No one can deny it: economics matters. Its theories are the mother tongue of public policy, the rationale for
multi-billion-dollar investments, and the tools used to tackle global poverty
and manage our planetary home. Pity then that its fundamental ideas are
centuries out of date yet still dominate decision-making for the future.
Today’s economics students will be among the influential citizens and policymakers shaping
human societies in 2050. But the economic mindset that they are being taught is
rooted in the textbooks of 1950 which, in turn, are grounded in the theories of
1850. Given the challenges of the 21st century—from climate change
and extreme inequalities to recurring financial crises—this is shaping up to be
a disaster. We stand little chance of writing a new economic story that is fit for our times if
we keep falling back on last-century’s economic storybooks.
When I studied economics at university 25 years ago I believed it would empower me
to help tackle humanity’s social and environmental challenges. But like many of
today’s disillusioned students its disconnect from relevance and reality left
me deeply frustrated. So I walked away from its theories and immersed myself in
real-world economic challenges, from the villages of Zanzibar to the
headquarters of the United Nations, and on to the campaign frontlines of Oxfam.
In the process I realized the obvious: that you can’t walk away from economics
because it frames the world we inhabit, so I decided to walk back towards it
and flip it on its head. What if we started economics with humanity’s goals for
the 21st century, and then asked what economic mindset would give us
half a chance of achieving them?
Spurred on by this question, I pushed aside my old economics textbooks and sought out
the best emerging ideas that I could find, drawing on diverse schools of
thought including complexity, ecological, feminist, behavioural and
institutional economics, and set out to discover what happens when they all
dance on the same page. The insights that I drew out imply that the economic
future will be fascinating, but wildly unlike the past, so long as we equip
ourselves with the mindset needed to take it on. So here are seven ways in
which I believe we can all start to think like 21st century
economists:
1. Change the goal: from GDP
growth to the Doughnut.
For
over half a century, economists have fixated on GDP as the first measure of
economic progress, but GDP is a false goal waiting to be ousted. The 21st
century calls for a far more ambitious and global economic goal: meeting the
needs of all within the means of the planet. Draw that goal on the page and – odd though it sounds – it comes out looking like a doughnut.The challenge now is to create
local to global economies that ensure that no one falls short on life’s
essentials – from food and housing to healthcare and political voice – while
safeguarding Earth’s life-giving systems, from a stable climate and fertile
soils to healthy oceans and a protective ozone layer. This single switch of
purpose transforms the meaning and shape of economic progress: from endless
growth to thriving in balance.
2.
See the big picture: from self-contained market to embedded economy.
Exactly
70 years ago in April 1947, an ambitious band of economists crafted a
neoliberal story of the economy and, since Thatcher and Reagan came to power in
the 1980s, it has dominated the international stage. Its narrative about the
efficiency of the market, the incompetence of the state, the domesticity of the
household and the tragedy of the commons, has helped to push many societies towards
social and ecological collapse. It’s time to write a new economic story fit for
this century – one that sees the economy’s dependence upon society and the
living world. This story must recognize the power of the market—so let’s embed
it wisely; the partnership of the state—so let’s hold it to account; the core
role of the household—so let’s value its contribution; and the creativity of
the commons—so let’s unleash their potential.
3. Nurture human nature: from rational economic man to
social adaptable humans.
The character at the heart of 20th century economics—‘rational economic man’—presents
a pitiful portrait of humanity: he stands alone, with money in his hand, a calculator
in his head, ego in his heart, and nature at his feet. Worse, when we are told
that he is like us, we actually start to become more like him, to the detriment
of our communities and the planet. But human nature is far richer than this, as
emerging sketches of our new self-portrait reveal: we are reciprocating,
interdependent, approximating people deeply embedded within the living world. It’s
time to put this new portrait of humanity at the heart of economic theory so
that economics can start to nurture the best of human nature. Doing so will
give us—all ten billion of us to come—a far greater chance of thriving together.
4.
Get savvy with systems: from mechanical equilibrium to dynamic complexity.
Economics has long suffered from physics envy: awed by the genius of Isaac Newton and his
insights into the physical laws of motion, 19th century economists became
fixated on discovering economic laws of motion. But these simply don’t exist:
they are mere models, just like the theory of market equilibrium which blinded
economists to the looming financial crash of 2008. That’s why 21st-century
economists embrace complexity and evolutionary thinking instead. Putting
dynamic thinking at the heart of economics opens up new insights for
understanding the rise of the one percent and the boom and bust of financial
markets. It’s time to stop searching for the economy’s elusive control levers (they
don’t exist), and instead start stewarding the economy as an ever-evolving
system.
5.
Design to distribute: from ‘growth will even it up again’ to distributive by
design.
In the 20th century economic theory whispered a powerful message when it comes to
inequality: it has to get worse before it can get better, and growth will
eventually even things up. But extreme inequality, as it turns out, is not an
economic law or necessity: it is a design failure. Twenty-first century
economists recognize that there are many ways to design economies to be far
more distributive of value among those who help to generate it. And that means
going beyond redistributing income to pre-distributing wealth, such as the
wealth that lies in controlling land, enterprise, and the power to create
money.
6. Create to regenerate: from ‘growth will clean it up
again’ to regenerative by design.
Economic theory has long portrayed a clean environment as a luxury good, affordable only
for the well-off—a view that says that pollution has to increase before it can decline,
and (guess what), growth will eventually clean it up. But as with inequality there
is no such economic law: environmental degradation is the result of
degenerative industrial design. This century calls for economic thinking that
unleashes the potential of regenerative design in order to create a circular,
not linear, economy—and to restore ourselves as full participants in Earth’s
cyclical processes of life.
7. Be Agnostic about Growth: from growth-addicted to
growth-agnostic.
To the alarm of governments and financiers, forecasts for GDP growth in many
high-income countries are flat-lining, opening up a crisis in growth-based
economics. Mainstream economics views endless GDP growth as a must, but nothing
in nature grows forever, and the economic attempt to buck that trend is raising
tough questions in high-income but low-growth countries. That’s because today
we have economies that need to grow, whether or not they make us thrive. What
we need are economies that make us thrive, whether or not they grow. That
radical flip in perspective invites us to become agnostic about growth and to
explore how our economies—which are currently financially, politically and
socially addicted to growth—could learn to live with or without it.
I am convinced that these seven ways to think like a 21st-century
economist are fundamental to the new economic mindset this century demands.
Their principles and patterns will equip new economic thinkers—and the inner
economist in us all—to start creating an economy that enables everyone to
prosper. Given the speed, scale and uncertainty of change that we face in
coming years—and the diversity of contexts from Beijing to Birmingham to Bamako—it
would be foolhardy to attempt to prescribe now all the policies and
institutions that will be fit for the future. The coming generation of thinkers
and doers will be far better placed to experiment and discover what works as
the context continually changes.
What we can do now—and must do well—is to bring together the best ideas to create a
new economic mindset that is never fixed but always evolving. The task for
economic thinkers in the decades ahead will be to bring these seven ways of
thinking together in practice, and to add to them. We have barely set out on
this adventure in rethinking economics. Please join the crew.
Kate Raworth is a "renegade economist" focused on exploring the economic mindset needed to address the 21st century's social and ecological challenges, and is the creator of the doughnut of planetary and social boundaries. Her recently published book, Doughnut Economics: Seven Ways to Think Like a 21st Century Economist, suggests seven key concepts for transitioning from the illusion of "endless growth" to a realistic goal of "thriving in balance" for humanity and the human habitat:
1. Change the goal -- from GDP to Doughnut
2. See the big picture -- from self-contained market to embedded economy
3. Nurture human nature -- from rational economic man to social adaptable humans
4. Get savvy with systems -- from mechanical equilibrium to dynamic complexity
5. Design to distribute -- from 'growth will even it up again' to distributive design
6. Create to regenerate -- from 'growth will clean it up again' to regenerative by design
7. Be agnostic about growth -- from growth addicted to growth agnostic