Written and maintained by Kate Raworth, Senior Researcher for Oxfam GB, and author of Oxfam's Discussion Paper A Safe and Just Space for Humanity: can we live within the doughnut? It is a personal view of how Oxfam's GROW campaign could help us develop a new vision of prosperity for the 21st century.Why it’s time to vandalize the economic textbooks
Get ready to join the world’s first guerrilla campaign to rewrite economics. The only weapon you need is a pencil…here’s why.
When I studied economics at university twenty years ago, the concept of The Circular Flow of Money and Goods was the gateway to understanding macroeconomics – and it still is. It shows how households provide labour to firms, in return for wages, and then use their income to buy the stuff that firms make.
The money flows round and round and so do the resources. When the arrows are going round and round like that, the only question to ask seems to be, how can you make those arrows get bigger? And from there on out, the aim of the game is GDP growth. Very simple. (And if you think it’s so simple that I’m making it up, go open an economics textbook – hey presto, there it is).
It’s such a deceptively simple model of the economy that it quietly inserts itself into the back of the head of every economics student – so quietly that you don’t even realize it is there. But it is there, and that’s a problem because it’s a deeply flawed view of the economy we actually live with. By focusing only on resource flows that are monetized, it misses much that matters in our lives.
In fact it misses the big picture three times over.
1.It’s not free floating
First, the economy does not float freely against a white background. It is embedded within the planet’s environment, drawing on its natural resources and dumping pollutants back out into it. Mention that and an economist will say – ah yes, environmental externalities, we’ll come to those later. But calling nature’s resources ‘externalities’ and leaving them till later has led us to this crisis of climate change. How can it make sense to treat the fundamental resource on which all life depends as a factor external to the system? We have to draw a box around the economy and label in The Environment (a point that Herman Daly made some decades ago).
2. It’s not all in the money
Second, the monetized economy is heavily supported by the unpaid care economy: the services provided by parents and carers (usually women) in raising children, getting the sick back to work, and caring for the elderly. In many low-income countries, that unpaid caring work also includes providing the family’s water, firewood, and food every day – in other words, providing the most essential goods and services for well-being. And it’s all outside the monetized economy. If we ignore it, we ignore many of life’s most valued goods and services, and misunderstand the working lives of many of the world’s women. So the unpaid care economy has to be drawn in.
3. It’s the inequality, stupid
Thirdly, firms pay wages, rent and dividends to households, yes. But thanks to the kind of capitalism that most governments have been constructing, many people get low wages while a few get high rents and dividends. And, as the worldwide Occupy movement has made clear, that matters. Social inequality has been opening up at the heart of economies and needs to be brought to the fore. So it’s time to draw it in.
Now imagine if this was the diagram that economics students encountered on Day One. For starters, it opens up so many more interesting questions. How big should the economy be in relation to the environment? How can policies in the paid economy best support the services that the unpaid economy provides? What could reverse the increase in social inequality? And – going for the really big picture – let go of ‘growth’ for a moment: what would economic development look like from this perspective?
I think economics students deserve this more realistic starting point – and the world deserves economists who have a more realistic model like this inserted into the backs of their heads. It would certainly give us a far better chance of living between the social and planetary boundaries of the doughnut.
So here’s a guerrilla campaign to make it happen. Anyone can do it because all you need is a pencil. Here’s the plan (umm, I have to say at this point, this is not Oxfam Policy…). Sneak into the bookshops, the libraries and classrooms, and into the office of every economics professor you know. Get out the macroeconomic textbooks and find that diagram. Take your pencil. Now draw in the environment. Draw in the unpaid care economy. Draw in social inequality.
With these few strokes, we could stick a great big spanner in the wheel of mainstream economic thinking. We’d save the next generation of economics students from having the wrong model of the world stuck in the back of their heads. And that would help save us all from another era of economic policymakers who unknowingly have the wrong model of the economy shaping their decisions.
I made a pitch for vandalizing economics textbooks like this at IIED’s Fair Ideas conference at Rio+20 in June – here it is in a 10 minute video (starting at 59 minutes)
So it’s time for a guerrilla campaign – and I propose these three pen strokes to launch it. Got any suggestions for more?
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Nice. Could the bubbles in markets created by the finance sector be added too? Maybe that needs a whole banking sector added. …and actually are there any economics text books out there that do have this kind of bigger picture starting point? Any in Ecological Economics?….
I’ve not seen any economics books that start from this more holistic picture, but you have prompted me to look up ecological economics textbooks to see what starting point they present…
The image in your picture distinctly gives off the impression that firms make stuff, that’s a bit misleading in the UK. what about a line going out from the firms to a group of people that have siphoned off the wealth for themselves – could have them sitting on a tropical offshore island.
To be fair, in this diagram firms provide goods and services, and UK firms do produce services (though you are right that some of them tend to bubble and burst…). I love the idea of the drawing in the wealth siphoned off to tropical islands….
This is really interesting and my pencil is at the ready. But as a layperson I’d be curious to know why you think the more realistic picture you paint has struggled to enter the Economics mainstream. Is it vested interests? Or restraint from entering territory seen as belonging to others? Because, as you say, the orthodoxy does seem very simplistic; so simplistic that I’d guess most people, even dunces like me would see through it straight away. Don’t the social sciences as a whole include these factors and many more? Because if the frame of reference for economic policy makers really is this narrow that’s scary. Or is it a temporary madness? What would Chinese economists say? Loads of questions, such a good blog, can’t wait for more…
The more realistic picture isn’t mainstream because it depicts all major resource flows, rather than just those that are monetised. Economics focuses primarily on flows that are monetised, and because it is so dominant as a language and paradigm of policymaking, it means that monetized flows get priority and other flows are treated as ‘externalities’. Yes social sciences take account of all these other factors, but then they often find themselves begging at the door of economics to get attention for these so-called externalities.
Great idea- I really think economics is in a bad state from all I read…
Though my understanding was that that diagram- firm / household, is at the heart of neo-liberal economics and it is a micro-scale model that is then scaled up as if thousands of those models all together can be used to demonstrate macro -economics. Steve Keen does a great job of debunking this in his book of that title..saying:
-neo-liberal theory is just wrong (and yes it continues because of vested interests- it makes the rich richer.
-its basic premise is incorrect- you can’t create macro from micro, that’s not how the world works, in the “proper” sciences you see emergent properties when you scale up.
-their theories also don’t include banking or debt- hello!!?? because they don’t accept the fact that banks create money out of thin air..
-their theories don’t allow for crashes- the model can’t create that condition- so is clearly wrong
So I do wonder about in anyway legitimizing the premise of their basic model in taking a microscale model and putting it in the macro.
if I was graffiti-ing a text book I would say:
WARNING: this book is built on a flawed and incorrect system which perpetuates because of vested interests. Read other textbooks / economists that take the real world into account, like Keen: Debunking economics, Molly Scott Cato, Ann Pettifor, Renegade Economist, anti-textbook textbook, only read this to KNOW THE ENEMY!
My idea, I’m working on it for the summer, is to do a “street school protest” so tackling economic illiteracy by distilling the key essentials into two sides of A4 and giving the information out in an engaging way, so its not just general placards, but a story being told. We (Occupy Stroud) might use cycle powered presentations, mexican waves of linked banners, we are working it up for the autumn.
We need an informed people, they are being so badly conned, so I feel it needs to be on the streets, not just in text books for students.
Anyone who wants more info can contact me at gail.bradbrookATbtinternet.com
gail x
Great stuff, thanks Gail.
Absolutely agree that challenging the economic orthodoxy, and what people have been taught for the last 30 years is fundamental.
The big piece that is missing for me here is government, given that a significant portion of services and goods are provided by government, and paid for through taxes and we should not be shy about that. Firms as well as people depend on those services to create a sustainable, equitable environment in which everyone can function. And when those services are missing, as they are in so many poor (and rich) countries, we know what happens. We still have a somewhat polarised debate in which government should provide either as little as possible or as much as possible – I’m unashamedly somewhere in the middle!
I’m not sure that the traditional alternatives, of the kind that I’ve heard when studying development were any better; if the current lot are socially and environmentally unsustainable, the latter have tended to be economically unsustainable – and often have proved pretty socially and environmentally unsustainable too. The best of Green Economy thinking has tried to move beyond the traditional thinking – be it the traditions of the London Business School or those of SOAS!
Hi Robin, you are right that government is missing – I should have made it clearer why. Whenever this diagram appears in textbooks, they go on to make it ‘more complex’ by adding the government and the financial sector. So I have focused only on adding the issues that never get into the textbooks. But of course the government’s role is crucial in redirecting those flows.
This was interesting to read but a simple circular flow model is just that. A distillation of reality to become a starting point for analysis. You do not help the ‘lay’ reader by missing out injections and withdrawals either. You also assume that a teacher would not, during discussion, consider other areas that are not included. It’s too easy to blame economic theory and consequently ignore all the exciting ‘new’ economics that has emerged since you studied the subject. The theory means we all have a place to start but we don’t share a destination.
Hi Helen, thanks for these views. I agree it would be too easy simply to critique economic theory that is 20 years old, when lots of exciting ‘new’ economics has been taking place since. But despite all the developments, this basic diagram is *still* at the heart of every text book. Environmental externalities are still a later add-on (if you choose to do the special paper) and the care economy rarely gets mentioned at all (unless you do a very obscure feminist economics paper). So I am putting the critique precisely because what I learned 20 years ago is still the essence being taught to 21st century students.
The economist Diane Coyle is soon bringing out a book on how the theory and teaching of economics needs to change in the light of the financial crisis – see http://www.enlightenmenteconomics.com/page15/page15.html All very needed, but does it take account of the ongoing ecological crisis? I look forward to reading it.
I always fell asleep in my high school economics class anyway so I probably missed those text messages. (Professor was just deadly boring but I’m sure I may have done some doodles on the page so that should count for my participation) I think you should encapsulate the entire donut with another loop that says Societal Production Incentives Reduction Inequality Theory. Obviously these words strung together make no real economic sense but what I’m really trying to get at is the acronym it produces which is SPIRIT. We need to approach our world from a spiritual standpoint of CARE for humanity. When we invest in something bigger than self interests then the gains run deeper than anything a textbook or economist could ever capture. Keep up your good work!
I fully support your points, but I have to highlight what appears to be organisational hypocrisy within Oxfam.
Oxfam is itself guilty of producing Primary and Secondary educational resources that ignore the macro-economic, reinforce stereotypes and the neo-liberal paradigm of development and immorally promote neo-colonial style social engineering.
I think Oxfam has adopted this policy to maximise support for its campaigns in schools (thus securing funds and media profile) and to promote the damaging idea among pupils that they are the saviours of the Third World victims and villains who keep getting themselves into a dreadful state. Balanced and truthful education is not however evident.
One of numerous examples of this ideological and marketing propaganda in the guise of educational resource is page 7 of:
http://www.oxfam.org.uk/education/teachersupport/the_big_picture/files/big_picture_summer_2011.pdf
I’d happily explain what is so objectionable about this resource from an educational perspective, although I hope that is self-explanatory (I could simply vandalise it, but I feel that that would meerly be a publicity stunt).
So Oxfam’s hypocrisy is evident in the juxtaposition of the campaign of vandalism (designed to strike a chord with university students looking to rebel against the system) and the contradictory campaign of encouraging UK school children to believe that they can make a difference within a neo-liberal, neo-colonial system.
Please, please, please encourage Oxfam to review its approach to education in UK schools (I would be very help in this). It is at this stage that the rot of global inequality and injustice is incubated. If we sort this out then we won’t need to vandalise university text books as their incogruities will have become apparent to all who leave school.
Unfortunately, given all of the above, I cannot be sure to what extent your campaign to challenge the staus quo through vandalism is earnest and sincere and to what extent it is merely a publicity stunt carefully targeted at a certain demographic. I look forward to being convinced that it is the former.
Thanks for your comments Paul – I’m going to put you in touch by email with my colleagues working on the educational materials so you can discuss it with them.
Thanks Kate, I look forward to being contacted by your colleagues very soon.
Reclaim Education’s comments are not particularly relevant to the issues raised by Kate’s excellent post on doughnut economics. However they directly refer to another campaign Oxfam is involved in so a response is due.
The ‘Send My Friend to School’ campaign that Reclaim Education link to isn’t an Oxfam campaign. It’s managed by the Global Campaign for Education (GCE), an international campaign whose UK membership consists of a broad base of 27 INGOs, trades unions and civil society organisations.
Oxfam actively participates in ‘Send My Friend’ as we believe strongly that every child has the right to receive a quality education. The schools resources are written by a number of coalition members, including Oxfam. This year over 6,000 schools participated in ‘Send My Friend’ and young people sent almost 750,000 messages to their MPs. The campaign explicitly avoids all mention of fundraising and the media coverage it generates is aimed at amplifying its political impact and not gain publicity for specific INGOs.
Send My Friend in the UK is reflected by similar GCE coalition campaigns in over 120 countries in the global south, where young people and civil society are demanding the right to go to school from their governments. So far from being ‘neo-colonial’ the UK campaign is part of a wider global movement of young active citizens sharing the same goal.
Reclaim Education accuse Oxfam and its partners of misleadingly ‘encouraging UK school children to believe that they can make a difference within a neo-liberal … system’ I would argue that UK young people’s sustained participation in drawing MPs attention to the issue of education for all has made a very real difference. It’s been an important factor in shaping DFID’s leading role within global education and has helped bring millions of children into school.
This success raises interesting questions about the ‘neo-liberal paradigm of development’. Reclaim Education appear to take a reductionist approach, viewing the current system as both static and rigid. However many states have made significant strides in overcoming poverty, the paradigm of development has become increasingly pro-poor since the early 2000s, and the rise of the BRIC countries is now calling the entire paradigm into question. This ever-changing ‘neo-liberal world order’ is open to influence and change, both by effective states and active citizens.
However factors such as gender or disability can be a significant barrier to education, depending on the particular country and the context. The case studies ‘Send My Friend’ collects each year refer to particular locations. Kaltume is growing up in northern Nigeria, a region where a disproportionately large number of girls don’t attend school. In other places this is not the case. Pointing out this variation and calling for action to address it in no way creates a generalised stereotype of ‘Third World victims and villains’.
Reclaim Education draw their conclusions from just one page of the learning and campaigning resources produced over a number of years by GCE. They are entitled to disagree with the strategy and vision of Send My Friend. However their comments also unfortunately draw on a number of misconceptions and misunderstandings about the campaign and the ways INGOs engage with young people.
“However their comments also unfortunately draw on a number of misconceptions and misunderstandings about the campaign and the ways INGOs engage with young people”. – please could you validate this with evidence.
With you all the way.
That is all.
Economics must have been different 35 yrs ago when I studied it because back then natural resources i.e. land was considered a factor of production. So they were not externalities but a part of the process of production. That being said I do agree with the rest of your comments.
Hi Lloyd, perhaps you studied classical Ricardian economics, which has land as a central factor of production because his model of growth was derived from observing an agricultural economy (but he still focused on land scarcity, not its degradation). When I was at university, we only studied neo-classical economics based on Solow’s endogenous growth model, determined by L labour and K capital, and this is the predominant model taught today. Sure, you could argue that land (or even environment) is somewhere in there as part of “capital”, but I’ve never seen that suggested and followed through in a mainstream economics textbook. It just gets left by the wayside. If anyone has a mainstream economics textbook (not from Ecological Economics! I mean real mainstream) which does incorporate the environment, then I’d love to know…
A really impressive piece, Kate. One fascinating thing about it is that the three flaws in the standard model you’ve picked on – environmental factors, unaccounted for social care work, and inequality – are all different types of error; if they were the same sort of problem (eg all things which hadn’t been accounted properly) then the model could be adjusted much more easily. It’s like showing that the standard model of the atom fails to account for gravity, time and light (ie a force, a dimension, and a form of radiation), which is far harder to deal with than the standard complaint, which is that it fails to unify or take account for three different types of force (weak, strong, gravity).
One central flaw, I reckon, with traditional economics, is that it assumes a consequentialist mindset (ie everybody getting richer is good) to justify certain actions (pursuing profit is good because it usually leads to everybody getting rich). People don’t really think like that, as evidenced by the fact that, even when they get to the ‘good consequences’, it rarely brings happiness; instead, we just get hooked on pursuing profits, or consumerism, or whatever it is. The economic consequences of an action need to be brought closer to the individual, and framed in a more human, less abstract way. This require a rethinking of ‘rationality’ – the old fashioned economics notion of it is already under-attack, but the attacks are not yet leading in a new direction. It needs other things, too – this is a great start to the debate. I think your blog post should be nominated for a ‘Banksy’ award – defacement in the public interest.
Hi Iain, interesting that you see the three flaws as different error types. I think of environmental resources and caring work as similar in error: both are critical resource flows for well-being which are missing because they are not monetised. I’d love to understand how you see them as different. I agree that social inequality is different from them – it’s an unjust consequence, not an over-looked resource flow. But it has to be pointed out.
On rethinking rationality, and getting hooked on consumerism, you make me think of Tim Jackson’s book Prosperity without Growth – and his wonderful phrase, “We spend money we don’t have, on things we don’t need, to make impressions that don’t last, on people we don’t care about.” You can’t say it much more succinctly than that.
Thanks, Kate – the difference between (most) social care and environmental factors is that, while environmental factors, is that the latter is a resource which could be monetised; the problem could be that no-one owns it like other resources. Much social care cannot really be monetised because it comes from a different motive – something altruistic, not selfish or materialistic; and to try to monetise it would not just ration it (like environmental factors), but change it substantially, or even undermine it completely. Great Tim Jackson quote!
Iain, yes, I get the distinction you are making. It makes me think of the excellent point that Michael Sandel makes in his recent book What Money Can’t Buy: the moral limits of markets – that once you introduce markets and payments into relationships that were traditionally based in morals, duty, and norms, you can fundamentally alter the basis on which we interact. I had hoped in that book he would discuss his view of payments for ecosystem services in this light. He raised it as an issue in the intro (I got excited) but then he never came back to tackle it…perhaps it’s time to write to him to ask his view…
Can I suggest that, to prove to us impressionable students that this is not the publicity stunt that Paul ReclaimEducation fears, the Oxfam team publish their scores of how many books they have ‘vandalised’ so far. What is your total so far, Kate?
Could you also give us some tips on how to go about the vandalism without being arrested? If I am arrested, what should I say to the police about the campaign?
Hi Paul, in answer to your questions:
1. 271
2. I’d ask Bansky that one.
3. Tell the police to pick on someone their own size and go arrest a few bankers instead.
Development economist Matt Collin, over at Aid Thoughts, points out some serious flaws in your primary argument:
http://aidthoughts.org/?p=3460
Thanks Mark, I’ve seen it, and I disagree. Blog post in reply coming tonight…
When economists tell lies, they claim it as an “assumption”. Economists never have to apologise for a mistake, as their activity has no ethics charter. Mistakes never stop an economist from getting promotion. Ben Bernanke is now the Chairman of the US Federal Bank. He co-wrote a book on micro-economics that uses assumption lies. Of all the textbooks available to justify the erroneous supply curve of economists, a professor used his textbook to explain these errors to me. Benanke and his co-author used the example of the cost of glass bottle production. They say: “Suppose that the silica required for making bottles is available free of charge from a nearby desert, and that the only cost incurred by the firms are the wages it pays its employees and the lease payment on its bottle-making machine.” (P147) They also say: “… assume that the number of employees can be varied on short notice …” They then confabulate a table of output versus employee hours to construct an artificial table of costs versus quantity of production. They manage to show that the marginal cost of bottle production increases with output quantity! The reality of making bottles is very different to these economist lies. The fixed costs extend to the cost imputation of the furnace as well as the bottle blowing machine and the oven to anneal the glass. The furnace will only last about five years and has to be kept up to temperature all that time (including some supervision) adding to the fixed cost. This fixed cost must be spread over the quantity of production. The variable costs include more energy costs as each gob of glass used to blow into a bottle extracts a certain amount of heat too. Energy cost according to an industry document say that energy represents about 12%-15% of the costs while the labour cost amount to about 25%. The rest is the raw material cost, sodium carbonate, lime, cullet, and silica (not free). The cost curve that is reality based will have a reducing marginal cost rather than increasing as economists lie about.
Economists concern themselves with many un-observable variables, but production costing is an area where real data could be obtained.
There is a need for a reality based examination of this issue.
I have produced a book: “Inquiry Into the Nature of the Human Economy.” which looks at the supply/demand relationship. You can get this book from me for $20. Just e-mail me to arrange this if you want to see an alternative view. It would give several interesting points to discuss with students.
ph (03) 548-6803
Paul Bieleski, Nelson. (Anti-Economist League.
Congratulations, Kate! And if we were to capture the real amount of rent that flows from land and natural resources, some 40% of the economy–not the 1%-odd the economics textbooks tell us about http://thedepression.org.au/?p=11505–we'd at last get to grips both with the environment and those 0.1% who make themselves billionaires by stealing its natural bounty.
Social aspects, inhabitants, surroundings – you need to DESIGN economy… Absolutely – that is what I am also researching and telling to my design students! I truely think that designers, facing these hot issues of future economy will be the real economists rather than those, providing new stuff for the monetized economy… Great!!!!!