Finally, a breakthrough alternative to growth economics – the doughnut

George Monbiot in The Guardian


So what are we going to do about it? This is the only question worth asking. But the answers appear elusive. Faced with a multifaceted crisis – the capture of governments by billionaires and their lobbyists, extreme inequality, the rise of demagogues, above all the collapse of the living world – those to whom we look for leadership appear stunned, voiceless, clueless. Even if they had the courage to act, they have no idea what to do.

The most they tend to offer is more economic growth: the fairy dust supposed to make all the bad stuff disappear. Never mind that it drives ecological destruction; that it has failed to relieve structural unemployment or soaring inequality; that, in some recent years, almost all the increment in incomes has been harvested by the top 1%. As values, principles and moral purpose are lost, the promise of growth is all that’s left.

You can see the effects in a leaked memo from the UK’s Foreign Office: “Trade and growth are now priorities for all posts … work like climate change and illegal wildlife trade will be scaled down.” All that counts is the rate at which we turn natural wealth into cash. If this destroys our prosperity and the wonders that surround us, who cares?

We cannot hope to address our predicament without a new worldview. We cannot use the models that caused our crises to solve them. We need to reframe the problem. This is what the most inspiring book published so far this year has done.

In Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, Kate Raworth of Oxford University’s Environmental Change Institute reminds us that economic growth was not, at first, intended to signify wellbeing. Simon Kuznets, who standardised the measurement of growth, warned: “The welfare of a nation can scarcely be inferred from a measure of national income.” Economic growth, he pointed out, measured only annual flow, rather than stocks of wealth and their distribution.

Raworth points out that economics in the 20th century “lost the desire to articulate its goals”. It aspired to be a science of human behaviour: a science based on a deeply flawed portrait of humanity. The dominant model – “rational economic man”, self-interested, isolated, calculating – says more about the nature of economists than it does about other humans. The loss of an explicit objective allowed the discipline to be captured by a proxy goal: endless growth.

The aim of economic activity, she argues, should be “meeting the needs of all within the means of the planet”. Instead of economies that need to grow, whether or not they make us thrive, we need economies that “make us thrive, whether or not they grow”. This means changing our picture of what the economy is and how it works.

The central image in mainstream economics is the circular flow diagram. It depicts a closed flow of income cycling between households, businesses, banks, government and trade, operating in a social and ecological vacuum. Energy, materials, the natural world, human society, power, the wealth we hold in common … all are missing from the model. The unpaid work of carers – principally women – is ignored, though no economy could function without them. Like rational economic man, this representation of economic activity bears little relationship to reality.

So Raworth begins by redrawing the economy. She embeds it in the Earth’s systems and in society, showing how it depends on the flow of materials and energy, and reminding us that we are more than just workers, consumers and owners of capital.

The embedded economy ‘reminds us that we are more than just workers and consumers’. Source: Kate Raworth and Marcia Mihotich

This recognition of inconvenient realities then leads to her breakthrough: a graphic representation of the world we want to create. Like all the best ideas, her doughnut model seems so simple and obvious that you wonder why you didn’t think of it yourself. But achieving this clarity and concision requires years of thought: a great decluttering of the myths and misrepresentations in which we have been schooled.

The diagram consists of two rings. The inner ring of the doughnut represents a sufficiency of the resources we need to lead a good life: food, clean water, housing, sanitation, energy, education, healthcare, democracy. Anyone living within that ring, in the hole in the middle of the doughnut, is in a state of deprivation. The outer ring of the doughnut consists of the Earth’s environmental limits, beyond which we inflict dangerous levels of climate change, ozone depletion, water pollution, loss of species and other assaults on the living world.

The area between the two rings – the doughnut itself – is the “ecologically safe and socially just space” in which humanity should strive to live. The purpose of economics should be to help us enter that space and stay there.

As well as describing a better world, this model allows us to see, in immediate and comprehensible terms, the state in which we now find ourselves. At the moment we transgress both lines. Billions of people still live in the hole in the middle. We have breached the outer boundary in several places.

This model ‘allows us to see the state in which we now find ourselves’. Source: Kate Raworth and Christian Guthier/The Lancet Planetary Health

An economics that helps us to live within the doughnut would seek to reduce inequalities in wealth and income. Wealth arising from the gifts of nature would be widely shared. Money, markets, taxation and public investment would be designed to conserve and regenerate resources rather than squander them. State-owned banks would invest in projects that transform our relationship with the living world, such as zero-carbon public transport and community energy schemes. New metrics would measure genuine prosperity, rather than the speed with which we degrade our long-term prospects.

Such proposals are familiar; but without a new framework of thought, piecemeal solutions are unlikely to succeed. By rethinking economics from first principles, Raworth allows us to integrate our specific propositions into a coherent programme, and then to measure the extent to which it is realised.

I see her as the John Maynard Keynes of the 21st century: by reframing the economy, she allows us to change our view of who we are, where we stand, and what we want to be.

Now we need to turn her ideas into policy. Read her book, then demand that those who wield power start working towards its objectives: human prosperity within a thriving living world.

The rich want us to believe their wealth is good for us all

As the justifications for gross inequality collapse, only the Green party is brave enough to take on the billionaires’ boot boys

• 
• • George Monbiot
  • The Guardian, Tuesday 29 July 2014 20.30 BST

‘However grotesque inequality becomes, political norms shift to defend it.’ Tax campaigners in London last year. Photograph: David Sandison

When inequality reaches extreme and destructive levels, most governments seek not to confront it but to accommodate it. Wherever wealth is absurdly concentrated, new laws arise to protect it.

In Britain, for example, successive governments have privatised any public asset that excites corporate greed. They have cut taxes on capital and high incomes. They have legalised new forms of tax avoidance. They have delivered exotic gifts such as subsidised shotgun licences and the doubling of state support for grouse moors. And they have dug a legal moat around the charmed circle, criminalising, for example, the squatting of empty buildings and most forms of peaceful protest. However grotesque inequality becomes, however closely the accumulation of inordinate wealth resembles legalised theft, political norms shift to defend it.

None of this should surprise you. The richer the elite becomes, and the more it has to lose, the greater the effort it makes to capture public discourse and the political system. It scarcely bothers to disguise its wholesale purchase of political parties, by means of an utterly corrupt and corrupting funding system. You can feel its grip not only on policy but also on the choice of parliamentary candidates and appointments to the cabinet. The very rich want people like themselves in power, which is why we have a government of millionaires.

But that describes only one corner of their influence. They fund lobby groups, thinktanks and economists to devise ever more elaborate justifications for their seizure of the nation’s wealth. These justifications are then amplified by the newspapers and broadcasters owned by the same elite.

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Also read: On Rewarding People for Talents and Hardwork

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Among the many good points Thomas Piketty makes in Capital in the Twenty First Century – his world-changing but surprisingly mild book – is that extreme inequality can be sustained politically only through an “apparatus of justification”. If voters can be persuaded that insane levels of inequality are sane, reasonable and even necessary, then the concentration of income can keep growing. If they can’t, then either states are forced to act, or revolutions happen.

For the notion that inequalities must be justified sits at the heart of democracy. It is possible to accept that some can have much more than others if one of two conditions are met: either that they reached this position through the exercise of their unique and remarkable talent; or that this inequality is good for everyone. So the network of thinktanks, economists and tame journalists must make these justifications plausible.

It’s a tough job. If wages reflect merit, why do they seem so arbitrary? Are the richest executives 50 or 100 times better at their jobs than their predecessors were in 1980? Are they 20 times more skilled and educated than the people immediately below them, even though they went to the same business schools? Are US executives several times as creative and dynamic as those in Germany? If so, why are their results so unremarkable?

It is, of course, all rubbish. What we see is not meritocracy at work at all, but a wealth grab by a nepotistic executive class that sets its own salaries, tests credulity with its ridiculous demands, and discovers that credulity is an amenable customer. They must marvel at how they get away with it.

Moreover, as education and even (in the age of the intern) work becomes more expensive, the opportunities to enter the grabbers’ class diminish. The nations that pay the highest top salaries, such as the US and Britain, are also among the least socially mobile. Here, you inherit not only wealth but also opportunity.

Aha, they say, but extreme wealth is good for all of us. All will be uplifted by their god’s invisible hand. Their creed is based on the Kuznets curve, the graph that appears to show that inequality automatically declines as capitalism advances, spreading wealth from the elite to the rest.

When Piketty took the trouble to update the curve, which was first proposed in 1955, he discovered that the redistribution it documented was an artefact of the peculiar circumstances of its time. Since then, the concentration of wealth has reasserted itself with a vengeance. The reduction in inequality by 1955 was not an automatic and inherent feature of capitalism, but the result of two world wars, a great depression and the fierce response of governments to those disruptions.

For example, the top federal income tax rate in the US rose from 25% in 1932 to 94% in 1944. The average top rate throughout the years 1932 to 1980 was 81%. In the 1940s, the British government imposed a top income tax of 98%. The invisible hand? Hahaha. As these taxes were slashed by Reagan, Thatcher and the rest, inequality boomed once more, and is exploding today. This is why the neoliberals hate Piketty with such passion and poison: he has destroyed with data the two great arguments with which the apparatus of justification seeks to excuse the inexcusable.

So here we have a perfect opportunity for progressive parties: the moral and ideological collapse of the system of thought to which they were previously in thrall. What do they do? Avoid the opportunity like diphtheria. Cowed by the infrastructure of purchased argument, Labour fiddles and dithers.

But there is another party, which seems to have discovered the fire and passion that moved Labour so long ago: the Greens. Last week they revealed that their manifesto for the general election will propose a living wage, the renationalisation of the railways, a maximum pay ratio (no executive should receive more than 10 times the salary of the lowest-paid worker) and, at the heart of their reforms, a wealth tax of the kind Piketty recommends.

Yes, it raises plenty of questions, but none of them are unanswerable – especially if this is seen as one step towards the ideal position: a global wealth tax, that treats capital equally, wherever it might lodge. Rough as this proposal is, it will start to challenge the political consensus and draw people who thought they had nowhere to turn. Expect the billionaires’ boot boys to start screaming, once they absorb the implications. And take their boos and jeers as confirmation that it’s on to something. You wanted a progressive alternative? You’ve got it.