Key: Rob’s comments are in italics, Derek’s are in normal font.
So we're going to talk about doughnut economics today. And you mentioned before the call that there's a topical item for us to talk about too. So what is that topical item?
Developments in the BRICS Alliance…
Well, the topical item is that already it must be a year since the last time this was happening because they've just had a conference or they're in the process of having a conference of the so-called BRICS nations. BRICS acronym for Brazil, Russia, India, China and South Africa. Of course, that alliance group is getting expanded more or less on a weekly basis and now seems to encompass, I'm wondering whether it's actually a majority of the sovereign nations of the world.
Seems to be getting bigger.
So it's a pretty significant power block and it was quite interesting to see that Vladimir Putin was there, naturally enough, and addressed the leaders of all the other nations that had come to this conference and listened to attentively. It's very interesting that that contrasts with the situation in the West where we don't get to be addressed by Putin at all and nothing he says directly is seen to be reported in our media except to put some specific spin on it.
When one of our journalists, Tucker Carlson, went over to Moscow and interviewed him, he was roundly condemned for doing so. You would have thought that in a strange world, any leader of a large, prosperous, resourceful country would be of interest to the population at large and any journalist would be congratulated for having talked to them. And at least we would get to evaluate him on the merits of what we make of what he says. Anyway, the point being that it's yet again come back to the top of the agenda that these people are trying to set up a mechanism for trading between themselves that doesn't involve the dollar financing and the American banking settlement system. That is going to very seriously change the landscape of the financial structure of the world, if and when it happens. So watch this space really.
Anyway, let's get back to the topic of doughnut economics…
What is Doughnut Economics?
I mean, it's a funny name. It's the title of a book by a woman called Kate Raworth who studied economics at Oxford and was thoroughly disillusioned with it in terms of its relevance to the current world. That slightly odd title, Doughnut Economics, is a metaphor for her view of how we should be looking at economic activity.
And the image is that you have, if you like, a ring doughnut. And on the inside of the edge of the ring, you've got what she calls the social foundation of various aspects of human wellbeing, water, food, health, education and so forth and what we consider to be a satisfactory level of that. And on the outer edge of the doughnut you've got the ecological ceiling. It's quite interesting because virtually everything that she's highlighted - and the idea is the little ring because if you like there are segments of that inner boundary that cover different aspects as I indicated, you know, water, food, health, education and so on. And then there are segments around the outside of the ecological limitations.
And with one exception, all of the ecological aspects that she was enumerating were all aspects of what we might broadly call pollution. Whereas the way I would look at it personally is that pollution and all the different aspects of pollution are part of the ecological limitations. But other parts of the ecological limitations are things like resources, resources of raw materials, resources of energy, resources of food and agricultural land and so forth.
Yeah, having good quality topsoil and things like that.
And she has a number of images covering different aspects of what is covered in economic thinking. The seven ways to think, as outlined in the book, are:
* Change the Goal: Move beyond GDP growth as the sole objective and adopt a doughnut framework that sets a minimum threshold for human well-being (social foundation) and caps it by available ecological resources (ecological ceiling).
* Think in Systems: Recognize that economies are part of larger systems, including natural and social systems, and consider the interconnections and feedback loops between them.
* Design for Distribution: Prioritize distribution and equity, ensuring that economic benefits are shared fairly and that no one is left behind.
* Measure What Matters: Move beyond narrow economic indicators like GDP and focus on metrics that capture human well-being, such as life expectancy, education, and social connections.
* Regenerate the Economy: Emphasize regeneration and restoration of natural systems, rather than just exploiting them for growth.
* Decentralize and Democratize: Encourage decentralized decision-making and democratic participation, allowing diverse voices to shape economic policies and outcomes.
* Explore and Experiment: Foster a culture of experimentation and learning, recognizing that economic systems are complex and evolving, and that we need to continually adapt and improve our approaches.
Questioning Indefinite Economic Growth
She has a bunch of images about the way that this was seen in 20th century economics and the way it should be seen in what she calls 21st century economics. I think these are all well worth looking at and of course the goal in 20th century economics and the goal that all of our politicians, economists, and business people are talking about is that economic growth cannot be questioned. More economic growth is better and anything that inhibits it is bad!
I have a big problem with assumptions, can't be questioned. This runs across the board. If you can't question it, it's got something to hide.
There are several things about this. Whether we like it or not, we live in a finite world and growth of anything doesn't go on indefinitely. So that whole way of framing the discussion is absurd on its own grounds. And also, we've discussed previously that what they mean by economic growth is not the growth of more wealth or more prosperity, it's the growth of the rate of transactions.
It's extraordinary to me that that even gets off the ground as an idea.
Could you just define that, sorry, the growth of the rate of transactions?
Economic growth is defined as growth of gross domestic product. When you're talking about an individual country and if you're talking about the world as a whole, you're talking about the total of gross domestic product. And gross domestic product is within a year or some other period. It’s the total volume of economic transactions that have been made, the total volume of sales if you like.
You could have the situation that we have at the moment, for example, where over the course of our lifetime, we buy numerous washing machines, for example, and we have to replace them every few years. Now that obviously creates more transactions, which creates greater economic growth. But I'm no wealthier when my old washing machine wears out and I'm forced to buy a new one than I would had that been made to be more long-lasting and I still had the original one.
It's the opposite, you're poorer!
Yes, quite so. And so she suggests changing the goal to be living within this doughnut, the doughnut constrained on its inner ring by satisfactory social living conditions for every human being on the planet and on its outer ring by living within the constraints of our environment. As I say, she's mainly focusing on the negative aspects.
The Self-Contained Market No Longer Applies
She contrasts the 20th century economics as being the self-contained market. As most of these are from most of the 20th century images she has of the market are from Paul Samuelson's seminal work on economics written in about 1946 or 48, which is the basis of most economic courses at universities.
Samuelson’s big picture was the self-contained market where you've got businesses and households and the transactions are going round between the two. Rawson’s image for the 20th century is what she calls the ‘embedded economy’, which is interesting because it's got energy coming in from the sun and energy going out into space and in between the two of them it carries out all the transactions on the earth, which is an image that we've had before.
The third one was the question of human nature and it's a core concept in economics as I'm sure you'll remember from when you studied it somewhat that the idea is that we're all self-motivated individuals who are aware of the situation and act to optimize our own situation.
And apparently we have infinite wants and desires.
Yes, of course that homo economicus is a complete myth. It's an abstraction that bears no resemblance to reality. Everybody's knowledge of the marketplace or anything else is finite and limited and constrained. And mercifully, most people are not 100% self-interested and self-directed.
This was famously summed up by Margaret Thatcher saying there's no such thing as society. Whereas that is the attitude that taken to the logical extreme has created all the unworkability of the world.
So the contrasting image for 21st century economics is socially adaptable humans. This is what we have to be moving toward if we are ever going to create a functional workable world. And it's got to be one which is based on empathy and based on collaboration.
Dynamic Complexity Instead of Market Equilibrium
The image of systems in the 20th century was an attempt to be rather like physics and to be seeking equilibrium. One example of this is the crossover between supply and demand, which produces a certain equilibrium rate of production of goods and a certain equilibrium price. And once again, beyond the textbooks, it doesn't actually happen in real life!
The image for the 21st century is dynamic complexity, which we've discussed when we were discussing, for instance, the systems dynamics model of the limits to growth, the way that you have positive feedback loops of every variable in the system being affected by various things which tend to make it expand. Then there are negative feedback loops which tend to stabilize things and reduce the excesses and these all interact together and that is obviously a much better fit for the real world.
These feedback loops are everywhere as well.
Of course. The question of designing to distribute in 21st century, the idea was that growth would be the way that we spread prosperity to those who are not prosperous at the moment. And once again, we've had certainly economic growth as defined by them over the past 70 years and you have to question whether that has in fact brought prosperity to the least well-off parts of the world. I think you'd have to say that on every scale and in every country that economic growth hasn't actually benefited most of us and certainly not the poorest of the poor.
The trickle-down effect doesn't actually exist really.
Exactly. The poorest people have got poorer. Some people might dispute that. There's certainly a lot of people well below an acceptable level of basic physiological needs being met. So the concept that Raworth wants to see is the construction of a system which is distributive by design.
Moving on to the sixth one, create to regenerate. Once again, we're seeing, for instance, despoilation of agricultural land to take one obvious example. The traditional economists will say, well, the trouble is we can't really quite afford that. So what we need to do is generate more wealth so that we can afford it and then we can apply ourselves to it. Whereas the alternative that Rarworth puts forward is that we make our systems regenerative by design.
So an example of that might be that you're getting lower yields from your fields because the quality of soil is going down and eroding and you need every increasing amounts of fertilizer. So the traditional approach would be to say, okay, let's find a way to have every expanding amounts of fertilizer. Maybe there's a new approach of farming in a completely different way to actually regenerate the soil.
Exactly, that is precisely the kind of thing. And finally, the seventh one really in a way links back to the first, but rather than being growth addictive, we're agnostic about whether growth is a good thing or a bad one.
I would say that growth in the actual wealth that we have in the broader sense of food, living accommodation, health, is evidently desirable, but that doesn't have to be growth in terms of increasing numbers of financial transactions. And it could well be that for a given population size, there's a certain amount of transactions which are optimal. So I think that's a worthwhile overall picture. It's certainly a much more rounded approach and it's certainly one that stimulated a lot of discussion. If you're a reader, this is definitely a book that's worth putting on your reading list and seeing it and taking that on as part of your overall outlook on the world.
It sounds like the institutions and the root metaphors that we organize our society by are a barrier to moving to those more regenerative models.
They certainly have been. But I mean the heartening thing is the enormous increase in interest in these issues that we've seen, I would say, very much in the last decade. It's obviously an accelerating process. So let's watch this space.
A Breakdown Will Happen Before Regeneration
Perhaps some models of how we do things might have to break down first before you create something new.
Yeah, well they could well be breaking down before our very eyes.
I think that's quite clear. I was thinking as you were talking about the work of Eric Erickson, who is a psychologist who wrote a book about how we develop our self-understanding. You start off by inheriting a self-understanding from your parents and teachers and the people around you. Then as you go through life, you experience a series of breakdowns while you then generate more of you. That's why you go around in these cycles. But in order to have this kind of transformation, you have to have the breakdown first. That's why people have breakdowns, they actually do serve a function. I think that maybe extends to society as well.
That's a very interesting point. And of course, in a way, what you've alluded to there is what Hegel described as the dialectical process. And Marx took that idea over as well. The idea that in any system of human creation, you start off with what you call the synthesis, which is the accepted approach. And being a human construct, it has imperfections. As time passes, the imperfections become more intolerable until eventually there's a reaction that system has thrown out.
One which is in large respect an opposite to it, which is called the antithesis, is put in its place. But the antithesis is also imperfect and over time you get the same thing. But when that breaks down, it's time to create an amalgam of that antithesis with the original synthesis, which becomes the new reality.
When Marx took that idea over, he was specifically thinking that the synthesis in the time he was writing was the capitalist system and that the alternative would be that the antithesis from that would be revolution. And that when the results of revolution worked themselves out, you’d be left with a synthesis between that and the original one, which would be a satisfactory life on Earth. Of course, as we know, any attempts to do this in reality that we've had so far haven't worked out all that well.
I think that you could apply that thinking, for example, to the traditional political divides in that there used to be a fairly clear-cut pair of alternatives of conservative and liberal. Now those terms have become highly confused, sort of almost interchangeable and constantly morphing between one another. Similarly, the terms left-wing and right-wing have been done to death so that they no longer seem to be particularly meaningful. So we're having, if you like, a breakdown of the whole conceptual basis of politics apart from the practical consequences.
Yeah, because people get the same outcome no matter who they vote for.
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