Review: Doughnut Economics

Seven ways to think like a 21st-century economist

Kate Raworth (2017)

The central theme of Doughnut Economics is that the discipline of economics is badly out of step with its purpose, and that it is too concerned with theorising about what it can measure rather than what actually matters. Reading the book is like talking to a student activist: there’s a crushing indictment of the present state of affairs, a jumble sale of earnest indicators of how things might be better, and a dearth of thorough, practical, specific solutions. And as when talking to a student activist, it’s worth remembering that the absence of useful solutions isn’t grounds for dismissing a problem.

The titular case study is the doughnut, a graphical replacement for Kuznets’ GDP curve, and the Raworth’s point is that economics has largely become GDPology. If GDP were a good measure of the total economic activity of a country this would be bad enough, its failure to capture arguably the most valuable aspects of economic life mean it constitutes a fatal flaw.¹ Enter the doughnut: two circles which define an area of economic harmony; the inner edge of the ring sits atop an abyss of deprivation in which people lack the necessary resources (food, sanitation, healthcare, education, etc.), while the outside edge presses on the limits of the resources we have (global temperature, ocean acidity, ozone coverage, etc.). Between the overreach of unsustainable exploitation and the shortfall in adequate provision for human life lies a zone in which the economic system is in balance both within humanity and between humans and the environment.²

Raworth proceeds through various other examples to explore territory long ignored in classic economics, including resource management alternatives to the market. Markets are efficient systems for distributing certain resources, but they are subject to a whole slew of bugs (e.g. information asymmetry), exploits (e.g. insider trading), and implementation issues (e.g. regulatory capture) which mean they do not perform their function properly. Markets should be a tool to help people thrive, not vice-versa.

Market alternatives include commons management, which is viewed somewhat sceptically by game theoretic models of rational economic actors (see Thinking, Fast and Slow). The problem, known as the ‘tragedy of the commons’, is that everyone using a shared resource such as a common for grazing their cattle can take all of the benefits for overexploitation (e.g. grazing an extra bullock) while taking only a share of the costs (depletion of the pasture), resulting in a pressure on each person to maximise exploitation of the resource. Commons do exist, despite this neat model of their failure, and are mostly powered by strongly enforced bylaws and shared expectations throughout the community.³

The recognition that the market is not necessarily the best solution to resource allocation problems is refreshing: by now it’s pretty well established that casting things in terms of an explicit value alters the way people think about them (Kahneman notes that parents were late to pick up their children from childcare more often after a fine was introduced, presumably because the payment alleviated their guilt).⁴ Similarly, Raworth’s most exciting suggestions on tax are to target resource use, not employment, income, or wealth. Taxing resource use is enticing because it reifies the idea that the planet and its resources are jointly owned by everyone, and that when we use some of it up we should pay the owners (i.e. everyone) for doing so. It also alleviates some of the difficulties in European countries with stewardship of valuable resources - some people inherit buildings, artworks, etc. which are very valuable (meaning they have high wealth), but which do not or should not bring much income (meaning they have no money to pay wealth taxes).⁵

For me, the whole idea of the book was brought out most clearly by the chapter on growth in the economy. In the midst of the fierce assault on the ubiquitous notion of Growth Is Good by the growing movement for environmentally-sensitive economics, which argues that Growth Is Bad, Raworth takes a moment to put on the guise of a puzzled ingenu and ask “does it matter?” Raworth’s concept of ‘growth agnostic’ economies is appealing: instead of concentrating on whether or not growth is necessary for economic prosperity, or whether it is unsustainable in the face of limited resources, the focus is on ensuring the the economy does its job of providing for the needs of everyone regardless of whether or not it is growing.

Overall, the book somewhat resembles a doughnut in that there’s a fair bit to chew through but it’s empty in the middle. This is mostly a consequence of the book being a signpost to areas which are in dire need of research rather than an account of the results of that research. In many cases Raworth’s only conclusion is ‘needs more work’, but that doesn’t undermine the importance of stating the shortcomings of current economic research and suggesting areas for improvement.⁶

Notes

These aspects include things given much play in the book, e.g. commons management, as well as others given less consideration here such as care work and domestic labour. These latter are explored exhaustively in Caroline Criado Perez’ Invisible Women. ↩
The ever-present debate over the population cap for the planet (and in particular whether we’re at or near it) can be cast as a discussion over the width of the doughnut’s ring, and how that width changes as a function of population. ↩
The study of commons management is an interesting academic area with a wealth of case studies verging from cautionary tales to shining examples. ↩
There is of course a classical economic defense to this argument which is simply that we’re not good enough at measuring these non-monetary contributions, and that if we were we’d be able to find the appropriate level of remuneration which would match it. ↩
Simply giving or selling these kinds of things to the state, such as when the National Trust buys historic estates in the UK, can be a solution to this, of course, but enforcing the sales (especially where stewardship is otherwise adequate) seems to rob the buildings of some of their value which is rooted in the history of the family which owned and ran them (for better or worse). ↩
As a last word, we should acknowledge that classical economics hasn’t been all bad: living conditions are steadily improving the world over, and we have had a reasonable track record of dealing with resource constraint problems, e.g. the ozone layer, acid rain, smog. Whether we can do the same with the monumental issue of global warming… ↩