I spent the last few days in the mountains celebrating X-MAS with my dear ones and while relaxing I finally managed to read one of the best books I have read in ages- ” Doughnut Economics ” by Kate Raworth. I wanted to take some time offline but I have to share this as I hope it inspires some of you to take a different look at economics in 2020.
Finally, I found the book that brings together all the hypothesis and concepts I was drawn to over the past years and puts them into a holistic picture how we can look at economics in a 21st century way.
When researching about the author Kate Raworth- an economist at the University of Oxford, who calls herself a “renegade” economist- she is sometimes referred to as the “John Maynard Keynes of the 21st century”.
From my point of view, her simple and brilliant book Doughnut Economics offers a game-changing analysis of our current economic system and is an inspiration for thinkers how to look at our world in a different way. She presents a very convincing concept on how to create economies that are regenerative and distributive by design- a subject very dear to my heart.
The basic principle of Doughnut Economics (Spanish Version here)
Kate Raworths economic theory is based on the picture of a doughnut. The doughnut has a social foundation and human well-being in the middle, and is itself ‘the safe and just space for humanity’ and for a ‘regenerative and distributive economy’, surrounded on the outer edge by the ecological ceiling of ‘critical planetary degradation’.
The overall target should be to remain within the doughnut to ensure that we neither fall into conditions of social inequality and suffer shortfalls, such as in water and food, nor allow growth to overshoot into threatening environmental collapse.
In her words, this model ‘draws on diverse schools of thought, such as complexity, ecological, feminist, institutional and behavioural economics’. (The Concept of Doughnut Economics in 15 min explained by the author on Soundcloud for the podcast freaks:https://soundcloud.com/chelsea-greenpublishing/seven-ways-to-think-like-a-21st-century-economist)
We need to tell a new story about economics
Kate Raworths research on the history of economics and where our guiding concepts originate from was the most appealing element of the book for me. As a person educated in economics I “grew” up with the paradigm of economic growth. The thoughts of the neoliberal Chicago School and their concept dominated my way of thinking about the economy.
And most of you who studied economics for sure came across Samulsons “Economics” textbook. The way we learned economics then still dominates our decision-making for the future, guides our investment decisions, and shapes our responses to climate change, inequality, and other environmental and social challenges that define our times. However, those concepts do not suit the challenges we are facing today.
“The fundamental ideas that guide our economy today are centuries out of date yet are still taught in college courses worldwide and still used to address critical issues in government and business alike!”
This is dangerous and the effects can be seen in the in rising inequality and the environmental challenges we are facing nowadays. That’s why it is time, says Kate Raworth, to revise our economic thinking for the 21st century.
She proposes 7 ways of thinking – that in her view should guide 21st-century economists. With those seven ways, I can very much relate. How about you?
The 7 Principles of the Doughnut Economy…
… and my thoughts on them
1. Change the goal—from GDP to the Doughnut. Doughnut Economics
The continuous growth of the gross national product (GDP) has been the goal of mainstream economics’ ever since the mid-20th century. Raworth argues economic growth cannot by itself solve all other problems our societies are facing and it cannot last forever, due to the scarcity of resources. Delivering well-being for people and the planet (our “planetary household”) as laid out in the picture of the doughnut should be the main purpose of economics instead of growth and profits.
Ever since I got in touch with the United Nations 17 Sustainable Development goals they are a guiding star for the impact I want to make in the world. The Sustainable Development Goals provide a blueprint for the transition to a healthier planet and a more just world — for present and future generations.
Those goals are reflected in the inner and outer dimension of the doughnut. They are a powerful concept interlinking the social, ecological and economic aspects of sustainability. When I started my first activities in the social business world my major concern was inequality.
But studying migration management I more and more learned about the interconnectivity of social and ecological aspects, which led me to support Fridays for Future and join Entrepreneurs for Future and actively advocate for stronger political action on climate-related issues as social issues can only be really solved if ecological and economical issues are also taken care of.
As a social entrepreneur, I feel that running a business on more KPIs than just financial growth by adding the social and ecological impact is very satisfying and I am deeply convinced, that this could also be a motivating way for all players in our society.
2. See the big picture—from self-contained market to embedded economy. Doughnut Economics
In neoliberal economics, the market rules. It’s supposed to most efficiently allocate resources when left to its own devices. The regulation ought to be minimal, the state’s role restricted to providing security to its citizens and protecting private property. Society is irrelevant, and the Earth’s resources seen as unlimited and thus left out of the equation.
Kate Raworth advocates stepping back and taking a broader view to see the economy how it really is, embedded within Earth’s natural systems and within human society. Within the economy itself, households, the market, the state and the commons all have an equally important role to play in meeting human needs. None should be given primacy over the others, but they should all be supported to serve human welfare in mutually complementing ways. I could not agree more to this holistic picture
3. Nurture human nature—from rational economic man to social adaptable humans. Doughnut Economics
Neoclassical economics bases its theories on a limited view of human nature, the notorious endlessly rationalizing and self-maximizing homo economicus. Kate Raworth tries to draw a picture of him: Standing alone, with money in his hand, ego in his heart, a calculator in his head and nature at his feet. He hates work, he loves luxury and he knows the price of everything. The whole concept was brought up to make it easier to argue economic models.
Raworth argues that we need a new picture of the person we picture as a base for our economic models taking into account our capacities for solidarity, empathy and reciprocity. How I hated the model of the “homo economicus” when studying economics! I remember long arguments then up to now that humans are not selfish and ego-driven.
The really bad part about “homo economicus” is that studies show that the more we learn about it the more selfish we become so it is more than time to come up with a better picture – we are so much more than a dollar hunting animal.
Why would we set out and found charities, help others, found social businesses and the like if men would just be selfish?
4. Get savvy with systems—from mechanical equilibrium to dynamic complexity. Doughnut Economics
The book brings up the historic context of how economics as a science was shaped. Economics became a science when economists started to introduce diagrams and concepts resembling Newtons diagrams and mechanic thinking. Economists have for a long time strived to simplify economic models to resemble linear mechanical models.
However, our world gets more and more complex day by day and the only way to master this complexity is system thinking. Thinking in terms of systems can do a far better job helping us understand how our world works and what actions we could take to reverse negative developments. I think this is especially true if you look at fast technological developments that will shape our future
5. Design to distribute—from ‘growth will even it up again’ to distributive by design. Doughnut Economics
Raworth says inequality is neither good for growth nor a necessary stage of development. On the contrary, more unequal societies are shown to be less healthy and happy and to face a higher degree of environmental degradation.
Redistributing income is not enough to address the situation, for most of the rise in inequality we see today is due to wealth concentration resulting from returns on capital. When we started our venture goood network we were lucky to work with Karl Wagner, former director of external affairs of the Club of Rome. T
he discussions we had when working on our manifesto were very inspiring and I learned a lot about how to look at the world in a different way. Karl co-authored a discussion paper of the Club of Rome- The Values Quest where he argues in the line of Kate Raworth that our theory and practice of economy do not rest on natural laws but on the underlying values.
To have an unequal society instead of an equal one is our choice, it is not a given by nature. To change the world for the better we need to address values and the narratives they are embedded in. Based on his thoughts I started to rethink what I can do to help change the current system and this is why I started to speak publicly and advocate for purpose and sustainability.
6. Create to regenerate—from ‘growth will clean it up again’ to regenerative by design. Doughnut Economics
As regards the environment, our current economic setup is eating up Earth’s resources at one end and spewing out waste from the other. We should instead strive to design a circular economy with all the energy and resources in constant flow – reused, renewed, returned to the planet’s life cycle where the “waste” of one process can be turned into input for another process.
The circular economy is rather a new concept for me, but I think it is super fascinating. As a consumer, I am drawn to intelligent products based on circular concepts and as an innovator and entrepreneur, I see opportunities emerging from new collaborations.
One of my goals for 2020 is to learn more about the concept and how we as a network of system-thinkers can contribute. I am looking forward to an interesting exchange and discussions on the topic with all of you.
7. Be agnostic about growth—from growth addicted to growth agnostic. Doughnut Economics
So my wish for 2020: Let´s break free of our old picture of economics and transform to a 21-century concept of economics. Even if you are on a New Years diet- get involved with the Doughnut- I am convinced it will serve us and our world well.
Passionate, internationally recognized award-winning Social Innovator. Entrepreneur and serial founder of various ventures e.g. Adjacent Possible Network (Consulting), GOOOD Network (Impact Incubation) and goood mobile Germany & Austria (B2C mobile operators) as well as co-founder of an impact initiative for social inclusion.
Passionate about social impact and impact innovation, I believe in the power of shaping a positive tomorrow by transforming traditional business models for the next generation. Corporate Executive background with 15+ years of track record in managing leading international ICT companies in very challenging market environments, serving millions of customers. Continuous consulting assignments (strategy & operational tactics development, business planning) and business development with a focus on customer experience, digital transformation and impact innovation.
Sources: https://www.kateraworth.com/ https://www.un.org/sustainabledevelopment/sustainable-development-goals/ http://www.arcworld.org/downloads/ValuesQuest-Discussion-Paper.pdf https://goood.de/ueber-uns https://goood-mobile.at/storage/Germany/neueTarife2019/Manifest_goood_ev.pdf