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What is Doughnut Economics?

What is Doughnut Economics?

Doughnut Economics is a theory proposing a change of economic model as a response to humanity’s major challenge of eradicating global poverty within the means of the planet’s limited natural resources.

In a typical introductory economics lesson, you will be taught that the definition of economics is to study the allocation of scarce resources. The focus on scarce resources has led many people to see endless growth as a positive, or “more is better”. However, in reality, economic growth is measured only by an increasing GDP, completely ignoring the finite nature of Earth’s resources and the consequences of our actions. What would economics look like when increasing the abundance of resources is no longer the solution to the problem of scarcity but creates intractable problems of its own instead?

In today’s world, millions of people still lack life’s essentials; living daily with hunger, illiteracy, insecurity, and voicelessness. At the same time, humanity’s collective pressure on the planet has already overshot at least four planetary boundaries – climate change, land conversion, fertiliser use, and biodiversity loss. The global economy is also deeply divisive, rife with acute gender and income inequalities. 

To ensure that no one falls short on life’s essentials, while safeguarding we collectively do not overshoot our pressure on Earth’s life-supporting systems we fundamentally depend on, English economist Kate Raworth introduced the concept of Doughnut Economics in 2012, an economic model designed to fit in the 21st century. 

Doughnut Economics is a new vision for an economy. By rethinking our systems, the goal of national and global economies can be changed from simply increasing GDP to creating a society that can provide enough materials and services for everyone while utilising resources in a way that does not threaten our future security and prosperity. 

doughnut economics Image by: Wikimedia Commons

This model consists of a dashboard of indicators that define its boundaries. Imagine looking at a doughnut top down. You would see a healthy green region that is the circular doughnut. The outer region represents the ecological ceiling, while the inner region reflects the social foundation. The hole at the doughnut’s centre reveals how people are falling short on life’s essentials such as food, water, healthcare, and freedom of expression. If we undershoot or use our planetary resources incorrectly, the model would indicate that we are unable to ensure the necessary social foundations are met across citizens. In real terms, this means people living without access to plentiful food, clean water, and essential healthcare. Thus, a huge part of humanity’s challenge is to get everyone out of that hole. At the same time, overshooting on our resource budget would lead to catastrophic consequences such as freshwater withdrawals, ocean acidification, chemical pollution, and ultimately climate change.

You might also like: What is a Circular Economy?

In our current systems, aspects such as the rise in healthcare costs resulting from increasing air pollution are “externalities” that are not included in the costs of production and consumption, whereas in an embedded economy that allows us to see the economy as embedded within the larger social and ecological fabric, these costs are taken into account.

At its core, Doughnut Economics is based on an economy that is both regenerative and distributive by design. It has huge implications for any group negotiating the balance between economic growth and powerful social change. Nations can start adopting a zero-tolerance approach with strong regulatory oversight that ends activities that damage our planet and undermine the health of society. Embracing tax policy and public spending can help address inequality by incentivising shifts away from wealth and resource extraction, and push it toward job creation and re-distribution of wealth. There could also be more collaboration between the public and private sectors, especially in bringing about industry-scale resource ecosystems required to make a circular and regenerative economy. So far, over 150 nations have used the Doughnut Economics model, according to a study in 2018. In fact, Amsterdam has already implemented Doughnut Economics in early April last year after the Netherlands had one of the world’s highest mortality rates from the coronavirus pandemic. The model was scaled down to provide a “city portrait” that not only revealed areas where basic needs were not being met and planetary boundaries were overshot, but also how these issues were interlinked. Because of the model, issues including carbon dioxide emissions from imports and exploitation of west African labour were directly addressed. By formally embracing the theory, the city’s government hoped to recover from the crisis and avoid future crises.

The model recognises that human behaviour can be nurtured to be cooperative and caring, just as it can be competitive and individualistic. It also recognises that economies, societies, and the rest of the living world, are complex, interdependent systems that are best understood through the lens of systems thinking. It calls for turning today’s degenerative economies into regenerative ones, and divisive economies into far more distributive ones. 

The ultimate goal of this framework is to enable societies to make positive choices and live in balance in order to thrive economically, socially, and environmentally. This new economic vision cannot be achieved by an individual or a single organisation. Rather, it requires intention, planning, collaboration, and contributions from all stakeholders. What the doughnut offers is a metaphor that helps us visualise an economic system that could create a prosperous society today and preserve a livable planet for all future generations.


About the Author

Jordan Cheung

Jordan is a Volunteer Research Writer who finds much joy in writing articles on the latest business trends and topics ranging from environmental preservation, climate change, to business ethics and government policymaking. One of his major hobbies is reading The Economist to and fro between home and the Hong Kong Institute of Certified Public Accountants (HKICPA), where he currently works as an Associate Administrator in the Corporate Communications team.

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