves “citizens”. Although it seems a simple change in mindset and swaps a single word, the responsibility of a citizen in an economic market carries far more weight than a consumer and implores us to consider more the just dollars. We aren’t just “buyers”; we are people with basic needs and desires beyond the consumption of good and services.
With these considerations in mind, is it any wonder that our Earth is falling apart and marginalized communities who perform most of the undervalued or ignored work are losing in the economic game of Life? Our over-simplified current economic assumptions heavily influence local, national and global governmental policy, and we’re experiencing massive inequality and environmental peril as consequences.
Why Doughnut Economics Is So Sweet
Highlighting all the missing components in our economic models through the doughnut illustrations helped clarify for me and offer a solution, albeit a long-term and complex solution, to so many of the sustainability and social justice issues our world faces today. We live in a world driven by capitalism and economic prosperity. When our economic models exclude or discount the contributions from various components, it follows that those components (like environmental resources and marginalized people) will be left behind and forgotten.
If we can rewrite our economic models to incorporate a more realistic picture of the true inputs and outputs that drive humanity to flourish, our policy and lifestyle decisions change …. probably drastically. We learn to value the inputs and outputs to and from, respectively, the parts of our economy that are invisible in twentieth century economics. Even purist capitalists stop thinking of environmental health as a “nice to have” and realize its stability is an integral component of overall wealth and a flourishing economy.
When we properly value and incorporate into economic models the domestic contributions and those contributions made by other marginalized populations, it becomes a priority even for fair market capitalists to properly reward and include those contributors because they recognize the system won’t function well without them.
Ultimately, concerns about sustainability and social justice aren’t separate discussions from economic success. They are integral to economic success. Perpetual growth of GDP is impossible, and money begets money, so even perpetual economic growth often benefits the wealthy more than the poor. Increasing income inequality in spite of increased GDP in most countries around the world reinforces that such thinking is flawed. More is not always better for everyone.
Economic models drive global policy; this can’t be reiterated enough. If we change the way we think about the economy and develop models that more accurately reflect reality, we have a far greater chance of creating a world in which we all can prosper. No system will ever be perfect, but we ought to make an effort to fight for the best alternatives available and continuously improve. Our economic systems are broken, and Raworth offers innovative ideas that can lead us to greater prosperity around the world. Let’s start thinking about our economics differently so we can connect the dollars to sources of prosperity that truly make our world a better place.
I can’t recommend this book enough. Just read it, and please let me know what you think!