July 31, 2020
Book 58 - Doughnut Economics
Kate Raworth
Chapter 2 - pages 53-80
Kate Raworth
Chapter 2 - pages 53-80
Reading Time - 60 minutes
This section looks at how we can See the Big Picture and move from a self-contained market to an embedded economy.
Raworth starts this chapter by comparing economics to a Shakespeare play... one in which there are characters. And like in a play, where the characters usually have small descriptions, those descriptions become self-fulfilling.
Traditional economics works on the circular flow model in which there are two primary actors on centre stage - the household and business. There are a few supporting actors like banks, governments and trade. But... the circular flow diagram, ubiquitous as it is, is deeply flawed, for it makes no mention of energy, materials or society.
Market - efficient so give it free rein
Business - innnovative so let it lead
Finance - infallible so trust its ways (we all know how that turned out in 2008)
Trade - win-win so open your borders
State - incompetent so do't let it meddle
Household - domestic so leave it to women
Commons - tragic so sell it off
Society - non-existent so ignore it
Earth - inexhaustible so take all you want
Power - irrelevant so don't mention it
Putting blind faith in the Market however, means that we have ignored the living world and society and allowed the banks to have runaway power. Leaving us on the brink of ecological, social and financial collapse.
Raworth, however, has a different scenario, a new show, as it were, in which the economy does not simply float in a white space and concern itself solely with the flow of money and income. She sees the economy as embedded within society which is itself embedded within the natural world. And... at the heart of the economy is the household... The characters in this play would then be:
Earth - life-giving so respect its boundaries
Society - foundational so nurture its connections
Economy - diverse so support all its systems
Household - core so value its contribution
Market - powerful so embed it wisely
Commons - creative so unleash their potential
State - essential so make it accountable
Finance - in service so make it serve society
Business - innovative so give it purpose
Trade - double-edged so make it fair
Power - pervasive so check its abuse
Raworth then examines each character in more detail, well worth a read. Some key points that struck me...
The economy is not a closed loop (like in the circular flow diagram)... it is an open system that depends on the Earth to be a source (of materials and energy) and a sink (for waste). Right now... our economy is exceeding the Earth's regenerative and absorptive capacity through over-harvesting sources and over-filling sinks.
The Economy has four means of production and distribution - market, state, household, commons - and works best when all work together.
Mainstream economics is focused on the Household as the productivity of waged labour but completely skips over the unpaid work which makes waged labour possible. The Household is the core economy (original meaning in Greek) and sustains social life. But... with the gendered division of paid and unpaid work... household work is undervalued and exploited. If every stay-at-home mom was paid for her labour... she would get $120,000/year. A working mom would get an extra $70,000/year. And yet the traditional economic models make no mention of this huge contribution to the economy.
The Market coordinates buyers and sellers but only for things that have a price tag and for those who can pay. The Market can become dangerous if it gets out of control and we can see that with widening social inequalities and economic instability. And the notion of a "Free Market" is a pipe dream. It doesn't exist. All markets are embedded and no market is a "Free Market"... think government bailouts of failing companies.
The Commons is the shareable resources of nature or society - forests, fishing, digital commons. Traditional economics has deemed the Commons to be tragic or doomed to fail but... that doesn't have to be the case.
The State should support the household, market and commons in order to promote the common good... not just defend borders and enforce laws.
The 2008 financial crisis busted a bunch of myths about Finances. It is not infallible. Today's Finance has a dominating role but that needs to be flipped where Finance plays a supporting role.
Business needs a bigger purpose than making money and we need to look at the inequality between workers and owners.
Trade can be problematic as when manufacturing moves overseas resulting in domestic job losses. Raworth argues that there is no such thing as a "free market" or "free trade".
When 1% hold the same wealth as the other 99%, there is a power imbalance. We see this clearly in the US where the wealthy can reshape politics and economies in their favour. Money funds elections.
This chapter was fascinating and gives me hope that we can redevelop the world so that it is more equitable and just and safe for all concerned.... not just humans, but nature as well.
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