Book Report: Doughnut Economics by Kate Raworth

Doughnut Economics

Seven Ways to Think Like a 21st-Century Economist

By Kate Raworth

‘Relentless financial crises. Extreme inequalities in wealth. Remorseless pressure on the environment. Anyone can see that our economic system is broken. But can it be fixed?

In Doughnut Economics, Oxford academic Kate Raworth identifies the seven critical ways in which mainstream economics has led us astray – from selling us the myth of ‘rational economic man’ to obsessing over growth at all costs – and offers instead an alternative roadmap for bringing humanity into a sweet spot that meets the needs of all within the means of the planet. Ambitious, radical and thoughtful, she offers a new, cutting-edge economic model fit for the challenges of the 21st century.’

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Introduction of the author and goals of the book

Doughnut Economics, first being published in 2017, is truly a product of our time and even more so of Kate Raworth herself. She kicks off by introducing the student Yuan Yang at Oxford, being frustrated by the disconnect between the financial world, textbook economics, and the real world around her. She goes on with more examples of students expressing their dissent at their professors, who seem to be fixed in an old – and perhaps destructive – way of economic thinking. Raworth places her background right between the rebellious students. After she graduated from Politics, Philosophy and Economics (PPE) at Oxford and later followed with a master’s degree in Development Economics, she worked for various bottom-up projects, from micro-enterprise development to researching and writing at the United Nations and Oxfam. Her ideals in ‘broad welfare’ and her working experience brought her to Doughnut Economics: The old economic assumptions are wrong. We need to fight the authority of old economics with new paradigms to strive towards as a society in which we think fundamentally different about economics as a whole.

Key takeaways

The gems to look for in this idealistic and paradigm-shifting book, are right there to be found in the subtitle, the seven ways to think like a 21st-Century Economist:

1. Change the goal: From GDP to Doughnut

2. See the Big Picture: From self-contained to embedded economy

3. Nurture Human Nature: From rational economic man to social adaptable humans

4. Get Savvy with the Systems: From mechanical equilibrium to dynamic complexity

5. Design to Distribute: From ‘growth will even it up again’ to distributive by design

6. Create to Regenerate: From ‘growth will clean it up again’ to regenerative by design

7. Be Agnostic about Growth: From growth addicted to growth agnostic

Raworth expresses these seven ways as the key shifts in our economic thinking – or even broader, the way we think about societal systems – and supports the text with graphic support. The provided pictures are, as is Raworth’s conviction, essential in forming the very way we think about the economy and our systems. This conviction is illustrated in the first way of the ‘new thinking’: Shifting away from GDP as the be-all end-all benchmark for economic performance, to the way of the doughnut. The image of the doughnut was on the tables of the United Nations negotiations of the Sustainable Development Goals to remind our policymakers what it is all about: 17 new goals and benchmarks to evaluate human progress. The idea is, simplified, thinking about the lower and upper boundaries of our society – the lower bound being our social foundations, i.e. basic human needs for all, and the upper bound being our ecological ceilings, i.e. how much resources we use and how much waste we dump. The two foundations are the core argument around which the book is built, as they are the goals in which the next six ways strive to reform the systems itself.

The second way, seeing the big picture, shifts our thinking away from seeing the economy – and specifically, the free market – as our Lord and savior, to embedding the economy in the grand scheme of all the aspects of our society and, at last, the earth itself. Acknowledging all aspects in which the economy is embedded and are embedded in the economy itself – such as household, the state, the market, and the commons – Raworth highlights the worth of all in how a well-balanced ecosystem should work. This seamlessly crosses over in the third way, nurture human nature. One of the biggest misunderstandings in classical economics is, Raworth argues, our perception of people always thinking rationally – and behaving accordingly. The Homo Economicus is a myth, which behavioral economics are now finding out. The dangerous assumption of us always flawlessly calculating the utilities of our choices, has to be replaced with self-transcending values and an intrinsic values – instead of the extrinsic values of old economics.

The fourth way, getting savvy with the systems, strives for a metaphorical career change for the economist: from being engineers, to gardeners. In other words, the 21st-century economist must embrace the complexity of our systems, instead of ‘pulling and shifting levers’. In the old economy, rigid systems are thought to be easily controlled – leading to booms and busts, and not recognizing the ever quickly evolving society. We need to build a system that can adapt with it. This is necessary for the fifth and sixth way, which I bundle together for the sake of simplicity: Design and create to distribute and regenerate. Old classical economic assumptions put, without much empiric support, the Kuznets curve at the center of thinking about growth in relation to inequality and pollution. The argument was that, in Arnold Schwarzenegger’s words, pain is a necessary evil to grow back better. Raworth argues that this is a false assumption brought into economics, based on next-to-no data – and most important of all, leads to a lot of unnecessary pain. Rich economies, when taking into account imported resources and goods, are not particularly reducing their footprint on our planet; they merely shift it overseas. The same holds for inequality, which does not magically disappear when the pie gets bigger and is actually hurting growth – let alone the ethical arguments for fair opportunities for all.

The growth-argument brings us to the last way: Being agnostic about growth. Anybody reading the newspapers, or listening to politicians, probably noticed the obsession around GDP growth; we already know from the first way to think about other metrics than GDP. Being agnostic about growth is going in against the nature of a classical economist, as ‘making the line move upwards’ is the foundation of the old economic studies. This seventh way revolves all the way back to the start of the book. We need to think about a system which enables us all – humans and nature alike – to thrive, whether the GDP grows or not. If it grows, fine. If it does not, and we all thrive anyway, that is also fine.

Concluding review

Doughnut Economics by Kate Raworth is surely a wake-up call to me as a student in Economics. I am glad the institute where I follow my master’s degree, Utrecht School of Economics (USE, part of Utrecht University) is already at the forefront of acknowledging the position of the economy in society and the responsibilities of economists in general. How great would it be to work on improving the condition of our societal foundation?! Using the enormous opportunity our academic knowledge gives us, and using it to truly further our humanitarian goals by redesigning the systems and our way of thinking, is hopefully the influence in the world we students would like to achieve.

The goals of Raworth, however, are probably a long ways away. The small, bottom-up initiatives proposed in her book are still to be proven on a greater scale, and, without characterizing the economy a zero-sum game, something has to give. In other words, the new way of thinking would require some to lose power and/or possessions – which is probably why economists and politicians alike probably chose to grow the pie in order to give everybody a bigger slice, which is easier, but less effective than redistributing and regenerating by design. Additionally, I do have my concerns, perhaps because the introduction of the book focusses on student ‘revolutions’. A too radical approach in bringing this school of thought mainstream, could perhaps alienate the silent majority, and push them towards what is known: old economics with perhaps wrong, but trusted assumptions and systems. Let us focus on the great core message and lead by example, and I am certain people will voluntarily start reading about, and supporting, the remarkable things Doughnut Economics could achieve. In any case, great book, and I would certainly recommend it to anyone who wants to read more about sustainable development.