Kate Raworth’s “Doughnut Economics” is a great starting point for new thinkers

Kate Raworth is an author who can’t be ignored. Google her book “Doughnut Economics” and you get 155,000 results. In September 2020 Goodreads had 549 reviews and Amazon 469 ratings. Her book is lucid and accessible and I love her chapter headings. She has an extraordinarily comprehensive list of references.(Some chapters have 90-100)

This is a comprehensive review of orthodox economics over a few centuries. Her “doughnut” metaphor describes the realm of a living habitat for humans as being only in the doughnut. We have to be lifted out of poverty to reach a certain minimum standard of living, yet not consume so much of the earth’s resources so that we are breaching planetary boundaries. Her doughnut is unforgettable and will go into future economics textbooks. She describes a social floor for wellbeing and an ecological ceiling. 

To illustrate her strong call to rethink economics she packs her chapters with a dense and interesting mix of facts and trends within economics thinking. The strength of this book is that because of Raworth’s deep understanding of the history of economic thinking she is acutely aware she is just but one thinker in a chain, and that there will be another generation of thinkers beyond her. She regularly invites her readers to think our way out of this mess and tempts us with numerous leads. She is an advocate of drawing diagrams. 

However naturally there are omissions and blind spots. 

Naturally when reading a new book on new economics (I have written two) I go straight to their bibilography and there I find a good list on the topic of money and an excellent one on tax –Gaffney and Harrison, Henry George, Michael Hudson, JS Mill, Ricardo, Josh Ryan-Collins and Peter Barnes. I also find Michel Bauwens on the commons and Janine Benys on biomimicry.

So here is what I think a list of what the next generation of thinkers could productively focus on:- 

First Omission – asking what is the root cause of the growth imperative?

One of the more irksome features of her discussion is that she never really asks what causes the growth imperative. She doesn’t appear to stress that it is built into the system. While she cites many who write on money creation including Benes and Kumhof, Charles Eisenstein, Michael Hudson, Steve Keen and Bernard Lietaer but never seems to use the phrase “interest-bearing debt” or explore the consequences of issuing money this way. She dabbles but pulls back when it comes to probing important leads. I urge thinkers to read Chapter 2 of economist Richard Douthwaite’s book The Growth Illusion, where after a discussion about the consequences of issuing money as interest bearing debt, he concludes. “In our present economic system, the choice is between growth and collapse, not growth and stability…The alternative is slums, dangerous roads, old factories, cramped schools and stunted lives.” Douthwaite, like Raworth, was a development economist who spent years on overseas aid work,  and in the process he had to spend time relearning and unlearning economics. 

Second Omission – the role of power

When I was a  full time advocate in the smokefree campaign in the 1980s, I watched public opinion change over a decade of debate and conflict. I was high profile in the media for a decade. On non-smokers’ rights I was a controversial figure in many households, workplaces and clubs. The health lobby, equipped with all the scientific facts, gradually and painfully learnt the reality of political power. We started to understand the subtle influence of the tobacco industry, and came to realise that the frustrating reluctance of politicians to move was because they were waiting for public opinion to change. So I always notice when an academic advocates for change and appear to imply it happens without pain and struggle. The famous quote of Mahatma Gandhi, “First they ignore you, then they laugh at you, then they fight you, then you win” is relevant here. So even a passing reference to the role of power and the agony of the political struggle would have been helpful here.

Third Omission – the importance of currency design 

Kate Raworth leads us to the insightful author Silvio Gesell, summarises his argument for a demurrage currency, chooses the best quotes from him, and then pulls back. I urge the next generation of thinkers to follow through this clue, because the design of money changes everything, from purchasing behaviour to investment patterns. If Keynes called Gesell ‘an unduly neglected prophet’ we should really pay attention. She has a whole chapter called ‘Design to Distribute’, but completely omits the critical nature of currency design. 

She has read Bernard Lietaer, or at least one of his books, but the next thinkers should read the more of Lietaer and think deeply about his argument that the design of money affects human economic behaviour and that there are good examples in history of a dynamic, successful societies where dual currencies contribute to this result.

Fourth Omission – Energy Decline

I am not sure I do it justice either, but those who understand that because of peak oil the net energy in the industrial system must decline, also know that we have to live with progressively less net energy. That is a big concept because economic growth has for decades been closely correlated with energy growth. 

When it comes to discussing the regenerative circular economy,  where the essential concept is to ensure we can unmake everything we make. I am not sure how this fits with the Second Law of Thermodynamics says that processes that involve the transfer or conversion of heat energy are irreversible. … It  also states that there is a natural tendency of any isolated system to degenerate into a more disordered state. As energy is transferred or transformed, more and more of it is wasted. So the circular economy is not that simple.

I am rather inclined to agree with a University of Otago scientist Craig Anderson who recently wrote on an email discussion, “Concepts like Doughnut Economics will not achieve what we need – they sound lovely and the heart is definitely in the right place – but these concepts are still not yet grounded in the realities of the remaining resource base and energy constraints.”

Fifth Omission – Land Tax reform

She has spent a few pages on Henry George who would replace income tax with land value tax and on the origins of the board game Monopoly. This occurs under the chapter heading Design to Distribute. But she doesn’t really convey that land tax is the most powerful way to distribute wealth. Those wanting to take this topic further should learn about the value of inner city land, not just rural land and learn from Georgist organisations like Progress in Australia for more information. A discussion of the relative merits of capital gains tax, land value tax, death duties, wealth taxes, estate taxes would have been useful.

This book is a must read for any critic of orthodox economics. Raworth concludes, “We are all economists now”. So if we are to survive, we can’t avoid this discipline. 

 

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To get the next economic system we need to find the assumptions of this one

Banks Peninsula fires after drought Feb 2017

Many are asking if we have to sit around waiting for the current system to collapse. If we have only 3 years to turn around the emissions pattern as the UN has said, we had better get on with designing the next system.

The current system assumes:

  1. There will be only one currency for a country.
  2. The majority of the country’s money will be created and controlled by private banks.
  3. The money will be created as interest-bearing debt.
  4. All land, all natural resources and natural monopolies can be privately owned, and this means people can profit from buying and selling it.
  5. All major decisions will be made by national or international governments or agencies.

This all adds up to a system with a growth imperative built in.(For years I thought it was just the money system but I believe now after a conversation with Steve Keen it is a combination of that and the land tenure system) The consequences are regular booms and busts, regular monetary crises, banking crises and sovereign debt crises and ever widening wealth inequality.

Edgecumbe floods 2017

The growth imperative also means that it is inevitable that we consume our natural and social capital.  Perpetual growth is not natural. There is no entity in nature which is designed to grow forever, unless, as Margrit Kennedy pointed out, you count cancer. And now we are paying for our blindness with floods, droughts, coastal erosion and food shortages.

Therefore the phrases ‘doughnut economy’, ‘stable state economy’, ‘no-growth economy’, ‘regenerative or resilient economy’ are good descriptive words, but they don’t change the current economy’s DNA. We have been inventing more and more names for this since the publication of The Limits to Growth and arrival of the NZ Values Party in the seventies. They all sound good but we can’t go on and on pretending there isn’t a growth imperative built into the design of our mono-currency economy.

It is like saying I would like this rose to be white and scented but in fact it is red and unscented. The redness and unscented is built into its DNA and no amount of nice new language or great new writing will alter it. We just can’t go on creating more and more names for a good economy.

The Growth Imperative is in the DNZ

I am sure economists like Kate Raworth are contributing to raising awareness but honestly, give or take a few years of dormancy, people in the advanced economies have been at it since the 1970s. The Greens talked about it for a few years but dropped it like a hot cake quite a while ago.

Now I don’t expect too much new thinking will come out of universities. It is tricky for a university economist to breach the parameters of what they can say without losing their salary. Professor Steve Keen is having to crowdfund his salary now.

It is now time to acknowledge that we need to leave the new system alone and invent an entirely new model. We can’t solve climate change within the current model.  Within the old system you can’t put on a hefty carbon tax and expect a different political result from Australia. (Yes you can plant trees and do other things, sure.)

Supposing therefore we allow:

  1. There to be more than one currency
  2. It must be publicly created and controlled for inflation.
  3. The currency will be spent into existence not lent into existence.
  4. The currency will be designed to decay (Silvio Gesell’s quote is “Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron and evaporates like ether can be capable of standing the test as an instrument for the exchange of newspapers, potatoes, iron and ether.”)
  5. The commons must be publicly owned and rent for their monopoly use must replace income tax and sales tax.

I realise that these are all huge jumps in thinking and the last point means there have to be very strong leasehold contracts to protect the occupier of the property together with no rent on land used for conservation or historic purposes.

Naomi Klein has spelt out this challenge for a new economic system in her book This Changes Everything.

Though The Next System Project is grappling with the challenge of finding it in Washington DC it would be great to have a special platform somewhere in NZ to work on it ourselves.

Oh, and by the way, my book The Big Shift – Reinventing Money, Tax, Welfare and Governance for the Next Economic System is available from Living Economies bookshop. It is the result of a four-year think tank of what was the New Economics Party and is the source of the above ideas. We may be right we don’t know, but we tried.

 

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