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Kate Raworth This blog was written and maintained by Kate Raworth, author of Oxfam's discussion paper A Safe and Just Space for Humanity. Kate left Oxfam in May 2013 and is continuing to blog at www.doughnuteconomics.org - please click through to find the latest discussions, videos and reports.

Why it’s time to vandalize the economic textbooks

Posted by on 23 July 2012

Update May 2013: Kate Raworth has now left Oxfam and is continuing this blog at www.doughnuteconomics.org - please click through to read and comment on this post.

 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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Want to know how to get beyond GDP? Start here.

Posted by on 01 July 2012

Update May 2013: Kate Raworth has now left Oxfam and is continuing this blog at www.doughnuteconomics.org - please click through to read and add a comment to this post.

 agrees: we have to get beyond GDP. Yes, yes, but enough talk – let’s get this train moving.

Some say we should forget GDP and jump straight to measuring well-being. I agree well-being measures are needed, but the economic description of the world is never going to go away, so rather than push it to one side, we should try to improve it. So here’s a first go (in very simple terms, and not-drawn-to-scale graphics) of what a wider conception of economic development would include.

The starting point: good old (bad old) GDP.

GDP

Gross Domestic Product is essentially the value of goods and services exchanged within a nation’s monetized economy in one year. Whether it is going up or down matters, most especially in countries that need to increase the incomes and wealth of people living in poverty. But it is far from all that matters.

I think there are at least three broad shifts needed to reach a concept of economic development that won’t keep leading us into environmental and social crises.

1. From monetized to un-monetized goods and services too.

The first shift is to take account of the value of goods and services that contribute so much to well-being but that fall outside of the monetary economy.

Anyone who got kids washed, dressed, fed, and off to school this morning knows the value (and cost) of the unpaid care economy (aka the reproductive economy) both to the household and to industry, in terms of raising and caring for the future workforce.

Anyone who breathed in clean air and drank clean water today should be grateful to the planet’s atmospheric system and freshwater cycle for these ecosystem functions – sometimes described as ecosystem services.

And anyone who has had a heart operation knows that its value far exceeds the cost of doctors and medicines required to perform it: most public goods get valued at cost, so are undervalued in reality.

plus non-monetized goods and services

The flow of goods and services, both monetized and un-monetized, gives a much more realistic picture of the consumption that we truly value. If we ignore the ‘free’ stuff and just focus on increasing GDP, we’ll squeeze out much of what actually matters to us.

2. From goods and services to underlying assets and debts.

Any company that presented only its profit and loss account would get laughed off the stock exchange. And any country that focuses only on its GDP account should get pulled up for it too. GDP matters, but so do changes in the underlying stock of assets / wealth / capital (pick your favourite/ least offensive word) from which all goods and services flow.

National physical and financial assets (or debts) have long been counted but so too should be human, social and natural assets – after all, without this trio, there would no physical or financial capital to talk of. Finding meaningful measurements of these is no easy task, but there are some interesting (and controversial) initiatives under way, especially around ‘natural capital’ and the care economy.

plus underlying assets

Monitoring changes in this underlying wealth is crucial for providing a better sense of whether GDP is growing by running down capital (turning forests into timber, turning community centres into business centres) or by building it up and reaping the reward (richer soils producing higher yield crops, closer communities producing safer neighbourhoods).

3. From averages and aggregates to distribution.

All these shifts above are well and good, but they still focus at the aggregate level (like national GDP) or average level (like GDP per capita). As the Occupy Movement has made loud and clear, distribution matters. We also need data and indicators that reveal the distribution of goods and services, and of assets, across households by income, by sex, by ethnicity.

plus distribution

So these are three conceptual shifts needed to get from a narrow focus on economic growth to a broader concept of economic development. Imagine if this ‘dashboard’ had indicators like a car dashboard, country by country. We’d have a far richer picture of each country’s economic progress – and whether GDP was going up or down at any one moment would no longer be the only question worth asking. Take the full dashboard away again and that little black arrow of GDP suddenly seems a rather impoverished view of what an economy should be aimed at.

Of course there are still big questions. How should un-monetized goods and services be accounted for – in ‘natural metrics’ (like hours of care worked) or ‘monetary’ metrics (like the going market rate for care)? How should natural capital be accounted for, and how much should there be? (Could planetary boundaries provide a powerful starting point for defining that?) What are the trade-offs and synergies between investing in natural, human and social capital, and increasing GDP? How equally should incomes and assets be distributed across households?…

Big questions – but at least we now have the beginnings of an economic framework in which we can discuss them. And it also happens to fit pretty well with the main recommendations of the Stiglitz Sen Fitoussi Commission’s work on measuring economic performance.

So what’s the verdict? Is this a helpful (albeit very simple) way to convey the essential difference between economic growth and economic development? What is missing or misconstrued? And do the political risks of framing nature and social cohesion as ‘capital’ outweigh the importance of ending their economic exploitation when left as invisible freebies?

Suggestions please, in the name of pushing us further along the track beyond GDP…

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Get into the Doughnut…

Posted by on 12 June 2012

Update May 2013: Kate Raworth has now left Oxfam and is continuing this blog at www.doughnuteconomics.org - please click through to read and add a comment to this post.

Welcome to the very first blog on Doughnut Economics. I’ll be using this space to explore how to rethink economics and equity in the 21st century, through the lens of planetary boundaries and social boundaries – aka the Doughnut.

If you’re wondering, ‘Doughnut, what doughnut?’, then here’s a 4 minute video to give you the low-down.

 

And the more-than-four-minutes version?

In February 2012 I wrote a Discussion Paper for Oxfam, A Safe and Just Space for Humanity: can we live in the doughnut? It puts Johan Rockström’s concept of planetary boundaries together with the concept of social boundaries, to create a vision of a world in which every one has the resources to meet their human rights – while staying within the environmental limits of what this one planet can provide.

Here’s the blog I wrote to introduce the Doughnut back in February. Since then it has been picked up by commentators such as George Monbiot, Grist and the UN. It seems to have hit a spot within the environment-and-development community given that the search is on for a unified vision of what sustainable development could look like in the 21st century.

I’ll be presenting the doughnut in a number of debates at the UN’s Rio+20 Conference on Sustainable Development over the coming 10 days – but debating the doughnut goes far beyond Rio+20.

I’ll be blogging here on what I see as the three most interesting debates that the doughnut has stepped into (if doughnuts can indeed step).

1. Rethinking economic development. If planetary boundaries and social boundaries are the starting point, what are the implications for what economies should be aimed at? What’s the evidence that ‘green growth’ and technological solutions can or cannot get us there?

2. Who’s pressuring the planet? Humanity has transgressed at least three planetary boundaries – but where’s that pressure coming from? What’s the state of global inequality in using natural resources, within and between countries? And what are the implications for achieving equity in the Doughnut?

3. National doughnut analyses. What would happen if you took the doughnut concept and applied it at the country level? What would it look like for different countries, would it bring new perspectives, and could it help move forward national debates and policymaking on pathways for sustainable development?

I’ll be interviewing leading thinkers and commenting on new reports that shed light on these questions. And of course I look forward to the comments, insights, critiques and contacts that make ideas come alive through a blog. So if you have ideas about the implications of planetary and social boundaries, here’s the place to share them.

Go ahead, take the first bite…

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