Want to Fix The World? Start With A Doughnut
Three economic laws are taken as gospel in the West:
- Supply and demand curves have an inverse relationship
- Inequality and growth are inextricably linked
- Economies have to grow forever
In my Econ courses in college, we never talked about how these truths came to be — it was just taken for granted that they were laws.
No ifs, ands or buts.
This always seemed a little too convenient to me — are we all just pretending that growth can continue exponentially forever, without exhausting natural resources and ecosystems?
At the same time, it’s hard to deny the power of economic growth in transforming people’s lives. Since 1980, China has lifted 800 million people out of poverty through free market reforms.
800 million.
Opening markets is no panacea, though — Americans are all too familiar with the devastating impact Chinese manufacturing had on American factory workers. And while growth in China has been blistering in the last several decades, human rights and freedoms for its citizens remain an issue.
So, do we have to pick one or the other? Lift people out of poverty by continuing to grow economies, or halt economic growth and focus on protecting humans and the planet?
Kate Raworth thinks we can have our cake and eat it too.
Or should I say…
our doughnut.
So what is this magical pastry?
Glad you asked!
Consider it the “safe and just space for humanity.”
The Doughnut model for our future economy can be boiled down to this:
If economic growth continues its trend, it will exhaust Earth of its resources, and prove catastrophic for all.
In order to achieve the optimal future for humanity, society needs to sustainably manage Earth’s resources while continuing to provide people with basic necessities.
Raworth proposes retiring the traditional GDP growth-at-all-costs goal, and starting from a different question:
“What if we started economics not with its long-established theories but with humanity’s long-term goals, and then sought out the economic thinking that would enable us to achieve them?”
- Kate Raworth
Unfortunately, economists have relied upon a crude model of human behavior for decades — the “rational economic man.”
Traditional economics posits humans as rational beings that always respond to incentives in a predictable way. According to economists, differences between people are insignificant, since as a whole they tend to behave similarly.
Obviously, people are exceedingly complex, and the rational economic man is just a model — we shouldn’t use him as a building block for society.
Yet that’s exactly what we’ve done, and it’s gotten us far off course.
So, GDP and rational economic man are out the window — where do we go now?
We need to get un-obsessed with growth.
Think about all of the positive connotations the English language has with growth, and the fear of stagnation:
“She’s on her way up”
“Onwards and upwards”
“He looks down — I think he’s at an all-time low”
It’s hardwired into our psyches that growth is good — the alternative is too scary to think about.
But the reality is, we live within various layered systems — our economy rests on top of social systems, which rest on top of ecological systems, which rest on top of cosmic systems.
Developing systems-based models instead of ones based on never-ending growth will allow for a more sustainable future for the economy and planet.
Dynamic systems are much harder to wrap our heads around than traditional ones — links between variables are complex and hard to map.
But just because it’s harder doesn’t change the nature of our world.
So, instead of always producing more and more, what if our economy was inherently designed to redistribute the wealth it creates?
What if we were agnostic to economic growth?
So how do we start building out this blasphemous idea?
The first step is a focus on decentralization — something nature does exceedingly well.
Nature’s secret to balance
Notice a pattern in these systems?
It’s no coincidence that natural structures tend to be organized in network-type models. The reason is the balance between resilience and efficiency that networks provide.
It’s hard to achieve both of these aims at the same time. Thinking back to our Chinese manufacturing example — American industry found efficiency by manufacturing goods in China for decades, but it came at the price of resiliency, as seen in the ongoing supply chain crisis that started in 2020.
The resilience of networks arises from the inability to cripple the network by destroying one node, or a even series of nodes. Their efficiency comes from distributing resources across the system quickly and effectively.
Investors are waking up to this fact. Many are realizing that their assets may be safer if distributed across a global network, rather than relying on one bank or country, even if they’re as powerful as the U.S. Dollar or S&P 500.
So, how does an economy become decentralized?
From the bottom-up.
Progress is already being made
The problem with changing the status-quo is there will always be entrenched interests that want to keep it intact.
But the good news is that big economic changes typically come when a better alternative to the norm is introduced. And those are happening every day.
- Free Open-Source Software
Also known as “FOSS,” this refers to software that is freely available on the internet.
Open Source Ecology has been a trailblazer in using this concept for good. They’ve developed blueprints for important machines in the modern age, and made them freely available online. Entrepreneurs across the world have used and built on these designs, often feeding their improvements back into the OSE community.
2. DeFi and Cryptocurrency
Don’t worry, I’m not trying to sell you on any crypto — but the movement is worth paying attention to. El Salvador adopted Bitcoin as legal tender in September 2021, and while it has been a rocky start, adoption trends are encouraging. Salvadorans’ wealth is no longer at the mercy of corrupt or short-sighted leaders — no single entity controls the Bitcoin network.
Cryptocurrencies are also enhancing funding for micro-finance, which referes to the practice of investing in small entrepreneurs. Since crypto funding can travel across borders seamlessly, foreign investors can back local merchants thousands of miles away. As it stands today, entrepreneurs in developing countries, especially women, are largely unbanked, making it nearly impossible to secure capital to start a business.
Imagine the brainpower we’d unlock if billions of people across the world suddenly had funding for their ideas.
3. Universal Basic Income
This one is a political landmine, and I don’t have the answer for how to effectively implement a UBI program.
But, early experiments in various countries are encouraging.
Since 1982, Alaska has given its residents a check for between $1,000 and $2,000 a year just for living there. Extreme poverty has essentially been wiped out since then, and studies have shown no discernible impact on unemployment in the state.
Spain began its own UBI experiment several years ago, and is seeing promising early results as well. Life satisfaction and mental health are up amongst program participants, and they are no more or less likely to find employment than non-participants.
UBI clearly has a long way to go before it’s ready for prime-time, but its promising early results make it worth studying.
The more good ideas we can fund, the better.
The Doughnut’s theme: balance is everything
When I was a teenager, I could never have enough.
Better grades. More popularity. Newest devices.
Ironically, the results were a lot like eating a doughnut — initial pleasure followed by later dissatisfaction.
I’m trying to change that equation towards a goal of balance in my life. I’ve been burned too many times chasing more and feeling worse because of it.
Slowly but surely, the economy will be transformed from the ground up in a sustainable, anti-fragile, redistributive way.
Don’t allow yourself, or your organization, to find itself outside the almighty doughnut.
