Why a Just and Sustainable Economy Looks Like a Doughnut

This is the real-world economy for a living Earth that we must learn to structure and manage to provide a safe space for humanity.

(Originally published by YES! Magazine, May 3, 2017)

I see a lot of books presuming to explain what’s wrong with the economy and what to do about it. Rarely do I come across one with the consistent new paradigm frame, historical depth, practical sensibility, systemic analysis, and readability of Doughnut Economics by Kate Raworth. Especially unique and valuable is her carefully reasoned, illustrated, and documented debunking of the fatally flawed theory behind economic policies that drive financial instability, environmental collapse, poverty, and extreme inequality.

Doughnut Economics opens with the story of an Oxford University student. Recognizing the inseparable connection between the economy and the environmental and social issues of our time, she did what many students with such concerns do. She signed up for an economics major hoping to learn how she might contribute to creating a better world.

What she learned instead is that the theory taught in textbook economics is hopelessly simplistic and largely irrelevant to her concerns—and to those of many of her fellow students. Rather than just shift to a more relevant major, however, she started what has become a spreading global student movement demanding reform of university economics curricula.

On a fast track to becoming one of the world’s most influential economists, Raworth has produced a book that more than validates the reasons for the student revolt. She fills in yawning gaps in current textbook economic theory to make the connections for which these students—and many of the rest of us—are looking.

Raworth takes us step by step through the basic concepts taught in standard economics texts and courses. It is a journey down a rabbit hole into an Alice in Wonderland fantasy world of irrationally simplistic assumptions in which the human players are all independent actors with perfectly selfish motives and perfect knowledge. The market mediates their spending and investment choices to meet the needs of all the players and optimize outcomes for everyone.

Raworth points out that models of fantasy-world economics include no society and no nature.

Therefore, social and environmental issues enter into consideration only as externalities—which to an economist means irrelevant to the analysis—an indication of how unimportant academic economists consider them to be. Focused on self-contained circular flows of goods and money, they take no interest in flows of energy, nutrients, water, materials, and information. They ignore institutions, power, inequality, and Earth’s physical limits. They even ignore financial institutions, which explains why economists failed to predict the 2008 financial crash that threatened to bring down the entire global economy.

For more than a century, these simplistic assumptions have shielded professionally trained economists from dealing with the breathtakingly dynamic complexity of economic reality.

Raworth illuminates this complexity with a simple doughnut-shaped diagram that radically recasts the economy’s nature and function to align with reality.

The outer circle of the doughnut represents the productive limits of Earth’s generative systems—the ecological ceiling that the human economy must not exceed.

The inner circle represents the social foundation of what a high-performing economy must provide for every one of Earth’s 7 billion-plus people.

In between the two circles—the substance of the doughnut—is the regenerative and distributive economy, with all its complex and dynamic living-system relationships among interdependent actors and institutions with often conflicting interests, motives, and mandates—all dependent on the generative systems of a living Earth.

This is the real-world economy for a living Earth that we must learn to structure and manage to provide a just and safe space for humanity. For a more complete overview of the doughnut, I recommend viewing Raworth’s 17-minute TEDx talk.

Raworth’s analysis makes clear that the foundational structure of standard economics is flawed beyond repair. At each step, she frames essential alternatives with concrete examples.

Doughnut Economics provides both the nail in the coffin of standard economics and the real-world-based intellectual structure from which an authentic real-world economics for the 21^st century can grow. For anyone contemplating signing up for a standard economics course or degree to help them solve real-world problems, I highly recommend buying and reading Doughnut Economics instead. You will save time and money and avoid the risk of serious brain damage.

 

David Korten wrote this opinion piece for YES! Magazine as part of his series of biweekly columns on “A Living Earth Economy.”