Raworth on the fallacy of endless growth
The economy is meant to continue growing forever, with little thought for its environmental limits, but one economist says this makes no sense, and proposes a different model.
Some things seem so patently obvious and so intuitively true that it’s almost impossible to imagine a time before they were discovered. What was it like to look out at the world before that apocryphal apple fell on Newton’s head; what did it mean to look up at the sun before Copernicus and think you were the centre of the universe?
The simplicity of these ideas belie their individual radicalism. Kate Raworth’s Doughnut Economics fits into this camp. It might not be talked about in Newtonian terms in 300 years time (Raworth is herself critical of the ‘economic sciences’ label the discipline has claimed for itself), but that doesn’t make the idea any less influential.
Her idea, “doughnut economics,” deserves some explanation. New economic theories usually try to explain things like the concentration of capital or the cost of labour relative to the unemployment rate, but Doughnut economics is more a way of rethinking the “what” part of the question, rather than the “why”.
So, “what” is the economy? It’s a question that has bedevilled us in New Zealand for some time. Marilyn Waring has been raging against the economic orthodoxy on questions like this for some time.
Take this example: a woman earning a full-time income is part of the economy — easily quantifiable by the amount of money she earns, saves and spends. But then she gives birth and takes time away from employment to rear her child. During this period, she effectively disappears from the economy. Our GDP actually shrinks, as it loses her income and spending, even though (in the crude, unemotional, and awkward language of economics) she is engaged in a clearly productive activity, bringing life into the world.
Raworth looks at this on an even grander scale, saying it’s time to connect the economy to the world in which it so obviously lives. Her idea is that an economy should exist in a space represented by a doughnut diagram.
Raworth’s doughnut is comprised of two-rings (it’s an American-style doughnut, just to be clear). The inner ring represents the human limits of the economy, the things that every economy should provide for the people living in it, like freedom from poverty. The outer ring represents that planetary limits on the economy, more or less represented by environmental indicators like air pollution and climate change.
The implications are obvious. Any decent economy must meet the needs of the people who contribute to it so they do not fall through the inner ring, but it must do so without exceeding the limits the planet has itself placed on the economy.
It’s one of those ideas that seems so obvious you’re surprised no-one thought of it earlier. It simply makes no sense that supply and demand curves, and never-ending GDP growth exist in a world unto themselves when what they represent — the supply of goods grown and built on earth, bought and sold by real people — are very much part of the real world.
Speaking to Newsroom ahead of her New Zealand tour, Raworth said she initially didn’t expect the book to find such traction.
“But I think there's just an extraordinary hunger in the world for new ideas that make sense for the 21st century,” she said.
One person described it as “rain falling on barren land”.
Raworth says people need a new way of looking at economics.
“The first diagram that students are taught worldwide is the criss-cross of supply and demand, which immediately focuses us on the market immediately but this puts price as being the metric by which we manage the economy,” she said.
This fundamental relationship leaves out some of the most pressing economic concerns of out time — things like climate change and environmental degradation. These are measured, but they’re called “externalities”. That means they have a cost, but it’s imposed on a third-party — someone who falls outside the model.
These sorts of things make it clear the economic model was designed for a previous era.
"In the 21st century when we find ourselves talking about the death of the living world as an environmental externality — that sends an alarm bell that this model is not fit at all,” Raworth said.
“To me it does make sense because the fundamental framing that were drawn up in the most fundamental way were drawn up over 200 years ago in a completely different era from our own,” she said.
Fantastic — so that’s all done then?
Well, not quite. There’s one big problem — not really to do with the two rings, but with how we look at them. The problem is growth, something Raworth herself acknowledges. The global economy is addicted to growth. And so it should be. Growth is fantastic, it means there’s more, well, stuff and it gives the investors confidence they need to plough their money into new and wonderful inventions.
... looking at the massive degradation that an economy of $80 trillion has wrecked on the planet, one seriously wonders at what point we grow ourselves out of a home.
Growth is also a fantastic political tool. Promising to grow the economy means politicians can put off politically awkward questions like how to better share the nation’s current wealth. You could raise taxes and benefits to make the poor richer — or you could promise to grow the overall economy, lifting everyone up. It’s a strategy commonly known by the horrendous mixed metaphor, “grow the pie” (as opposed to giving people a greater share of the pie).
But growth can’t go on forever — and that’s the problem. Raworth notes in her book that in 2015 the GDP of the world was roughly US$80 trillion and growing by 3 percent a year. If it were to continue indefinitely at that rate, the economy would be nearly three times bigger by 2050, ten times bigger by 2100, and almost 240 times bigger by 2200.
Now one would hope productivity gains, technological wizardry, and advances in sustainability help us to grow our economy somewhat during that period, but looking at the massive degradation that an economy of $80 trillion has wrecked on the planet, one seriously wonders at what point we grow ourselves out of a home.
The problem is a political and economic one. We’ve got a finance sector predicated on endless growth and a polity that prefers kicking the can down the road to confronting difficult issues.
“We are financially addicted to growth because we have a financial system which at its heart pursues the maximum rate of preterm financial return,” Raworth said.
“It's not natural and it's not immutable but we have designed it to be this way,” she said.
Kate Raworth is visiting New Zealand for the Just Transitions Summit and the Auckland Writers Festival