PDF Summary:Doughnut Economics, by Kate Raworth

In Doughnut Economics, heterodox University of Oxford economist Kate Raworth argues that the economy’s purpose is to promote human prosperity and happiness. This means 1) an economy that produces enough to provide everyone with the material resources to pursue their highest dreams, but also 2) an economy that does not deplete the vital natural resources upon which life on the planet depends. She likens the economy to a ring-shaped doughnut. The inner circle represents the zone of deprivation—an economy that does not produce enough of the necessary goods and services to meet the population’s essential needs. The outer circle represents the limits of economic growth, beyond which the economy begins to outstrip the planet’s natural resources. She writes that we must stay within these bounds.

In this guide, we have incorporated commentary and insights from other economists, political scientists, and social commentators—in some cases to lend support to Raworth’s ideas, in other cases to present opposing viewpoints and offer a more nuanced and balanced perspective.

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Economy, Society, and Planet: How Systems Interact

Raworth writes that a system is any group of components that interact to form a whole and that, through their interactions, create patterns of behavior. The gravitational pull of bodies in space, the movement of tectonic plates, the actions of buyers and sellers in an economy, and the movement of auto traffic on a crowded street are all systems.

The Economy Is an Open System

To understand how the system of our economy works and how we can make it more responsive to our social and environmental needs, we need to understand how systems interact with other systems.

Raworth observes that traditional economics has a closed-system model for the economy, which operates simply as a series of “inflows” and “outflows” of money, closed off from everything else. This model puts the economy in isolation and treats it as a machine, governed by a simple and predictable set of inputs and outputs.

Raworth argues that this model is deceptively simple and ignores how the economy is actually an open system embedded within larger systems—1) the society and culture within which it operates and 2) the planet itself. The economy is a subsystem operating within a complex set of larger systems like society, politics, evolutionary biology, and climate science—that it both influences and is influenced by.

She writes that the economy cannot exist without society or the planet’s natural resources. The economy depends upon the connections and institutions of our society such as language, government, culture, ethics, morality, and law, as well as the natural resources and energy provided by the planet. The economic events we observe in the world arise out of the interplay within and between complex systems and the feedback loops they create. The economy depends upon the systems that sustain it, such as natural resources, agricultural production, population growth, and a stable society. She argues that if unchecked growth pushes these systems toward collapse, our entire economy and civilization could collapse too.

And because our society and planet give the economy the resources it needs, our economy must be organized to serve and steward them—not the other way around.

Markets Need Society

William Easterly explores this theme of the social underpinnings of markets in The White Man’s Burden. Easterly writes that a free-market system can only exist if it’s rooted in a broader society that has the necessary conditions for it to function properly. He emphasizes that markets don’t exist in a vacuum—they need a well-developed civil society, functional government, a legal system that respects private property rights and is based in the rule of law, and adequate regulation to ensure that goods are safe and reliable.

Perhaps most importantly, writes Easterly, markets require a high degree of social trust among strangers to foster an economy based on voluntary transactions—after all, trust is the only way customers know they won’t be ripped off, that what’s being sold is genuine, and that people will honor debts and pay for goods they’ve ordered. These values are deeply rooted in local culture, values, and history.

The Distributive Economy

Raworth writes that our economic system fails to keep us inside the doughnut because it produces too much inequality—a small minority of the world population has amassed vast fortunes, while billions of people remain mired in extreme poverty.

She argues that inequality is directly linked to social ills—like crime, drug abuse, lack of educational attainment, and low life expectancy—and undermines democratic institutions and social cohesion. Moreover, inequality fuels a feedback loop that leads to more inequality, as the wealthy can use their outsized political power to lobby for economic policies that make them even richer—all while fueling wasteful conspicuous consumption that harms our environment and depletes natural resources. Meanwhile, the ability of a few large players to shift the flows of capital throughout the global economy makes the entire system fragile, unstable, and vulnerable to shocks and bubbles.

In this section, Raworth proposes some concrete solutions to the problem of our inequitable economy: 1) redistributing land resources, 2) getting the money supply out of the hands of governments and central banks, 3) giving workers greater control over the economy’s production and distribution decisions, and 4) rewarding companies for investing in people rather than robots.

Inequality Hurts Economic Growth

Some economic research suggests that, in addition to contributing to social dysfunction and destabilizing the global flow of capital, inequality also acts as a drag on economic growth. According to one finding, income inequality, largely driven by the failure of workers’ pay to keep pace with the overall rise in productivity, reduces growth because it shifts spending power away from poorer households toward wealthier ones—and the latter are significantly more likely to save rather than spend. This has the effect of reducing the economy’s aggregate demand. Indeed, this paper estimates that inequality has reduced GDP by 2-4% in recent years below what it otherwise would have been.

To address the problem of inequality-fueled stagnant growth, the authors call for an aggressive, deficit-financed fiscal policy of direct cash transfers; more generous social spending; and greater collective bargaining power for workers through trade unions.

Redistributing Land Ownership

To make the economy properly distributive, says Raworth, we need to change who owns property, which is itself wealth-generating. She proposes redistribution of land ownership, giving people an asset they can improve or use as collateral.

She argues that this is fair, because land is often only valuable because of the natural endowments on or near it (which are our collective natural inheritance) or the social improvements made in its vicinity (like roads, schools, and industry), which are paid for by the shared investment and labor of the community.

(Shortform note: Some economists take a dimmer view of redistribution than Raworth. In Capitalism and Freedom, Milton Friedman writes that forced economic redistribution is inherently unjust. He argues that one of the cornerstones of a society based upon voluntary exchange is the right to keep your private property. According to Friedman, there is no moral justification for a majority to compel a minority to hand over its property, whether it’s a gang of armed robbers telling you to hand over the cash in your wallet or a majority of voters passing legislation to legally confiscate wealth from the so-called “1%.”)

Democratizing Money

Besides expanding property ownership, Raworth argues that a truly distributive economy needs to democratize the money supply.

She writes that in a capitalist economy, banks create money by lending it out and earning it back with interest, then lending out more, thereby increasing the money supply. Unfortunately, she argues, entrusting banks to do this comes with some problems—private banks will often use this money-creating power to purchase or invest in assets that already exist, driving up their prices and enriching those who already own them (in many cases, the banks themselves). This drains productive resources away from society.

But this is not the way it has to be. Raworth champions government-backed financial institutions that could take the role of private banks, with a social commitment to invest in low-interest loans for enterprises that benefit society: roads, infrastructure, education, skills training, and the environment. The government could also require banks to hold larger reserves of capital, which would stabilize the financial system and reduce the incentive for banks to ignite giant credit-fueled bubbles that melt down the financial system.

(Shortform note: These sorts of banking reforms championed by Raworth are actually quite similar to steps the Obama administration took to stabilize the banking system in the wake of the 2008 financial crisis. In A Promised Land, Obama discusses his team’s plan to conduct a stress test of the major banks—essentially, a thorough financial audit of the banks’ assets and liabilities, conducted by the Federal Reserve. Under the terms of the stress test, banks were required to hold larger stocks of capital in reserve. They could only receive further bailouts if the stress test found that they could not remain solvent without such an infusion of cash.)

She argues that central banks could also take the even more radical step of issuing new money directly to every household during a recession, creating a people’s monetary policy. Moreover, blockchain technologies like Ethereum and Bitcoin can also democratize and decentralize currency through their system of peer-to-peer exchange on a public ledger that removes intermediaries like banks and other financial institutions.

The Environmental Cost of Cryptocurrency

Although Raworth presents cryptocurrency as a potential way to democratize the power of money creation, she gives little attention to the significant environmental costs of cryptocurrency mining. This activity consumes a massive amount of energy because the release of new units of cryptocurrencies like Bitcoin and Ethereum can only occur after a process of validating and recording new transactions on the blockchain. To do this, you need to solve incredibly dense and complex math problems, which in turn requires the use of highly specialized software—the operation of which uses vast stores of electricity.

Since most of that electricity is generated at fossil fuel-fired power plants, cryptocurrency makes a significant contribution to emissions. Some studies show that Bitcoin’s annual energy consumption is comparable to that of entire countries, such as Argentina and Ukraine. In 30 years, Bitcoin could alone increase global temperatures by 2° C.

Reimagining Labor Markets

The next step Raworth suggests for creating a distributive economy is transitioning to a system of employee-owned firms, giving workers an equity stake in the firms to which they supply their valuable labor.

She notes that workers have seen their share of national wealth and their bargaining power decline precipitously since the dawn of the neoliberal era in the 1970s and 1980s. This has happened to varying degrees all over the world, even in highly unionized economies like Germany and the Scandinavian countries. Most firms see their sole purpose as maximizing shareholder value, with labor merely a cost—one to be minimized as much as possible.

(Shortform note: Perhaps the most well-known articulation of this theory came from economist Milton Friedman. In his famous 1970 article for the New York Times Magazine, “The Social Responsibility Of Business Is to Increase Its Profits,” Friedman championed the shareholder value maximization model. This model held that the most important measure of a company's success was the financial returns to its shareholders. He saw any acts of “corporate social responsibility” as a misuse and expropriation of shareholders’ money on the part of well-intentioned but ultimately misguided corporate officers.)

But, Raworth writes, shareholder equity only exists because of the labor that adds value to the firm’s products and services. To deny workers that same equity stake is to deprive them of what is rightfully theirs. She proposes rewriting corporate charters to implement new and alternative forms of labor organization, such as cooperatives and employee-owned enterprises that will give workers a greater share of national income and reorient the mission of private enterprise itself—from being profit-driven to people-driven.

The Decline of the Stakeholder Model of Corporate Governance

Raworth champions more collective forms of corporate governance. It’s worth noting, however, that this actually did exist in the United States in the decades following World War II. In the mid-20th century, the management function within major American companies was widely diffused throughout the organizational hierarchy.

A combination of executives, middle managers, and workers collectively made production and planning decisions. As a result, middle managers and workers captured a larger share of corporate value, with workers’ wages growing three times faster than those of executives. The period was marked by a high degree of upward mobility within companies, as even workers in low-skill jobs frequently had the opportunity to ascend to the ranks of management. This form of corporate management viewed the company as a partnership between multiple stakeholders—managers, workers, customers, suppliers, and shareholders.

According to some commentators, the rise of management companies like McKinsey, which rose to prominence during the 1970s and 1980s, played a significant role in the decline of this relatively equitable arrangement. These consultants encouraged corporate leaders to shift toward a line of thinking which held that private companies ought to serve the interests of only one group—the shareholders.

Accordingly, companies like McKinsey advised firms to downsize their middle managers, seeing them as “corporate bureaucrats” who contributed little value. This concentrated the management function—and the share of profits that accrued from it—increasingly in the hands of top executives.

Adapting to Automation

Finally, Raworth writes that building a people-centered economy requires addressing the challenges of automation.

The economy’s productivity is no longer linked to employment—firms can produce more output with fewer workers, largely thanks to automation. Raworth notes that the trend is no longer confined to blue-collar manufacturing jobs. Even white-collar professional “knowledge economy” work is increasingly being cannibalized by software and AI. This presents a major social problem as an ever-growing share of the population may find itself without any useful labor to sell.

Automating Human Cognition

In 21 Lessons for the 21st Century, Yuval Noah Harari expands on this idea of automation, painting a bleak picture of the future in which technological innovation enables AI to perform an increasing number of jobs—causing massive unemployment and creating an entirely redundant or useless class.

Harari writes that past periods of automation created at least as many jobs as they eliminated—for example, a piece of equipment that replaced a human laborer also required someone to operate the equipment and another person to maintain it. This is because these innovations substituted human workers’ physical capabilities, but not their cognitive abilities. No matter how quickly a machine could sew a shirt compared to a seamstress, the machine couldn’t take customers’ measurements.

However, Harari warns, the dual rise of infotech and biotech is creating technologies that could truly replace the need for human workers. New discoveries in neuroscience have revealed that human skills such as analyzing, decision-making, communicating, and interpreting other people’s emotions are the results of specific brain algorithms—not the elusive forces of free will. This means that technologists can replicate those processes with AI. As a result, not only can machines do a human’s job, but they can do it better than humans, because they’re immune to human error and biases.

Raworth proposes using the tax code to shift the incentives for businesses. Right now, businesses have to pay payroll taxes for human workers, but can write off investments in robots and other automation technology as a business expense—the government is, in effect, subsidizing automation. Raworth recommends taxing automation and rewarding firms for investing in humans.

She also champions giving citizens a stake in the private gains accrued by technology companies—gains that are often only possible because of the initial public investment in the underlying technologies. Raworth writes that this could take the form of public redistributed royalties from companies that benefited from taxpayer investments or from their use of public assets.

(Shortform note: Although Raworth proposes giving the public a stake in technology companies because of historical government investments in technology, she doesn’t acknowledge just how far-reaching the implications of this could be. Using her logic, any company that harnesses the technology of the internet—which, today, is all companies—would have to cede an equity stake to the government. This is because the technology that created the internet itself traces its earliest roots to US government research in the 1960s, when Pentagon analysts created ARPANET—the protocol that formed the base of today’s internet.)

The Regenerative Economy

Raworth writes that we need a top-to-bottom redesign of our global economic order: away from an extractive economy and toward a regenerative economy.

We’ve already explored Raworth’s argument that on a global scale, unchecked growth leads to more and more environmental degradation. She writes that this is because our economy is inherently depletive and extractive: It consumes energy and materials to make products, which are then used and discarded, creating waste. The resources used are not replaced.

(Shortform note: The evidence suggests that the problems of our wasteful economy are only getting worse. According to the World Bank, the planet is on pace to generate 70% more waste by 2050—more than doubling the projected growth rate of the population itself during that time. This makes sense, as waste generation is closely tied to levels of economic growth and disposable income—as the world gets richer and the global economy gets more productive, we’re generating more waste per person. This is the dark side of economic development, as governments around the world struggle to cope with the rising tide of waste and garbage—93% of which is openly dumped or burned.)

The Circular Production Model

Raworth argues that companies need to shift their mindset and accept that their continued profitability depends on the survival of our environmental and social commons—a skilled workforce, clean air and water, and access to food, to name a few. If they take and take without replenishing or regenerating, there will be nothing left.

Standard environmental policy solutions like carbon-neutral or net-zero emissions targets are a good start, writes Raworth, but the regenerative economy can go even further. Beyond just doing no harm, companies need to do positive good—making replenishment a core component of the business model, mimicking the self-renewing processes of nature.

This means shifting toward a circular production model in which the biological and technological components of production are reused in the next cycle of production—breaking the linear “make, consume, discard'' model. Raworth writes that doing so will keep our economy in the right part of the doughnut—eliminating environmental waste, while creating new jobs for people to steward and maintain this system of sustainable production.

Raworth writes that the shift toward a regenerative economy does not need to be anti-business—in fact, recovering used resources and recycling them for future production can be highly profitable. A major reason for this is the major cost savings on source materials—it would be far cheaper to regenerate existing materials than to extract new ones.

Barriers to the Circular Economy

Other writers echo Raworth’s idea that the current structure of the global economy is wired for a linear pattern of “make, take, waste.” One commentator identifies some of the major barriers preventing the transition from a linear to a circular economy:

1. It’s difficult to convince consumers to sacrifice convenience: Plastic bags and bottles make life easy because consumers don’t have to remember to take a metal water bottle when they go out or pack a cloth bag when they go to the grocery store. But these products are responsible for an enormous amount of waste and environmental degradation. To make the leap to a circular economy, ordinary consumers are going to have to give up commonplace conveniences and make different choices.

2. Governments incentivize waste: Some government policies inadvertently encourage waste. For example, expiration dates on foods (which most governments require to be printed on the packaging) may only apply to the food item when it’s left out at room temperature—when, if refrigerated, it would last longer. This encourages consumers to discard food and food packaging more frequently than they need to, adding to waste.

3. Developing countries lack proper waste management services: This lack is a major reason why nearly one-third of global plastic waste is simply dumped into the natural environment, and more than half of the planet’s plastic waste comes from the developing countries of China, Indonesia, the Philippines, Thailand, and Vietnam.

4. Recycling technology is inadequate: Even in communities where there are recycling plants, the technology is often badly out of date. The recycled plastic is usually of poor quality and can only be used in the production of low-value goods, making manufacturers unwilling to use recycled materials in their production processes.

Using the Power of the State

Raworth writes that the regenerative economy requires harnessing the power of the state—having the government reward investment in people and renewable resources.

As we’ve seen Raworth argue, fiscal policies in most developed countries tax labor and reward automation, with labor subject to the payroll tax while robots are a tax-deductible capital investment. By the same token, she notes, governments levy comparatively little on the non-renewable, common resources like land, air, and water that corporations exploit for private gain. The effect has been to subsidize and incentivize industry toward a profit-maximizing, environment-destroying, labor-exploiting posture.

Instead, the state can be a partner, using its fiscal power and the fact that it does not need to earn a profit to make the needed environmental and social investments that the private sector can’t or won’t.

Monetary Sovereignty and the State’s Fiscal Capacity

Some writers go even further than Raworth, arguing that the state has near-unlimited fiscal power to tackle our most pressing social, economic, and environmental challenges. In The Deficit Myth, Stephanie Kelton argues that the US federal government does not have to balance its budget because it is a monetary sovereign. A monetary sovereign is a country that is the sole issuer of its own currency and that does not borrow excessively in foreign currency or peg the value of its currency to something that it doesn’t directly control—like gold or another country’s currency.

Because countries like the US can just create money whenever they need it, argues Kelton, they are generally unconstrained in their spending decisions and don’t need to balance their budgets and keep debts and deficits low—they can simply create more money and wipe the debt clean or balance the budget as they please. Thus, anytime the federal government needs more dollars to meet some obligation—like to make the kind of environmental and social investments that Raworth calls for—it can simply create the money at will.

Human Prosperity Over Economic Growth

Raworth’s closing argument is that we need to move beyond economic growth as the primary measure of the health of our economy and society. Human happiness, prosperity, and the health of our ecosystem and biosphere—staying inside the “dough” of the doughnut—are what matter most, whether growth happens or not.

She argues that there must be some natural growth boundary based on an economy’s limited endowments of labor, land, capital, natural resources, space, knowledge, technology, and other factors of production. In other words, growth cannot go on forever. In many respects, this is already happening in rich countries as they grapple with an aging population, slow population growth, and declining worker productivity.

Confronting the Challenges of Population Decline

Other writers have explored the consequences of population decline or stagnant growth, as well as potential solutions to it. One writer notes that global fertility rates are indeed dropping at an unprecedented rate, with nearly every country on the planet on track to have shrinking populations by the end of the 21st century.

There are multiple problems associated with population decline—such as ensuring that governments have an adequate tax revenue base when the majority of the population is retired and financing the care of the growing share of the population that is elderly.

Countries such as the UK have tried to use migration to accommodate their falling population. However, this solution won’t be applicable once every country in the world starts to lose population. Other nations have tried to encourage population growth by offering government-funded childcare, better maternity/paternity leave, and direct financial incentives.

Long-Term Growth Is Unsustainable

Raworth warns that it may simply be the case that absolute growth is incompatible with staying inside our ecological boundaries—especially as we face the prospect of runaway global warming fueled by greenhouse gas emissions.

Fossils Fuels and Economic Growth

Some writers have noted that the impressive growth in both global population and per capita output over the past three centuries was possible only through the massive burning of fossil fuels.

Indeed, nearly all of humanity’s gains over the past two-and-a-half centuries—increased life expectancy, reduced world hunger, a massive drop in the number of people living in extreme poverty—have been due to humanity’s up-to-then unprecedented burning of coal, oil, timber, and gas and the extraordinary economic gains it brought.

Today, we may be living with the consequences of this growth in the form of runaway climate change, with global temperatures having risen nearly 1° C over pre-industrial levels. This climate change not only threatens the same engine of growth that has pushed global temperatures so high, but also the life-sustaining ecosystems upon which humanity itself relies.

The No-Growth Future

According to Raworth, we need to think about and plan for a no-growth future. This involves a complete reimagining of many of our core assumptions about the goals and needs of our society, as the strategies of businesses, households, and governments are all centered on continued economic growth.

But, she writes, the end of growth need not spell disaster. Indeed, our economy can continue to prosper and develop even if it isn’t growing. Raworth suggests some ideas for how we can build the post-growth economy:

1. Negative-interest currency: This is money that loses value over time and can’t be hoarded. Raworth argues that this incentivizes holders to invest in low- or no-growth enterprises that are socially or environmentally redeeming, since there’s no reason to hold onto money. This would tilt the scale toward long-term investment in the regenerative economy, where returns are lower and longer in outlook—but would fuel the social, cultural, environmental benefits we need.

(Shortform note: Having governments issue an entirely new currency that loses its value over time may be a needlessly complicated way to achieve the kind of long-term investments that Raworth champions. It’s not clear how much value the currency would lose and on what timescale, nor is it established who would make these decisions—would the depreciation schedule be established by statute or would central banks control this policy? Alternatively, the central bank could simply lower interest rates on the existing currency to negative levels. In fact, it’s not such a radical idea—countries including Switzerland, Sweden, Denmark, and Japan have already instituted negative interest rates.)

2. Tax reform: We need to crack down on tax havens and evasion, stop taxing labor and income streams, and start taxing accumulated wealth through progressive inheritance, land, and capital gains taxes. Once we do this, Raworth writes, we can use the tax code to reward employers for hiring and investing in people and workers’ skills.

(Shortform note: In Capital in the Twenty-First Century, Thomas Piketty proposes a global wealth tax as a potential check on soaring inequality. Such a tax would be progressive, with higher fortunes taxed at a higher marginal rate than smaller fortunes. Piketty argues that the purpose of the tax would not be to raise revenue. Instead, its purpose would be to stop the unchecked accumulation of wealth by the global hyper-wealthy, end the financial opacity that allows so much of the world’s wealth to exist in the shadows, and redistribute economic resources.)

3. Break the culture of consumerism: We define ourselves by our material lifestyle and what we buy. We are psychologically rooted to the idea of growth because it gives hope: that we’ll be richer, more comfortable, and have higher relative social standing. But, Raworth writes, this is hardly a universal trait of human cultures—it is a specific cultural by-product of hyper-capitalist societies. In fact, other cultures across the world and throughout history have been less acquisitive and more focused on sufficiency and satisfaction. We can even start to move away from the culture of rampant consumerism in small ways, such as by banning advertising in public places.

(Shortform note: Some commentators argue that the buying public is already moving away from the pattern of mass consumption that has been the engine of the past three centuries of economic growth. They write that consumers are becoming more environmentally conscious and are starting to think about the ecological impact of what they buy, how much they buy, and how long it lasts. This awareness of the production and consumption cycle on the part of buyers poses a genuine threat to the consumerism model—evidence of which can be seen in the notable decline of the retail sector.)

The Imposition of Private Property

There have been historical experiments in which cultures that had a concept of private property attempted to impose their values on cultures that didn’t—sometimes with catastrophic consequences. In Killers of the Flower Moon, David Grann writes about the program of forced assimilation imposed on the Osage tribe of Oklahoma by the US federal government in the 19th century.

The government and private companies in Oklahoma systematically undermined the communal economic foundations of tribal life through the near-extinction of the buffalo herds of the Great Plains, which had been the main food and fuel supply of Plains Indians like the Osage. The Department of the Interior compelled the tribe to adopt agriculture on private family farms, forcing them to abandon their semi-nomadic, hunting-based economic system. The result of this involuntary social engineering was mass starvation, as the Osage were unprepared to survive in an economy based on sedentary farming and private property.