The economy, the doughnut, and the myth of eternal growth

21 Aug 2020 Nick Garbutt    Last updated: 21 Aug 2020

The Doughnut model: Wiki Commons

One of government’s most pressing concerns is to get life back to normal. Critical to that is returning the economy to growth. 

Yet several opinion polls suggest that this is not what people want. And an increasing number of economists are starting to question the assumption that underpins all government policy: that continuous economic growth is a good thing, or even possible.

This is not to say that recession is desirable either. Instead they argue that sustainability rather than growth should be the objective with the ultimate aim of creating a “steady state economy.”

This debate as to the future shape of economy will have profound implications for all of us – steady state economists would argue that the entire future of the planet is at stake.

Current orthodoxy – neoclassical economics -  is that the economy is capable of generating infinite wealth because  a combination of market forces and technological innovation guarantee that we will always be able to make new things and to do things more efficiently than before.

The evidence they cite for this is the extraordinary progress we have made from the industrial revolution to the present day. The assumption is that the same market forces will not only be able to solve current challenges but all future ones, even if they currently seem insoluble.

Adam Smith, the 18th Century founder of economic theory could scarcely have imagined the motor car, the age of flight and the PC.

And they would also argue that the power of markets and our capacity for innovation has the answers to environmental challenges as well. An example they might give would be the extraordinary improvements in battery life which have made electric cars a viable proposition.

However this line of thought – that capitalism has the answer to everything – is increasingly coming under question.

We’ve already seen many western governments turning against using GDP as the sole measure of how they are performing. There’s been a growing trend towards preferring to measure well-being than wealth. Northern Ireland’s Programme for Government is an example of this. After all what good is it for a nation to increase its overall wealth if inequalities prevail, mental and physical health are declining and the quality of life for so many is so low?

Therefore increasing well-being should be the greater priority. That might mean giving greater weight to redistributing wealth to the bulk of citizens over a small number of people accumulating more and public intervention overriding market forces.

Secondly viewed from the outside neoclassical economics looks more like religion than science. The belief that the economy is capable of infinite growth because market forces are so powerful and our capacity to innovate so remarkable they will overcome any challenge is an act of faith. How can they possibly know that what may have proved to have been effective on their own terms in the 20th Century will work in the future?

There is also a fundamental flaw. However brilliant businesses are at innovation you cannot make the case for infinite growth when we only have limited resources.

Take smart phones, for example. They last on average two to three years. This is not because rapidly improving technology motivates people to throw them away but also because they are designed, like many other technologically advanced devices to have built in obsolescence. They cannot be repaired.

As a result of this $10 billion-worth of precious metals are dumped in landfill every year embedded in ten millions of tonnes of electronic waste. To put this in further perspective a tonne of ore from a gold mine produces just five grams of gold on average, whereas a tonne of discarded mobile phones contains up to 150 grams.

So we build exciting new products using rare materials which are built to be discarded and upgraded. Market forces and innovation are powering growth. This is great for the companies involved. But what happens when these materials run out? And more generally what happens when our natural resources (fresh water, trees, fertile land) deplete? And what will be the consequences for humanity of these shortages (civil unrest, conflict) and the pollution that their waste will cause?

These concerns are what drive advocates of the steady state economy. They argue that the notion of perpetual economic growth is a dangerous fantasy. They propose a different model based on these principles.

Economic activity must:

  • Maintain the health of ecosystems and the life-support services they provide.
  • Extract renewable resources like fish and timber at a rate no faster than they can be regenerated.
  • Consume non-renewable resources like fossil fuels and minerals at a rate no faster than they can be replaced by the discovery of renewable substitutes.
  •  Deposit wastes in the environment at a rate no faster than they can be safely assimilated.

Its proponents argue that far from increasing poverty and causing economic turmoil a steady state economy would be designed to avoid the cycles of boom and bust that the growth model entails.

So if we accept that our capacity for growth is limited by finite resources and by the damage we do by consuming them how can we progress?

Oxford University academic Kate Raworth expresses the challenge as follows: “Humanity’s 21st century challenge is to meet the needs of all within the means of the planet. In other words, to ensure that no one falls short on life’s essentials (from food and housing to healthcare and political voice), while ensuring that collectively we do not overshoot our pressure on Earth’s life-supporting systems, on which we fundamentally depend – such as a stable climate, fertile soils, and a protective ozone layer.”

And she has invented a means to chart progress towards this objective which she calls Doughnut Economics.

It is a very simple model which brings both social and environmental concerns together but does not provide solutions.

She writes: “You want to be an economist? Then first, there are a few facts you should know about this planet, and the limits of human activity that it can take. You should also know about the human rights of its people, and the distribution of resources it will take to fulfill those. With these fundamental concepts of planetary and social boundaries in place, your task as an economist is crucial: to design policies, regulations, and markets that bring humanity between the boundaries and enable us all to thrive there.”

Her model is being taken up globally, precisely because it provides the ground rules for a new approach to economics. In April of this year it was adopted by Amsterdam which has used it as a tool to transform the city. The fact that this happened during the pandemic demonstrates that in some parts of the world at least the current crisis is being used as a spur to designing new ways of running economies.

In years to come we may look back at the neoclassical economy model as a strange aberration rather than the orthodoxy it is today. After all before the 20th Century the notion of perpetual growth was itself heretical. Some even yearned for a steady state economy.

The 19th Century philosopher and economist JS Mill was one such. He wrote: “It must always have been seen, more or less distinctly, by political economists, that the increase of wealth is not boundless; that at the end of what they term the progressive state lies the stationary state, that all progress in wealth is but a postponement of this, and that each step in advance is an approach to it.”

Back to the future?


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