Meet the doughnut economy – the model offering a sweet spot for all of us.

"We want to make sure everybody has the fundamental resources they need to lead a life with dignity, community and opportunity. Leave nobody in the hole in the middle." – Kate Raworth
Image Credit: Dominika Roseclay

Economics in the 20th century where all about growth – or even better unlimited growth. Invented in the 1930s, the idea of this ever-rising line of growth caught on quickly. Even today financial growth remains to be the key metric for success.

But is this economic theory and attitude still relevant and accep­table at a time characterized by
a scarcity of natural resources, a polluted planet and growing social injustice?  

GDP growth seems to be the answer to all problems. Even in the current pandemic, most governments and businesses have their gaze firmly fixed on the ultimate wealth-generator and metric for success. Quite ironic, considering that exactly this growth mindset has been, and still is, the driver of ecological destruction as well as extreme social inequality and contributor to some of the greatest global crises of mankind since WWII – including the 2008 credit crunch and the current pandemic. 

Latest since the outbreak of COVID-19, we have learned that exponential growth is not only a bad idea but is also impossible in an ecological and systemic context as nothing in nature grows indefinitely without eventually leading to the collapse of the entire system.

Growth is one of the stupidest purposes ever invented by any culture.
— Donella Meadows

But that’s no news: In 1968, the Club of Rome – an association of experts from various disciplines from 30 countries – warned that economic growth has its limits and started to advocate the need for sustainable development and the protection of our ecosystem. 

In their 1972 published book "The Limits to Growth. A Report for the Club of Rome’s Project on the Predicament of Mankind " the club released a study on the future of the global economy. The computer simulation-based study, conducted by the Institute for System Dynamics, raised concerns that individual local action has global effects that do not, however, correspond to the time horizon and scope of action of the individual. 

At the time, Donella and Dennis Meadows as well as 16 other scientists concluded that if the current increase in world population, industrialization, environ­mental pollution, food production and the exploitation of natural resources continues un­changed, the absolute limits of growth on earth will be reached over the next hundred years.

Fast forward nearly 50 years to the year 2020 and the limits of growth can be experienced worldwide. 

The world population has now doubled, and global consumption has increased tenfold. Food and resource scarcity and the negative effects on the environment are clearly noticeable, with leading scientist calling for a climate emergency and issuing warnings about climate change becoming an exis­tential threat to human civilization. 

Today, while the worldwide COVID-19 pandemic still has a firm grip on us, more and more people are becoming increasingly aware of the connection between human health and the health of our planet and acknowledge the need for new ideas pushing for a sustainable economy. 

Can doughnut economics open a new chapter for 21st century economics? 

In her 2017 book “Donut Economics. 7 ways to think like a 21st century economist” Kate Raworth – Economist, Senior Associate at Oxford University's Environmental Change Institute and Club of Rome member – points out that economic growth was never originally intended to represent wealth. According to Simon Kuznets, economic growth measured only the annual flow, rather than stocks of wealth and their distribution.

Raworth argues that GDP only catches a slice of the value that we actually value. While it captures what goes on in the market and measures the financial value of goods and services sold in an economy over a year, it completely ignores the household and the commons. One, the place where all unpaid care work, mainly contributed by woman, is happening – the other, the place where people come together and co-create things they value. 

Finding the flaws in the stories we’ve been told. 

In her book, Kate Raworth, identifies three key stories we have been told as proof of concept and to keep the myth of unlimited growth a float. 

1. Growth will eventually even things up.

While there might be inequality in wealth distribution in the beginning, we were told that after a while value would trickle down and benefit everyone. Today of course, we know this is not true considering that the poor keep on getting poorer and the rich keep getting richer. With half of the world's net wealth now belonging to the top 1% while at the same time, there are massive state interventions needed to equalize or reduce inequality. 

2. Growth will somehow clean-up after itself.

This Idea is based on the assumption that as people got richer, they would care more about the environ­ment and pay more to clean it up. This might be partially true. We do know that wealthier nations have cleaner air or better water for example – but often intensive polluting industries are just moved elsewhere and other factors with big environmental effects are simply ignored or not sufficiently dealt with – for example growing material footprints and a nations carbon emission.

3. The famous story of the Rational Economic Man – the Homo economicus. 

Here it is, the image of humanity depicted by economists. Raworth portrait him standing alone, money in his hand, calculator in his head, ego in his heart, and nature at his feet. The image of him had been redrawn over two centuries by numerous economists and eventually become so exaggerated and embellished that what had started out as a portrait turned into a caricature and ended up as a cartoon.

Raworth writes that despite the absurdities surrounding him – the economic man remains to be the protagonist in every mainstream textbook – informing policy decision making, shaping the way we talk about ourselves, and wordlessly telling us how to behave. While he might be the smallest unit of economy theory, his composition has profound consequences.

By better understanding our own complexity, we can nurture human nature and give ourselves a far greater chance of creating an economy that enables us to thrive within the Doughnut’s safe and just space.
— Kate Raworth

What originally started as a simple model of man gradually became a model for man: Solitary, calculating, competing and insatiable. Interestingly, by being told that this is who we are, we eventually become like him. Research has shown that by being told that this is who we are, we eventually become like him. While economics students in the US seem to behave more selfishly after taking a course in game theory, in Israel third year students viewed altruistic traits such as helpfulness, honesty and loyalty far less important than students just starting university. 

So, as the portrait economist paint of ourselves seems to clearly shape who we become, we will have to change the way economics portraits humankind if we are aiming for real systemic change. 

Time to leave behind the myth of economies that are fit for purpose. Time to rethink and redesign the economics of the 21. century to meet the needs of humanity and our living planet.

But first things first: We need to change the goal. 

Raworth points out that the economy of the 20th century failed to define concrete goals but got caught up in the single objective of endless growth. Instead of relying on an ever-increasing gross domestic product, she formulates another economic goal: meeting the needs of everyone within the means and possibilities of our planet. She says, instead of economies that need to grow, whether or not they make us thrive, we need economies that “make us thrive, whether or not they grow”. 

Good-bye circular flow diagram – hello embedded economy. 

We all know it: The famous circular flow diagram. Considered as one of the central images in mainstream economics it depicts a closed circular flow of income between household, business, banks, government and trade and describes how money and economic resources flow in cycles between different sectors in an economic system. But the models greatest flaw seems to be that it operate in a social and ecological vaccum – forgetting about the natural world, human society as well as the all the energy, materials, power and wealth we hold in the commons. 

In Raworth model the economy is embedded in the earth system and society – within she shows the flow of materials and energy and visualizes interdependences. In her diagram, the economy becomes a social construct. Created by humanity, shaped by the way we interact with each other to meet our wants and needs, embedded in the living world.  

Embedded economy diagram

What’s important here, is that neither humanity nor the economy exist in a vacuum. We are all part of a living ecosystem and interdependent. So ultimately, to be able to design a space that is safe and just, we have to meet the needs of humanity and our living planet. And most important shape an economy that is regenerative and redistributive by design to do so.

This recognition led her to design a graphic representation of the world we want to create. 

Meet the doughnut. 

When we first saw the diagram of the doughnut, we fell in love. So simple, so precise, so smart and impactful – and just what we need right now. In her doughnut shaped diagram, Kate Raworth combines the idea of planetary boundaries with the concept of social boundaries. While the outer shaped ring represents the ecological ceiling that our life depends on, and which can’t be overshot – the inner ring represents the social boundaries. Everyone positioned below that ring, falls into the hole of the doughnut. This hole represents a state of deprivation, where people don’t have the sufficient means to lead a good life: food, clean water, housing, sanitation, energy, education, healthcare, democracy.

The main goal of the model is to reframe economic problems and set new goals: Getting humanity into the doughnut – the sweet spot for a just and ecological safe life. The purpose of our economy, with its new goal replacing the 20.century goal of unlimited growth, is to meet all twelve social foundation without overshooting the nine ecological ceiling.

The doughnut model. Teaching you to think like an 21st century economist.

You want to know more about the Doughnut Economics? Check out Kate Raworth's TED Talk on YouTube.

The way to economic recovery – let’s get everyone into the doughnut. 

In 2020 the model of the doughnut rose to fame when Amsterdam became the first city to “get into the doughnut” using the model for its Covid-19 recovery. Shortly other cities followed – from Brussels to Dublin or the Canadian city of Nanaim – and others like Frankfurt or Berlin are just starting their journey. Around the world, more and more people demand new ideas to recovery from the gross impacts Covid-19 had on all of us. Even Pope Francis mentioned the doughnut economics in his new book "Let us dream" and praised Kate Raworth approach "the fresh thinking about the economy needed in light of the pandemic."

We agree: It’s time for fresh thinking and new goals. And we can be the ones that make it happen. So, let’s get savy and find new creative and smart ways to get us into that sweet spot we all deserve to be in. 

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