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Discussion on Doughnut Economics

Interviewer: Antoine Rondelet, Founder @ Ganddee

Guest: Andrew Fanning, Data Analysis & Research Lead @ DEAL


 

The Doughnut Economics Action Lab (DEAL) is a Community Interest Company which explores and demonstrates how to create economies that meet the needs of all people within the means of the living planet. DEAL works with a wide range of actors such as cities, businesses, teachers, and community groups worldwide on resources around the ideas of Doughnut Economics. (More info here)


Andrew Fanning is Data Analysis & Research Lead at DEAL and a Visiting Research Fellow in the Sustainability Research Institute at the University of Leeds. Andrew holds a Masters in Development Economics from Dalhousie University and a PhD from the University of Cadiz. His research in ecological economics has been published in leading journals, such as Nature Sustainability and The Lancet Planetary Health. Among others, Andrew has been leading an effort to quantify and represent the sustainability of national resource use, associated with meeting human needs, collecting data from more than 150 countries. (More info here)


 

Antoine Rondelet: In your own words, what are the differences between Doughnut economics and “conventional” economics?


Andrew Fanning (DEAL): That is a big question. I guess, to start, whenever we’re talking about these kinds of conceptual questions, we need to keep in mind the very important point raised by the statistician George Box, who said: “all models are wrong, but some are useful”. So, I want to have that conversation in that spirit. The main ideas behind Doughnut Economics are put out in a book written by my colleague Kate Raworth, which subtitle is “Seven Ways to Think Like a 21st-Century Economist”. Each of those seven ways of thinking in the 21st century are compared and contrasted with the kind of economic thinking that we have inherited from the 20th century. That’s, I guess, what we’ll call conventional economics for now. I won’t go through each of the seven ways because we don’t have the time, but let me talk about three of them that I think are worth raising.


First, the starting point. What’s the first image that comes to mind when you think of your first economics class? The X graph of supply and demand, of buyers and sellers who are coming together in markets, and finding an efficient equilibrium, based on price and quantity where everybody is happy - or at least everyone’s minimally unhappy, depending if you’re a glass half-full or glass half-empty kind of person. So, move aside government, let market prices be the measure of value, and this will be the most efficient allocation that we can reach. Of course, that means that everything that isn’t traded in a market would not have value, but that’s not really economics, so we’ll leave that to the sociologists and the ecologists to worry about. Doughnut economics is critical of this whole concept of a mechanical equilibrium implied by that X graph of supply and demand which was inherited from 19th and 20th century economists and borrowed from Newtonian physics. Instead, doughnut economics calls for 21st century economists to embrace the uncertainty and complexity in the social ecological world. It also calls to, you know, recognizing systems thinking as a core premise of understanding our place in the world, with its reliance on path dependence, on feedback loops, on relations, and all of these important ideas from systems thinking.

Second, the self-portrait. How are people portrayed in conventional economics? Conventional economics is profoundly individualistic, so we have a hyper-rational “Homo-Economicus”, as he’s known, at the core. Kate recognizes that this caricature has never actually been drawn, so, she drew this individual, and she characterizes him correctly, in my view, as a man, always a man, who is standing alone with money in his hand, ego in his heart, a calculator in his head and, of course, the rest of the living world at his feet. Doughnut economics, calls on 21st century economists to just nurture our complex and social human nature. Recognizing that, of course, we can be selfish and competitive just as we can also be altruistic and cooperative. That we are all socially adaptable, human, and not rational economic man.

Finally, the goal. What is the goal in conventional economics? At the macro level, conventional economics doesn’t actually have an explicit goal or a measure to say “this is progress or success”, but one has snuck in and stole the show, and that is endless growth of Growth Domestic Product (GDP). So, no matter how rich a city or country may be, the current economic system we have inherited, has been designed to expect, and demand, and depend upon this extension of aggregate economic activity. Doughnut economics fundamentally offers a different vision. It offers a goal for the 21st century, which is to meet the needs of all people within the means of the living planet, and Kate drew the doughnut as a visual framework to show that goal. To avoid critical human deprivation, we need to make sure that everyone is above some minimum social foundation. At the same time, we need to avoid critical planetary degradation, and we need to keep resource use and emissions below an ecological ceiling, which is taken directly from the planetary boundaries framework. Between those two, the social foundation, and the ecological ceiling, lies the doughnut, which is fundamentally balanced, not endless expansion.


What is the difference between doughnut economics and ecological economics, as introduced by Herman Daly? Are there subtleties and difference between Herman Daly’s vision and Doughnut economics?


I would say so. I call myself an ecological economist. Herman Daly’s work and his ideas have profoundly influenced me, and I know that they’ve profoundly influenced Kate as well. We were all sad to hear of his passing just in October last year. Actually, Peter Victor has recently released a biography of Herman Daly’s work, which I would highly recommend and my colleague Dan O’Neill has just recently published a very thoughtful obituary in Nature Sustainability that I recommend checking out. In terms of the similarities, well, from ecological economics, one of the core premises is this idea that we cannot have endless growth on a finite planet. One of Herman’s many insights, but one of the core ones, was directing that we are within an Earth system and that a growing economy will eventually start bumping up against the limits of our planetary home. He spent his career drawing circles around squares, so to speak, to illustrate this point. Kate has been, as I said, influenced by ecological economics. Doughnut economics also brings in concepts from feminist economics and institutional economics, such as Elinor Ostrom’s insights on governing the commons. These are some other influences that she brought together in a vision that she calls the embedded economy. This places the economy within the Earth system, as Herman had it, but it also recognizes that the economic actors within the economy, aren’t just a box. We actually show up in the market, we show up in relation to the state, we show up in relation to our households, the care economy, and we show up in the commons. Within each of those realms of provisioning, we go through our day, flipping between these different economic identities seamlessly. Kate, in the embedded economy, recognizes that we need to acknowledge the synergies and value of those different realms of provisioning equally, in terms of, how we’re meeting our needs in markets, household, commons, and the state. That would be, I’d say, a difference. Building on Herman’s ideas, by bringing in some other concepts.


You mentioned the term “growth” earlier, and I’d like to pick this up. There is a degrowth movement, and the whole notion of “growth” seems like a pretty loaded term nowadays. When we discuss “growth” or “degrowth”, isn’t all about refining and agreeing on the definition of “growth” in the first place? i.e. discussing the underlying KPI/metric associated with the word “growth”? I can “grow” as an individual just by extending my knowledge, I guess. It seems like all this debate is centered around how we define growth at the end of the day. Am I missing something?


In Herman’s world, the definition of growth is a biophysical concept. So, when you talk about growth, it’s actually things getting bigger, in physical terms. He contrasts that with the concept of development, when development is, I would argue what you’re talking about more. If you improve your knowledge, that’s a metaphysical improvement, which has no burden on the physical world that we live in and which should be celebrated, really. So, developing good, growth bad, is how Herman characterizes it. But I completely agree that the vocabulary and sometimes the arguments around degrowth, around even capitalism, and other loaded terms can sometimes lead to more people talking past each other rather than finding agreement where there is some. A lot of our work at DEAL is trying to define those new words that bring people together rather than talking past one another.


When it comes to growth, I thought that you were going to give the example of, you know, our bodies, our children when they grow. When I see my children growing, it’s a wonderful thing to see, it’s completely normal, and it’s expected. To me, a great analogy is our body. Obviously, if my children continue growing at the rate that they’re growing now for the rest of their lives, that’s going to be a big problem. I guess the point is that in nature things grow, but then eventually things grow up. Only once you’ve grown up, can you actually be mature and flourish as an individual. So, I take inspiration from nature.


That’s a great analogy. The reason I originally asked the question was because, as humans, we like to see numbers, we like to take these “ineffable” terms and embody them using data and graphs. These non-physical, rather abstract things can be given some sort of physical meaning using graphs, and then we’re back in the “number go up” game, no matter what the tracked phenomenon is. This is just a side comment, though.


I should also add on top of that, that I’m personally very passionate about visualizing data and finding ways to develop, use metrics and data to show the 21st century paradigm, that we’re talking about. So, I’m constantly trying to find ways to show that reality. Well, you know, sometimes more successfully than others, just like everyone else.


You mentioned “capitalism” earlier, which is opening the door for the next question. I’ve heard many times people saying that we should abolish capitalism because it is the source of many of today’s issues. It feels to me that one of the big challenge comes from the fact that we live in a consumer economy, one where, we all consume goods and services we do not produce. Thus, we live in a world where we are completely shielded away from the environmental impact of the goods and services we consume. We would probably still be consuming things we do not produce in a world where the private sector is made public. So, what is the problem here? Is it capitalism, or the fact that we consume things that we do not produce?


That is a very big question. So, I tend to avoid discussing the term capitalism because I find that it can obscure more than it illuminates. People mean different things when they use the word “capitalism”. Some people use it in the sense of Marx, where we’re talking about, you know, one system of production, which is about a capitalist assembling factors of production like resources, labor, and other inputs, through money, to create, a commodity, in order to then make even more money to make back the costs that you put in plus a profit. Now, that profit doesn’t just come from nowhere, it is appropriated by paying workers lower wages than the value they create in the production process, and also by externalizing costs like the environmental impacts of resource extraction and pollution. That’s a Marxist understanding of capitalism, which reveals some core contradictions and a propensity towards boom and bust that I think are really insightful, among others.

Other people tend to mean “capitalism”, just as you described, as any trading through markets, and markets have been around for a long, long time before the capitalistic mode of production came through. What I found, is that essentially, unless we’re in a very academic type of seminar or setting, where everyone’s done their readings, and we’re all on the same page, talking about capitalism can tend to cause more confusion because of the different meanings that it has.


What we tend to focus on at DEAL, is trying to pull apart what we call “design layers” of any institution. This is work that we’re doing, particularly with businesses. Instead of looking at the sustainability of their products or anything like that, for example, we’re saying “Look, I don’t really care about your products. What I want to see is you as a business”. So, “how are you designed? What is your purpose? How are you networked? How are decisions made, i.e., how are you governed? What is your ownership structure? How are you financed?”, etc.

We believe that, if you start asking questions at each of those layers of design, then you can start picking apart parts of your design that are holding you back from working towards a regenerative and distributive design - that takes us towards the doughnut -, from other parts of your design, which may be already be aligned, and that you can celebrate, recognize, and that are taking you forward. Now, suddenly we’re engaging with deep questions at the core of the mixed economic systems we have, like ownership of the means of production both for profit and for the common good or elite extraction alongside essential social provisioning, but those questions are grounded in a conversation about design and action in a concrete context. So, we aren’t aiming to have core answers, I guess. One of our big focus, at Doughnut Economics Action Lab, is to try to create frames or tools that are big enough to hold those kinds of big questions that you just asked in a particular context.


I know the term “externality” should be prohibited in Ecological Economics at it sticks to this idea that “it’s all about the economy” instead of seeing the economy as a strict subset of the natural world. Given the current line of thinking, how to internalize these externalities to make sure that nature gets back at the center of the stage. Especially, how to do this in a world of imperfect knowledge and lagging indicators? We are not omniscient, we can’t measure everything, so, if tomorrow I go buy gold, I don’t know if it was extracted using and releasing mercury in the Amazon, killing all the fishes down the river and destroying the environment. So, how to address the environmental impact of our economic activities and tackle these concrete and pragmatic questions?


That gets at two different worldviews, as you get to. Another classic image from your first year economics class is the circular flow diagram. Like, households and businesses and, you know, if you get it a bit more complex, you start adding in the government and banks and international trades etc. That model, which is called the circular flow diagram, forms the basis of our system of national accounts. It’s a core part of Keynesian’s economics, which I would argue, is one of the most useful pieces of conventional economics, especially in the 20th century. It gives those policy levers to say, “okay, well, if things are out of balance, we need to raise taxes or cut spending” and so on. That image, is at the core of macroeconomics, but typically when it’s drawn again, it’s drawn just in a blank space that views the economy as the whole. Anything that we see in the real world, that is not captured in this circular flow diagram, is an “externality”. Something that needs to be internalized, brought into the whole, because our mental model of the economy doesn’t allow for anything to be outside of it. And of course, this gets to growth too. If you’re sitting in a void then, of course, you can just keep growing and growing and growing because there’s nothing that you’re displacing by your growth. Herman very rightly recognizes, along with others, that maybe this picture of the economic system works for an empty world, one where the economy isn’t big. Today, however, the economy has grown tremendously, and we are now at the scope where that model is bumping up against very clear planetary limits. So, it’s not a question of internalizing these externalities, it’s actually recognizing that the economy is not the whole. It’s a part of a larger whole which is our society, which is part of the Earth system. And so, I have concerns with the whole framing of externalities for that reason. That is not to say that proposals aimed at valuing ecosystem services, or valuing social priorities in monetary terms, are useless printed in our day and time. It’s just two different world views. In our current system where money, GDP, and financial monetary metrics, are very powerful, there can be an argument to be made to do those types of monetary valuation exercises, and internalize the externalities to work in that worldview. On the other hand, there’s also grounds for looking beyond and looking forward to what is the goal of the economy. To ask, “How do we want to design ourselves for the 21st century?”, and that’s where doughnut economics positions itself. It’s just a fundamentally different question.


When I read different economic thesis, which are all very interesting in their own rights, I generally see views of the world as drawn on blank sheets of paper. Views of how things should be and how the world should look like. However, in practice, some constraints are already in place because, we are starting from a given state of the world. Some assumptions, may already be violated by the very state of the world we are in. So, how to move from today’s world to a world where the economy is a fully owned subsidiary of nature? Given the current system, what are the avenues to transition away?


That’s another great question, thanks. We would say, we don’t have a single answer to all of this. It reminds me of the mechanical equilibrium that I raised at the beginning and that doughnut economics typically rejects in favor of embracing uncertainty, complexity, context, and path dependence.

Doughnut economics does offer two high-level dynamics that could potentially take us from where we are today to the vision of a world that’s meeting the needs of all, within the means of the living planet. That’s to be regenerative by design, as Kate would phrase it, and to be distributive by design.


Regenerative by design is acknowledging that the economic system we’ve inherited is profoundly degenerative. It takes nature’s resources and makes them into stuff. Things that are used for a little bit, often only once, and then thrown away. It’s a linear process. The regenerative aspect would say, “listen, we need to be way, way more creative and collective in the ways that we are using resources”. This is the fundamental ideas of circular economies, or cyclical economies, as I prefer to call them. This recognizes that we need to work with and within the cycles of the living world. If we’re using biological materials, we should use those, no faster than they can be regenerated. If we’re using technical materials, we should take clues, from nature, to cycle those synthetic materials as collectively and creatively as we possibly can. So, there’s a lot of work to do there, in terms of shifting from degenerative to regenerative in our use of resources.

At the same time, we also need to recognize that we have a deeply divisive economic system that tends to concentrate opportunity and wealth in the hands of the very, very few. I think the number of billionaires now is up to 2,500 while 15 years ago it was 1,000. We’re just getting progressively more and more unequal in terms of our economic system, and that needs to change. So, we need to transform to a far more distributive system where we recognize that opportunity and value are being created at all levels of our production processes, and we need to share them much more equally with everyone who’s involved. At the end of the day, you know, we wake up in the morning, we have our families, we take roads that are paid for through our public provisioning, etc. The distribution of opportunity and value should essentially go to everyone in society.


Those are the two big high-level dynamics. And of course, what happens when they land in particular contexts is where we are trying to build tools, at DEAL, so that places, institutions, or organizations can pick up those questions and try to redesign themselves with regenerative and distributed dynamics in mind.


Thanks for these answers, Andrew. This is a fascinating topic, and I think many of these questions should be discussed more broadly. This is why this forum exists in the first place, to shine the light on such topics and open the floor for discussion, so I hope that we’ll see engagement on some of the topics we touched upon.


Before we wrap up, I would like to leave the floor to you. Is there something you’re working on, a book, a paper, some projects within DEAL, that you’d like to tell us about and share with the community?


Nice, thank you. I would say, well, two things. One is the Doughnut Economics Action Lab platform that we have created. Anybody can join to become a member. If you’re engaging with the concepts or the tools of doughnut economics, then certainly, please do join. You can post events, post your own tools, post your own stories. People are most inspired not so much by the person on the TED talk stage, but rather by their peers, right? So whether you’re a teacher, or a business leader, or a researcher, or a mayor etc., often, it’s most inspiring to see that person, like you, doing the thing that you didn’t think was possible. The whole idea of the platform is to try to encourage that peer-to-peer inspiration. So, if you do use the concepts of doughnut economics, please share them back. We know it inspires others.

The other aspect is that we have a data visualization platform that I’m quite proud of, and that I’ve led the development of, at https://goodlife.leeds.ac.uk/. It has national doughnuts data and visualizations for about 150 countries. So if anyone’s interested, check that out, and keep the conversation going.


 

Further reading


 

We originally published this interview on OCRA, a climate forum and community that we started. This interview has been moved to our blog following the closure of the OCRA forum.


OCRA interviews offer an opportunity to put some guest community members at the center stage. During these interviews we ask questions to our expert guest to better understand their work, learn from them, and understand how they contribute to the fight against climate change. We hope these interviews will serve as an invitation to expend the discussion on the forum.

If you liked this interview, please be sure to hit the “like” button on this post to let us know. If there are specific topics you would like to see covered in an interview, please let us know by either sending an email at: hello+interview@ganddee.com or by dropping a comment below.


Happy day!


 

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