Are you intrigued by the limitations of traditional economic growth models? Do you want to learn about the revolutionary theories of visionaries like Donella Meadows and Amartya Sen that challenge the status quo? Ever wondered how we can redefine success and transition to an economy that supports both people and the planet? Get ready to explore the intricacies of human behaviour, the potential of regenerative economic models, and the power of complexity science!

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist

Once upon a time, global leaders gathered in Australia, pledging to boost GDP by 2.1%. Yet, amidst pressing warnings about climate change, this singular focus on GDP growth seemed out of touch. 

The story of GDP is much like a cuckoo bird—laying its eggs in another's nest, it grows disproportionately, overshadowing the rightful residents. Economics, once an art of managing the household, lost its way, seduced by the allure of scientific status and the pursuit of wealth, echoing the shift from Aristotle's ideals to Newton's laws. 

During the Great Depression, Simon Kuznets devised Gross National Product (GNP) for the U.S., a tool that helped measure the nation's economic health. But Kuznets himself cautioned against using it as a sole measure of a nation's welfare. His warnings were cast aside, and the world embraced GDP as a symbol of progress, leading to a relentless pursuit of growth. Politicians, like John F. Kennedy, promised growth, while economists like Milton Friedman argued for a value-free science, leaving a void of goals and values in economic policy.

Visionaries like Donella Meadows and Amartya Sen have since called for a shift, urging us to consider the quality of growth and human welfare. Meadows famously criticized the blind chase for growth, while Sen argued for development that enhances human capabilities. This brings us to the Doughnut—a new compass for humanity, balancing social foundations and ecological ceilings.

The Doughnut visualizes a safe space for humanity, where no one lacks essentials like food, water, and education, and where we live within Earth's ecological limits. Yet, we currently overshoot these boundaries, facing climate change, biodiversity loss, and more. It’s time to move from the metaphor of progress as "onwards and upwards" to one of "thriving in balance."

In essence, the Doughnut challenges us to redefine success, asking us to consider how we live, work, and govern our shared home. It’s a call to action for individuals, companies, and nations to align with this vision. From Patagonia to South African towns, the Doughnut is inspiring change, encouraging us to think globally and act locally. As we embrace this new mindset, we might just become the generation that transforms our trajectory, ensuring prosperity for all within the planet's means.

Can the Doughnut Model Redefine Success and Save Our Planet?

For four centuries, Shakespeare's plays have mesmerized audiences with their unforgettable characters and intricate plots. Interestingly, Shakespeare kept his actors in suspense by giving them only their own lines, forcing them to react spontaneously during performances. This tactic added a layer of unpredictability and excitement to the plays. However, after his death, editors added full character descriptions, making the plots more predictable.

This concept relates directly to economics. The global economy functions like a stage play, with various actors playing predefined roles. Who set this stage, and how can we rewrite the story to better suit modern needs?

In the 20th century, economist Paul Samuelson's Circular Flow diagram dominated economic thought. It illustrated income flowing between households, businesses, banks, governments, and trade, but it excluded crucial elements like the environment and social factors. Friedrich Hayek and Milton Friedman, champions of neoliberalism, then imbued this model with traits that supported their laissez-faire agenda, emphasizing market efficiency, the innovative nature of business, and the infallibility of finance.

However, the 2008 financial crisis exposed the flaws in this neoliberal narrative. The crises of extreme inequality, climate change, and financial instability signal the need for a new economic narrative.

The 21st-century economic story begins with a new diagram called The Embedded Economy. This model places the economy within society and the environment, recognizing diverse ways to meet human needs. Here’s the cast of characters for this new narrative:

1. Earth: Life-giving and finite, requiring respect for its boundaries.
2. Society: Foundational, nurturing social connections.
3. Economy: Diverse, supporting all systems—household, market, commons, and state.
4. Household: Core, valuing its contributions.
5. Market: Powerful but needing wise embedding.
6. Commons: Creative, unleashing potential.

7. State: Essential, accountable and supportive.
8. Finance: In service, supporting society.
9. Business: Innovative, with a purpose beyond profit.
10. Trade: Double-edged, requiring fairness.
11. Power: Pervasive, needing checks against abuse.

This new narrative encourages us to redraw economic models, shifting our focus from market efficiency to sustainable and equitable provisioning. By doing so, we can tackle the big questions of the 21st century and create a thriving balance for humanity.

Redefining the Economic Stage for the 21st Century

Think of the Mona Lisa, the world's most famous portrait. Painted by Leonardo da Vinci, it's reproduced everywhere. But Leonardo also pioneered caricatures—exaggerated sketches capturing people's distinctive features, like a big nose or a protruding chin. In a similar vein, economists have created a caricature of humanity: Homo economicus, or rational economic man. This character, self-centered and calculating, has shaped economic theory for centuries.

Homo economicus is depicted as standing alone, money in hand, and a calculator in his head. His exaggerated traits have influenced policy decisions and economic thinking worldwide. However, this caricature fails to represent the complexity of human behavior. It's time to update our self-portrait, acknowledging that we are social, adaptable beings.

Adam Smith, often remembered for championing self-interest in "The Wealth of Nations," also recognized humanity's capacity for justice, generosity, and public spirit. He believed that self-interest was far from our most admirable trait. Yet, over time, economic theory exaggerated self-interest, leading to the simplistic and flawed model of Homo economicus.

Experimental research reveals that studying economics can make people more self-interested. In Germany, economics students were found to be more corruptible for personal gain. In the US, economics majors were more approving of selfish behavior, and economics professors donated less to charity compared to their peers.

Beyond academia, the influence of rational economic man extends to financial markets. The Black-Scholes model in the Chicago Board Options Exchange became accurate over time because traders started behaving as if the model were true. Similarly, using words like "consumer" instead of "citizen" subtly shifts people's values towards wealth and status, affecting their behavior and empathy.

We need to paint a new portrait of humanity, recognizing our social nature, fluid values, and interdependence. Studies show that children as young as 14 months help others, and adults share resources with strangers. We are the most cooperative species, thriving through reciprocity and social bonds.

Our preferences are not fixed; they are influenced by context and can change over time. Social norms and network effects play a significant role in shaping our behavior. For instance, people are more likely to pick up litter if they see green footprints leading to a bin.

Instead of relying solely on monetary incentives to change behavior, we should harness social dynamics. In Uganda, community monitoring of healthcare improved services without additional funding. In Kenya, simple text reminders increased medication adherence among patients.

To thrive within the planet's limits, we must nurture our intrinsic motivations and social values. Let's move away from the outdated caricature of Homo economicus and embrace a more accurate, dynamic portrait of humanity—one that reflects our social connections, adaptability, and interdependence with the living world.

Is It Time to Replace Leonardo's Homo Economicus with a New Portrait of Humanity?

In 1666, Isaac Newton's curiosity about a falling apple led to his revolutionary insights into gravity and motion. Yet, if he had also marveled at how the apple grew, he might have uncovered the nature of complex systems, transforming not only science but also economics. Instead, economics became fixated on Newtonian mechanics, treating the economy as a stable, mechanical system rather than a dynamic, adaptive one. 

For millennia, human evolution favored simplicity and short-term thinking, leaving us poorly equipped to handle today's dynamic, unstable, and interconnected world. Mechanical metaphors dominated economic theory, but they required simplifying assumptions that ignored the complexity of real markets. The quest for equilibrium led to models that failed to predict or respond to financial crises, such as the 2008 crash.

Economists and theorists like William Stanley Jevons and Léon Walras sought to model the economy on physical laws, giving rise to equilibrium theory. Despite its mathematical elegance, this approach ignored the inherent complexity of human behavior and market dynamics, leading to flawed predictions and policies.

In contrast, complexity science, which studies how relationships between system parts shape the whole, offers a more accurate framework for understanding economic behavior. Reinforcing and balancing feedback loops, along with delays in system responses, create emergent behaviors that are often unpredictable. 

Significant progress in complexity economics, network theory, and evolutionary economics has begun to reshape our understanding, but mainstream economics still clings to outdated mechanical models. It's time to embrace the economy as an organism, not a machine, and adopt a gardener's mindset, nurturing and stewarding the system rather than trying to control it.

By recognizing the economy's inherent complexity, we can address issues like financial instability, inequality, and climate change more effectively. Dynamic models that incorporate feedback loops and adaptive policymaking can help us navigate these challenges. Moving forward, economists must prioritize ethical principles, engage with communities, and remain humble about their models' limitations.

The future calls for an economy that is distributive and regenerative by design, fostering human prosperity within a thriving, sustainable ecosystem. Embracing complexity and systems thinking, we can transform our economic practices to achieve this vision. If Newton were alive today, he would likely be eager to take on this challenge, apple in hand.

Reimagining Economics: From Newton's Apple to Complexity Science

Arnold Schwarzenegger's famous mantra, "No pain, no gain," not only revolutionized fitness in the 1980s but also encapsulated an economic philosophy suggesting that social inequality was a necessary evil for progress. However, this belief, much like pushing through physical pain, has been debunked as misguided. Rising inequality is a policy choice, not an economic inevitability, and it is detrimental to both society and the economy.

Historically, economists like Vilfredo Pareto and Simon Kuznets propagated the idea that inequality would rise and then fall as economies developed. This idea, illustrated by the Kuznets Curve, suggested that inequality was a natural stage of economic growth. However, real-world data and experiences, such as the East Asian economic miracle, have shown that growth with equity is possible.

Thomas Piketty's research highlights how wealth inequality is exacerbated when capital growth outpaces economic growth, concentrating wealth and power, and undermining democratic values. Modern economists argue for redesigning economies to be distributive by design, focusing not only on income but also on wealth, time, and power.

By drawing inspiration from nature's networks, which efficiently distribute resources, economies can be structured to ensure equitable distribution of value. This involves redesigning land ownership, money creation, enterprise, and technology, embracing innovative models like cooperatives, complementary currencies, and open-source platforms.

The digital revolution further underscores the need for distributive design, as technologies can both empower individuals and concentrate power in digital monopolies. Global solutions, such as a universal basic income and access to the global knowledge commons, are also crucial in addressing inequality.

In essence, equitable economies are crafted through intentional design, leveraging the market, the state, and the commons. The shift from the myth of "no pain, no gain" to a focus on distributive economic policies is a critical step toward creating a fairer, more inclusive world.

Can We Transition from "No Pain, No Gain" to Equitable Economic Growth?

In 2015, the author met Prakash, an Indian engineering student in Germany. When asked why he wasn't studying eco-friendly tech, he shrugged, saying India had other priorities. This reflects a common myth: poor countries can't afford to be green, assuming economic growth will eventually fix environmental issues. However, evidence from the World Bank and other sources debunks this, showing that growth often exacerbates ecological problems.

The Environmental Kuznets Curve once suggested that pollution would decrease as GDP rose, but this theory has been disputed. Researchers like Torras and Boyce emphasize that environmental quality improves with equitable income distribution and citizen empowerment, not merely GDP growth.

Instead of relying on growth to solve environmental issues, we need economies that are regenerative by design. This means shifting from a linear "take-make-use-lose" model to a circular economy that mimics nature's cycles, where waste becomes a resource.

Examples of regenerative practices include eco-friendly buildings, water-saving technologies, and renewable energy initiatives. The circular economy aims not only to recycle but to design products for continual reuse. Open-source movements are promoting this by sharing knowledge and fostering collaboration.

Cities and businesses worldwide are experimenting with these ideas, from solar-powered communities in Bangladesh to companies like Newlight Technologies turning methane into bioplastics. Such initiatives show the potential for a regenerative economy but highlight the need for supportive economic systems and policies.

Ultimately, regenerative design requires a shift in business, finance, and government roles, focusing on long-term environmental and social value. Metrics must evolve to capture this broader value, moving beyond GDP. It's a challenge but offers a promising path to a sustainable future. If Prakash and others join this movement, we can transform our economies from degenerative to regenerative, crafting a world where growth supports both people and the planet.

Transforming Economies: From GDP Growth to Regenerative Practices

Once a year, the author teaches a class that shakes up students' beliefs about economic growth by asking them a provocative question: "Is green growth possible?" They must choose sides – "Yes" or "No" – and sit accordingly. What unfolds is a revelation of how deeply personal and political our views on growth are. Our discussions often reference the poet Taylor Mali's reminder that changing your mind is a sign of an active intellect.

This debate echoes the author's own struggle while writing a policy paper for Oxfam in 2011, grappling with whether to support "green growth" or "degrowth." Like Perseus using his shield to view Medusa, she realized she needed a new approach to avoid being paralyzed by the enormity of the question.

The challenge lies in our dual dependency: no country has eradicated poverty without growth, yet none have halted ecological harm with it. We must create economies that thrive regardless of GDP fluctuations. This calls for redesigning financial, political, and social structures that currently demand growth.

Economists are often reluctant to depict the long-term path of GDP growth, as exponential growth faces the inevitable question – what happens next? Historically, economists like Adam Smith and John Stuart Mill acknowledged growth's limits, envisioning a "stationary state" where human progress continues without economic expansion.

Today, high-income countries face the reality of stagnant or slow GDP growth, raising questions about our readiness for a post-growth society. The debate splits into "keep-on-flying" advocates who see growth as essential and achievable through technology and green policies, and "prepare-for-landing" advocates who see growth as increasingly unattainable and unnecessary.

Historically, growth relied heavily on cheap fossil fuels, a factor often overlooked in economic models. The future depends on how quickly we can transition to renewable energy and a circular economy. Meanwhile, societal expectations of growth persist, driven by financial, political, and social structures.

Financially, the pursuit of gain through interest and shareholder returns fosters a dependency on growth. Politically, growth is seen as essential for tax revenue and employment, and globally, it ensures a nation's power. Socially, consumerism and inequality drive a continuous desire for more, underpinned by a need for aspiration.

To break free, we must rethink our economic designs. Imagine economies that thrive on renewable resources, equitable wealth distribution, and meaningful human connections. This transition demands innovative policies and a shift in cultural values.

As we navigate this transformation, we must prepare our economies for a future where growth is no longer the primary goal. Like a skilled kite surfer, we must adapt to ever-changing conditions, balancing prosperity within the planet's limits. The journey ahead requires bold thinking and a willingness to redefine success for a sustainable and equitable world.

Can We Thrive in a World Without Economic Growth?

Our traditional focus on GDP growth as a measure of national success is fundamentally flawed, especially in the context of urgent issues like climate change. GDP, originally designed to measure economic health, has been misused as a sole indicator of progress, overshadowing more holistic measures of well-being.

Visionaries like Donella Meadows and Amartya Sen have highlighted the need to shift our priorities toward the quality of growth and human welfare. The Doughnut model provides a compelling framework, emphasizing a balance between social foundations and ecological ceilings.

The economy should be viewed as an embedded system within society and the environment, recognizing diverse ways to meet human needs. Current models often ignore the complexity of human behavior and market dynamics, leading to flawed economic policies. Embracing complexity science can offer better insights into economic behavior and lead to more effective solutions for issues like inequality and climate change.

The caricature of Homo economicus, or the rational economic man, has oversimplified human behavior, shaping economic theory in ways that do not accurately reflect our social and cooperative nature. We need to update this portrait to recognize our adaptability and interconnectedness.

Inequality is not an inevitable stage of economic development but a policy choice. Equitable economies can be designed intentionally, drawing inspiration from nature's distributive networks. Regenerative economic models, which mimic natural cycles, offer a path to sustainability, focusing on long-term environmental and social value.

The debate on whether green growth is possible reveals deeply personal and political views on economic growth. As we face the limits of traditional growth models, we must redesign our financial, political, and social structures to thrive without relying on continuous GDP growth. This transition requires innovative thinking and a willingness to redefine success, aiming for an economy that supports both people and the planet.

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