Doughnut Economics

I recently read an article in TIME magazine about an interesting new economic theory called Dougnut Economics. The concept was first introduced by the British economist Kate Raworth in a 2012 Oxfam report and then developed more fully in her 2017 book ‘Doughnut Economics: Seven ways to think like a 21st century economist‘.

Raworth proposed the new economic model as a way to address one of humanity’s most challenging problems: how to reduce global poverty without depleting or damaging the planet’s limited natural resources.

The economic theory comes by its name because it is visually represented by two doughnut-shaped discs as shown below. The disc in the center represents a social foundation consisting of the basic fundamental rights all humans ought to have, like access to food & water, housing, education, work, etc. The outer disc represents earth’s ecological ceiling consisting of the environmental thresholds which cannot be exceeded if we want to guarantee the future prosperity of the human species.

The middle green area represents the doughnut, the space where humanity can thrive and progress if the planet’s boundaries are respected. Society’s goal should be to bring all of human life into the “goldilocks zone”; that sweet spot area where everyone has what they need to live a good life, but without overshooting the ecological ceiling limits which would cause further degradation of the environment and jeopardize the health of the Planet.

Capitalism has been the world’s dominant economic system since the 16th century and its adoption by the world’s fastest growing countries has transformed life on earth by helping to lift billions of people from poverty. It is an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

Proponents of the Doughnut economic theory argue that capitalism is an imperfect system because it emerged during a time when humanity saw itself as separated from the web of life, one where ecological issues were ignored or labeled externalities.

The broad measure used as an economic scorecard in capitalist economic systems is the Gross Domestic Product or GDP. It is a measure of the total monetary or market value of all the finished goods and services produced within a country’s borders during a specific time period.

The Doughnut economic theory recognizes that economic prosperity depends not only on growth as measured by GDP but on human and natural well-being as well; and it encourages societies to shift to an economic model that is more regenerative and distributive than today’s capitalistic system.

They argue that continued application of 20th century economic thinking is not sustainable or responsible now that the world is aware that the planet is teetering on the edge of a climate breakdown and we know we will witness the death of the living world unless we transform the way we live.

In a doughnut world, local economies would sometimes be growing and sometimes shrinking. It recognizes that growth is a healthy phase of life but endless uncontrolled growth, like cancer, can be harmful to our overall health. Significant GDP growth may be very much needed in low and middle income countries to ensure that their communities can overcome the shortfalls that create deprivations for their citizens, while richer countries would focus not so much on growth but on maintaining their thriving social foundations but at a reduced ecological cost.

Adopting such an economic theory would help balance the inequities that are present in the world today – one where the high living standards of the people in rich countries have them overshooting the planet’s ecological ceiling, while people in poorer countries fall short of the fundamental human rights that comprise the doughnut’s social foundation.

Many economists are skeptical of the doughnut economic theory because in order for it to work it asks humans to magically become indifferent to wealth and income or how well they are doing compared to others. That is a difficult ask when the world includes 7.3 billion people.

Different class and national interests are always fighting one another and it is naïve to believe that globalized capitalism will suddenly transform itself to become more cooperative and gentle; especially when all indicators point towards citizens today becoming more commercially motivated, self-centered and focused on money and success.

I too am skeptical that something as revolutionary as a Doughnut economics system could be universally adopted given today’s political divisiveness, uncompromising culture wars, and money-fueled corporate lobbying interests. Too many rich and powerful people benefit from the economic status quo – and would use their influence within the halls of power to protect their self-interests.

However, the encouraging thing about doughnut economic programs is that they can be run at a grassroots level. Since its introduction many homes, towns, cities, and states have bypassed their national governments and done what they could to apply the concepts behind doughnut economics from the bottom up – to try and help their local societies become more resilient.

Cities have become the laboratories of doughnut economic programs. The simple way that the doughnut economic model captures both the needs of the people and the needs of the planet makes it a convenient tool for leaders to have big conversations about reimagining and remaking the future. Ideas based on doughnut economics are now being discussed, debated and put into practice in academia, business, and in town, city and national governments worldwide.

Amsterdam, Brussels, Copenhagen, Dunedin, Melbourne, Berlin, Portland and even Austin TX are examples of cities applying the new economic concepts as a way to help their cities attain social and environmental sustainability. Since the theory doesn’t lay out specific policies or goals, stakeholders are free to have constructive conversations to decide what benchmarks would help bring their communities inside the doughnut.

Amsterdam’s lofty ambition is to bring all 872,000 of their residents inside the doughnut, ensuring that everyone has access to a good quality of life, without putting more pressure on the planet than is sustainable. They have implemented a true price initiative which takes into account the carbon footprint of the goods and services they produce as well as the living wage requirements of the workers. To satisfy the dual need for more affordable housing and reduced CO2 emissions, Amsterdam has implemented laws making the use of recycled and natural materials mandatory in the construction sector and they have started transforming neighborhood parking lots into community gardens.

Without a series of universal solutions, which do not exist and will probably never exist, it will be up to the politicians and economists to determine which elements of the donut system can be implemented successfully and to what extent. Amsterdam has made a start by applying this litmus test question to all their municipal project decisions: “Will doing this project actually make our community healthy and happy?”

To all my readers, wherever you may be: I hope you are healthy and happy and living comfortably in the sweet spot of the donut – and I hope that you are thinking about what life decisions you can make today to ensure that future generations will have that same chance to have a bite out of the donut as you.