Chris Paterson's review of Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth.
Author: Kate Raworth
Publisher: Random House Business
Review: Chris Paterson
Kate Raworth's book Doughnut Economics is a grand and well-thought-out attempt to rewrite economics for the world we live in - an attempt that allows for providing basic human needs to all while using no more than one planet's resources sustainably.
I like economics. I find it entertaining and fascinating. I started falling for it when I first came across it studying CT7 (shortly to be CB2) and my young brain delighted in the neatness of explanations of supply and demand, and maximising utility. That led to a love of popular economics books and, for a time, the delusion that I could explain the whole world in terms of incentives. Then I discovered behavioural economics, and that idea was quickly nudged out of my mind!
So I was excited at the proposition of Doughnut Economics - reinvented economics for a world of finite resources, with a need to share those with all its people.
Economics students love this book, if the full house and standing ovation Raworth received when she presented her book at the London School of Economics is anything to go by. I think it's because it talks to them in a relatable way. They study in order to understand how the world works, but they are taught ideas and theories that failed to predict the financial crash they grew up with, or allow for saving their overheating planet. If this book is a deliberate strategy to engage young people in the profession, it is a clever one. Even if the ideas within it don't break through to the mainstream economics frontline now, they will in future.
The doughnut itself
Raworth has taken a radical approach - throw out rules and ideas that don't work, and replace them with ones that do. Or, as she quotes the architect Richard Buckminster Fuller, "You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete."
Raworth puts forward a set of ideas to replace those at the core of the subject - (growing) GDP, rational man, the Kuznets curve and more. As individual components, the replacements are not necessarily new ideas (behavioural economics, replacing GDP and its targeting of incessant growth, systems thinking) and are covered in depth elsewhere. However, she does a great job of summarising the latest thinking, putting them together to support her confection.
The doughnut itself describes the shape of the "safe and just space for humanity" in between the inner boundary of providing a social foundation for all, and the outer boundary of the 'ecological ceiling'. To make this more universally appealing, she uses pictures, or diagrams, for each of her key concepts. Taking care to acknowledge the power of the original diagrams and relationship curves at the heart of the 'old' economics, her replacements offer a more complete worldview for economists.
As an actuary, though, why should I care about any of this? Well, if an enjoyment of economics and a cleverly written, thought-provoking book aren't enough, here are a couple more reasons:
The book's approach is to change mindsets. It offers a great set of ideas on how to go about this, built into a compelling narrative. As actuaries in a world where some of our fundamental 'truths' are looking increasingly fragile, we could learn a lot from this. For example, what might discount rates look like if the economy takes into account equitable distribution, alongside deriving more value in long-term returns from building natural capital?
This book is full of introductions to ideas that we as actuaries can find useful: systems thinking, the distributive economy and regenerative design are just the start of it. I would certainly recommend taking a few bites of this doughnut, to give yourself some food for thought.
Chris Paterson is an actuary at the Government Actuary's Department and is on the IFoA's Resource and Environment Research and CPD Committee.