A new economic model that doesn’t end in « -ism »

Analysis by Sandro Joseph Azzam, Staff Writer

March 27th, 2021

It all begins with Homer’s favorite food, doughnuts. Doughnuts are delicious, let’s be honest. They’re fluffy, glazed with your favorite goodies from sprinkles to plain sugar and are convenient to carry around thanks to their distinctive divot. But what if I told you that Homer Simpson’s go-to snack could actually teach economics?

 Whilst capitalism puts means of production into private hands, socialism distributes them evenly to stakeholders with communism putting all factors of production in the hands of the state. But what’s with all the “-ism’s”?! Can we not conceive an economic system different from these 3? Behind the doughnut’s pink glaze and rainbow sprinkles lies a new set of economic ideas and principles, paving the way for a new economic system: doughnut economics. 

Here’s what the doughnut is:

Initially coined by Kate Raworth, a renegade economist pushing the traditional views of economic modelling, the doughnut model redefines conventional economics. The 21st century’s main challenge is to meet the needs of a rapidly growing population within the means of our planet. The tradeoff is simple, the more your society develops and grows in the traditional sense, the worse off the planet and environment become. The doughnut helps us find the optimal combination between providing for society and harming the planet. 

Let’s look at the individual elements on the doughnut and take a look at the outside. On the outside layer, we identify factors that harm our planet, such as air pollution, climate change and biodiversity losses. Values represented by a red section are those in a critically unsustainable state. Moving inside and onto the ecological ceiling, this represents the boundary. It tells us how much the planet can handle. Are our actions above or below the ecological ceiling? Well, the aforementioned red values indicate metrics that are above the ecological ceiling. We thus have to reduce the so-called “red areas” in order to stay at or below the ceiling.  

One more circle inwards brings us to the elements that constitute human welfare. Health, food, water, energy amongst others represent the primary needs of human beings (without which we’d die of hunger or thirst) whilst other needs bringing us further towards a more developed planet are also represented on this layer. We can identify things such as gender equality, social equality, education and political peace, metrics without which humanity cannot progress.

The next concentric circle is the social foundation which represents the minimum level at which humanity needs to be in order to sustain a decent life and ensure that nobody falls short on life’s essentials. By looking at the interior sections representing humanity’s performance with regards to the aforementioned metrics of human welfare, once again, we can notice that mankind is lagging behind (as of 2017). Red sections represent failure to reach the minimum standard of needs for a society to thrive. We notice worrying shortfalls when it comes to society’s performance with gender equality as well as peace and justice.

You might be wondering by now why it’s being called “doughnut economics” if everything is represented by concentric circles and a central circle topping it all off. Well, the answer is simple. If we underperform and reach metrics that are below the social foundation, we fall deep inside a doom loop of shortfall where we are not catering to the needs of society properly. We thus must avoid the internal “red zones” and make the social foundation the minimum standard for quality of life within a community. Without doing so, we fall into a hole, similar to the center divot of Homer Simpson’s caricatural pink doughnut. 

Now that we understood what the hole represents, we should also remember that a doughnut, not unlike a pizza, is characterized by an external layer, let’s think of it as a pizza’s crust. If you eat a slice of pizza and finish the crust, is there anything else for you to eat? Quite simply, no. The pizza crust is represented by the ecological ceiling. We must be able to provide a decent life to the community without going so far as to give them too lavish a lifestyle that would endanger sustainability. 

Think of it this way: Homer Simpson walks into Lard Lad Donuts and orders a half dozen doughnuts. You can call it gluttony all you want but Homer is hungry and is really craving doughnuts right now. He buys a half dozen doughnuts, pays, leaves the store and life goes on. But what if Homer decided to overconsume. Imagine this scenario: Homer walks into the doughnut shop and buys every single doughnut in the store. Not a single delicious doughnut is left on the racks. Homer then proceeds, in typical Homer Simpson fashion, to eat every single doughnut he just bought. He then asks the kitchen to whip him up more and more doughnuts eating them hot out of the fryer as they come out. The problem is that Homer is eating doughnuts faster than the kitchen can produce them meaning that he’s overshooting the production capabilities. What are then negative effects of that? Well, when Marge sees Homer the next day and tells him that he looks like he’s put on some weight, that’s the consequence of him overshooting the boundaries. The fryer at the doughnut shop also stops working because it’s being strained beyond its operating capacity. 

Back to economics now. We want to get everyone out of the hole of the doughnut to provide them with their basic needs but we don’t want to overshoot the outer ring where we put too much pressure on our planet causing climate breakdowns, creating a hole in the ozone layer and going above the capacity of our planet. We want everyone to be able to have half a dozen doughnuts because that’s an equilibrium point between not being satisfied and the fryers breaking down. 

The tradeoff between overshooting and shortfall places us on the economic doughnut. The doughnut means that we stay below the ecological ceiling but above the social foundation thereby allowing society to thrive rather than grow unsustainably. 

What’s worrying is that millions, even billions of people are falling into the hole of the doughnut but at the same time, we’re already overshooting at least 4 of the planetary boundaries that we have. We need to meet the needs of all people whilst coming back within the constraints of our planet. 

Where’s the problem? High income countries massively overshoot their thresholds going above the ecological ceiling in order to meet the social foundation but at the same time, lower income countries struggle to attain the basic needs of their population. In the coming years, we must answer the 21st century’s main challenge: make sure that nobody falls short on life’s essentials and collectively ensure that we do not overshoot the capabilities of our planet. To put it simply, we have to make sure that we can produce enough doughnuts for everyone in the long term without running the risk of the fryers breaking down. 

References:

References for this article include Kate Raworth’s personal website as well as her numerous interviews with BBC as well as her TEDxAthens talk. Her speech at BNP Paribas’ High Yield and Leveraged Finance Conference in 2019 was also a prominent reference.