A Conversation with Kate Raworth on Doughnut Economics and Redesigning our Economy.

A Conversation with Kate Raworth on Doughnut Economics and Redesigning our Economy.

Kate Raworth is a renegade economist focused on exploring the economic mindset needed to address the 21st century’s social and ecological challenges and is the creator of the Doughnut of social and planetary boundaries.

She is a Senior Research Associate at Oxford University’s Environmental Change Institute, where she teaches on the Masters in Environmental Change and Management. She is also Professor of Practice at Amsterdam University of Applied Sciences.

Her internationally acclaimed framework of Doughnut Economics has been widely influential amongst sustainable development thinkers, progressive businesses and political activists, and she has presented it to audiences ranging from the UN General Assembly to the Occupy movement. Her book, Doughnut Economics: seven ways to think like a 21st century economist was published in 2017 and has been translated into 18 languages.

Over the past 20 years, Kate’s career has taken her from working with micro-entrepreneurs in the villages of Zanzibar to co-authoring the Human Development Report for UNDP in New York, followed by a decade as Senior Researcher at Oxfam. She is a member of the Club of Rome and serves on several advisory boards, including the Stockholm School of Economics’ Global Challenges programme, the University of Surrey’s Centre for the Understanding of Sustainable Prosperity, and Oxford University’s Environmental Change Institute. The Guardian has named her as “one of the top ten tweeters on economic transformation”.

In this exclusive interview, I spoke to Kate Raworth, the creator of Doughnut Economics, about why we need to rethink economics, for the sake of all of our futures.

Q: Why do we measure economies the way we do?

[Kate Raworth]:  The measurement of GDP goes back to 1930s America. Until the Wall Street Crash of 1929, the economy had been measured in tonnes of grain and steel, and because of the crash- economists and politicians decided they wanted some grip over the scale of output of the economy- so they turned to a brilliant young scientist called Simon Kuznets and asked him how they should be measuring economic output. His answer was published in 1930s- he figured out a way to add-up all the tonnes of grains and steel and create a national income figure. He gave the caveat that it would scarcely be taken as the measure of welfare of a nation because it didn’t include all the value created in a community, all the unpaid caring work at home, and only measured what was sold- not what was used-up! To put it another way, it told us the value of the timber in the shop- but bot the value of the forest that was lost.

The power of a single number however caught the imagination of politicians, journalists and the public and became a very useful tool. Think about it… you’re coming out of the crash in the 1930s and entering war. What a brilliant tool to understand how much of the nation’s output must be sustained to keep the economy going and society happy whilst siphoning the rest to the war machine. In the cold-war, we had the US versus USSR- and this big question of who’s economy could turn out more ‘stuff.’ In this sense- economic output became a metric for ideological battle. By the 1960s, the OECD had formed, and high-income countries got together around the goal of high, sustainable growth rates. GDP once again was at the top of the agenda and became the metric by which the horse-race between nations was run. Growth became the story- the panacea for trade and budget deficits, inequality and unemployment. Whatever your ailing is… growth was the solution….

Q: What are the challenges of using GDP?

[Kate Raworth]: GDP only catches a slice of the value that we value. It captures what goes on in the market, the financial value of goods and services sold in an economy over a year. It captures everything that goes on in the markets and captures the cost of goods and services produced by the state. In the boxing match between free market laissez-faire capitalists and state loving socialists the economic debate ignored the household – which is expected to provide the food, do the cooking, washing, cleaning, sweeping, education, look after the sick and elderly, yet is completely missing from GDP. Also missing from GDP are the commons; the places where people come together- not through the market or state, but as a community. The commons are where people get together, co-creating things they value. It could be a neighbourhood garden or Wikipedia.

We need to get away from the narrow, monetary, measure of GDP which asserts that economic value is the only thing we care about…

GDP underwrites strategies and policies. From the 1950s onward, there were two stories that emerged.

Firstly, the story that growth would even things up again… so if you were worried about inequality, there was no need to worry… growth would even things up again. We’ve all heard it before- we’ve been told to tighten our belts and wait for value to trickle down… we’ve been told we’re all ‘in this together.’ It doesn’t work. The rich get richer, and the poor get poorer, and the market doesn’t even things out. It takes massive state intervention through public services, health services, social housing and income redistribution to even begin to equalise or reduce inequality.

Secondly, there was a story that growth would somehow clean-up after itself. The story went that as people got richer and cared more about the environment, that they’ll pay more to clean it up. Yes, that happens a bit- but what happens more is that intensive, polluting, industries go elsewhere. The goods are imported but the pollution is released elsewhere. The richer countries have tended therefore to have cleaner air, better water but if you take account of global pollutants like carbon dioxide emissions and a nation’s material footprint, a growing economy, growing material-footprint and growing emissions have been going hand in-hand. Unless you have very strong government intervention to forcefully bend that curve down, it simply will not do so.

So, we believed, and took on board the promise of growth, that it would even things up again, that it would clean up after itself, and that actually was a panacea to many of our economic ills.

When I was a student, learning economics at university in the early 1990s there was a sense that if a policy delivered a growth tick- that was it, end of story. Yet, all the evidence has shown us that growth does not even things up- some of the richest countries in the world are becoming immensely unequal and we have seen that growth certainly doesn’t clean-up after itself.

We have to leave behind the myth that our economies are actually fit for the present that we understand, and the vision of the future we want to create.  We need to redesign economics for our times.

Q: What is the embedded economy?

[Kate Raworth]: What is the first thing that students are taught in economics; supply and demand. That may not sound problematic, but lets’ start with the fact that the word economics derives from ecos nomos in ancient Greek – the art of household management- a pretty noble art! So…. We’re going to manage our households, are we? Economics day-1 says, ‘here’s the market!’ and immediately puts the market at the centre of vision as if the economy is- essentially- the market and the only metric of concern is price. On that basis, our economy handily adds up to our GDP… very neat indeed! And anything outside that contract? Oh well, that’s an externality. So here we are, in the early days of the 21st century, talking about the death of the living world as an environmental externality. That alone should be an alarm-bell that our framework doesn’t serve our time.

So, I came up with the embedded-economy diagram… The economy is a subset of society, it’s a social construct. It’s entirely created by humanity- by the way we interact with one another to meet our wants and needs and human society itself is embedded in the living world, we are part of nature whether we like it or not- and we have to respect the rest of nature.

We’re drawing in materials and matter; we’re spewing out waste and pollution and we’re bathed in a river of solar energy. Our economy is embedded in society, embedded in the living world.  That’s the 101 of ecological economics – to recognise the economy is embedded in the living world.  It’s not just a supply and demand chat floating on a blank page.

There are four fundamental ways in which we provision for our wants and needs. The market, the state, the household and the commons.

Markets are brilliant as Adam Smith knew. Markets are brilliant for co-ordinating the wants and needs of millions of people through the mechanism of price. Markets however only serve those who can pay, the rest are ignored. Markets only value what’s priced, the rest they exploit.  The state (government) recognises that there may be public goods like streetlights, education, healthcare or vaccines that everybody has an interest in, and which must be provided collectively. Whether or not you have the ability to pay, you have a right of access. The market and the state are what we understand and measure as GDP. We miss the household however, where we all begin every day – and all that unpaid care work- traditionally performed by women around the world. We also miss the commons, where people co-create goods and services they value.

Can you imagine if economics lesson 1 showed this embedded economy? If it showed that we have the market, state, household and the commons? That understood that these areas are complex and interconnected and have balances of power between them?

Q:  Do we need to rethink the role of humanity in economics?

[Kate Raworth]:  Economics depicts humanity as a character called rational, economic man. I’d say he has to be a man- he has no dependants. He’s a man standing alone with money in his hand, ego in his heart, a calculator in his head and nature at his feet. When we show-up, we’re told that we’re competitive and self-interested, the traits of the market.

What’s unnerving is that when students learn about this character (rational economic man), over time they begin to value self-interest and competition over altruism and collaboration. These models are performative. When we say rational economic man, we become more like him. Who we tell ourselves we are, shapes who we become…

It’s really important to give ourselves a full description of who we are. In the market, we can show-up as a producer or consumer, and in the space of production we could be labour (showing up for a wage) or we could be capital (the owner of the land, housing, factories, rents and resources). In the space of the state, we can be residents, public-servants, voters or protesters. In the space of the household, we are parents, children, guardians or carers and in the space of the commons, we are co-creators, sharers, repairers and stewards. These are all roles that we play, and weave between seamlessly. We need to name all of these different roles and recognise the really different values and skills that they call us to.

One of the chapters in my book is called ‘nurture human nature’, because we have obviously diverse attributes in our nature.  I have 12-year-old twins – I watch these kids sometimes collaborate, and a lot of times compete.  I know that as a parent, part of my role is to teach them to collaborate because that’s what makes us social beings.  We need to learn those skills of collaboration.  And we need to nurture that, and we need to bring it into the conversation of economics.  But economics is just dominated by conversation about markets and competition and rationality.  It’s a tiny slither, and actually it’s the meanest slither of who we are, so let’s broaden that spectrum and bring our full selves to work and bring our full selves into the spectrum of economic activity.

Q:  Do the market and the state need the household and the commons?

[Kate Raworth]:  The market and the state need the household and the commons.

The household is subsidising the market every day. On a Monday morning, workers show-up to the office in their clean clothes, with a nice haircut, healthy, well-fed… who did all that work? Who produced labour that was fit and ready for work every day? Traditionally, women did all the unpaid caring of getting labour, reproducing labour, getting it fresh and ready for work every day.  The market has also encroached upon the commons, patenting commonly held intellectual property and infringing on public spaces. The market needs to be put back in a suitably sized box to make room for the household and the commons.

Q:  Can we do better than this?

[Kate Raworth]:  I do believe we can have a more equitable society. We can do far better than this. We’ve inherited economies that are divisive by design and which- through their infrastructure, technology and regulations, drive value and opportunity into the hands of the few. In the past decade, the number of billionaires in the world has doubled.

We’ve got economies that drive value and opportunity into the hands of the few and a reinforcing system that sees the richest separating themselves from everybody else. What we need are economies that are far more distributed by design. We need a network of distribution of value and opportunity that is co-created with, and by, society.

Q: How can we re-examine the role of business in society? 

[Kate Raworth]: We’re increasingly seeing companies bringing their environmental and social costs into their financial reporting- and that’s impressive as a recognition- but it isn’t the same as paying for the damage you do; it’s simply recognising it on a sheet while your shareholders receive dividends and aren’t made to pay for the damage.

I’ve shared the idea of doughnut economics – the idea being that we want to meet the needs of all people within the means of the living planet. This isn’t just about producing organic this, or low impact that… this isn’t about good wages and fair supply chains… it’s about what underpins all of that, the design of your company.

Sometimes people go see their therapist, and after enough sessions complaining about the difficult people in their lives the therapist will say, ‘you know…. It may not be all those other people who are the problem… maybe you need to look inside yourself and think about how you are…’ we need a form of corporate psychotherapy to help them [corporates] learn how to behave, and there are five key traits of corporate psychotherapy: Purpose, Networks, Governance, Ownership & Finance.

Purpose: Why do you exist in the word? What are you in service of? A 20th century company would say, ‘I want to be the biggest 4×4 car manufacturer in Europe’ – another may say, ‘we want to create affordable mobility for all…’ the latter company still makes cars, but they have a higher purpose. They have seen an issue in the world- they know their company exists in service of that. They are not the solution, but part of the solution and use their business as a form to bring around the solution. Business can be a really effective vehicle for making change happen in the world.

Networks: What are your networks? Who are your customers? How do you relate to them? How do you instil your values and purpose through your network? Who are your suppliers? Who are you buying from and how are you passing and reinforcing values into your suppliers? Who is in your ecosystem? Do you see everyone as a competitor – do you understand that some of them may be allies and that you’re in an ecosystem of businesses who can work together?

Governance: This is a big one. How do you govern? Who shows up in the boardroom? Who even has a seat at the table and which voices are heard? Across Germany for example, workers from unions are on the board of the company and so the voice of the workers is a really important part of the decision making of the company. Also- what are the metrics you incentivise your middle-managers with? Are they aligned?

Ownership: How are you owned? Whether you’re owned by the founding entrepreneur- or by a family, venture capital, the state, employees, customers or shareholders- they are all totally viable and practical modes of ownership but each has profoundly differently consequences for what sits at the bottom, finance.

Finance: Where is your money coming from? When you generate profits, how are they distributed? You can encounter two different companies stylistically in this regard. Traditionally companies are owned to drive returns to shareholders or owners. The purpose of finance is to generate high returns, maximum returns, quarterly if possible. If companies define themselves, their networks and purpose to serve that- the company will effectively be defined in service to returns. There’s also a completely different kind of company that I encounter that starts with purpose and ensures that networks, governance, ownership and finance are in-line with purpose. That enables a more distributive design of business. Quite the opposite to companies who concentrate value into a few hands and run-down the living world and communities they serve.

[Vikas: Does this extend to the values we attach to wealth creation?]

[Kate Raworth]: We see so many who hold wealth simply to generate further and further financial returns for themselves. There’s an insanity here. There are plenty of people who are so insanely rich that no human could comprehend what that wealth could mean – and they still continue to pursue more wealth.

I can totally believe that some of the most successful and profoundly loved businesses we will see emerge will be social enterprise, but if the owners of those businesses become billionaires there will be questions about why so much of that financial value is showing up in the bank accounts of the owners rather than being reinvested in purpose. Why is so much value being concentrated in one person rather than being reinvested to regenerate the world that the business is consuming from. What would be fabulous would be to have company accounts that actually show that regenerative value.  What would be incredible is to have a tribe of regenerative billionaires who have regenerated billions of dollars of social and environmental value for the planet not just for their offshore tax havens. That – in my view – is what it means to be a successful businessperson in the 21st century.

Q: What is the role of consumerism in the inevitability of our current economic model? 

[Kate Raworth]: There was a belief that people, once they have met their necessities, could invest in philanthropy and social goods meaning that householders could work less. This (clearly) didn’t happen and even the most famous economists of the 20th century got this wrong. John Maynard Keynes wrote a beautiful essay called Economic Possibilities for our Grandchildren in 1930. In this essay he looked toward a future that would have become so efficient that everything we need would be attainable in a 15-hour work week. In his view, the biggest problem we would face would be what to do with all our spare time! He was genuinely worried for the mental health of future generations and how all this free time would impact their sense of purpose. What Keynes completely missed however was the incredible rise of the corporate machine that delivers products and services for our desires.

Edward Bernays invented what he called propaganda, and what we call PR.  He was the nephew of Sigmund Freud and looked at the work his uncle did cracking open the profound needs we have as human beings to be loved, admired respected and belong. Edward took his uncle’s psychotherapy and turned it into retail therapy. If you want to belong? Buy this laptop… if you want to be admired? Buy this car… if you want to be seen as a powerful woman? Buy cigarettes… if you want to be healthy? Eat pork sausages for breakfast. He did an amazing job taking our deepest, secret, hidden needs- that fuel our insecurities- and found a way of telling us that if we buy X, our needs will be satisfied. He was a genius. He created advertising. That’s what advertising tells us… if we buy that one more thing, we will be transformed. Of course, it never works.

What Keynes did not see coming was conspicuous consumption. The consumption we do that demonstrates our role, As Tim Jackson brilliantly said, we spend money we don’t have, buying things we don’t need, making impressions that don’t’ last on people we don’t know… we’re trapped!

Imagine taking that full-knowledge of human psychology and our understanding of what it takes to be respected, included and admired – and using that knowledge to connect us with the people and projects that we care about rather than the products and services that won’t fix anything.

It may seem strange, but for the billionaire who can’t even spend the interest on their interest- without a sense of purpose, life will be torture. All of us need a purpose.

[Vikas: So must we reject consumerism?]

[Kate Raworth]: The word reject is important. Being for or against something simply isn’t strong-enough, we must reject something to be able to find an alternative way.

We have to show that a distributive economy and a regenerative economy are a better way forward. We have to reject the norm to be able to move towards a world where we can have a laugh, know people around us, work with people around us and not buy everything from multinationals. These are the connections that make us feel good, and which make our local economies and their brilliance viable.

Too many of us have this urge to go to the mall, to spend our weekends buying stuff, aspiring to that next handbag or car… we have to free ourselves up from those status goods, we’re caught up in that world, and it’s not bringing us joy.

The advertising that’s pumped into our faces every day isn’t culture, it’s a machine. Adverts are dreamt up by people who- under huge duress- want to improve their sales and profits again and again. They create ranges every month, collections, new products, small improvements and persuade us that we’re missing out unless we are buying.

This is not culture; this is a business model to get us spending more and get us addicted.  Once you go behind the scenes and see that, then you become immune to those ads and to that marketing.

Q: What does legacy mean to you?

[Kate Raworth]: I don’t think a lot about legacy- I’m not driven by it.

The concept of doughnut economics is simple; nobody should be left in the hole – nobody should be left falling short on the essentials of life: food, water, healthcare, housing, education, political voice. We have to meet everyone’s needs and get them over the social foundation whilst making sure that we don’t overshoot and put too much pressure on our planetary home and the life support system it provides.

For me, legacy means that in 50 years-time nobody is talking about doughnut economics. Ideally the principles will become so normal that it’s taken for granted that this is just how we think… that we pursue wellbeing for humanity within the means of the planet… if that’s become the mindset, that to me will be the legacy.  It’s about transforming the fundamentals of what we think we’re aiming for.

I left my job at Oxfam to write doughnut economics. To me, that was the most direct act of advocacy that I could do- to set-out a vision of the economy we could be for. I put the words to paper and then went around for the first two years presenting it. I got approached by so many people who said that they’re putting it into practice, and it led to us setting-up the Doughnut Economics Action Lab which is an online platform anyone can join and where they can find the tools to turn these ideas into practice. The real legacy is action and implementation on the ground, and whether or not anyone mentions doughnuts doesn’t matter.  It’s about creating more regenerative and distributive economies by design.

Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.