Change the Goal

Conventional economics has no goal except one by default: indefinite growth. In nature, this is the principle of cancer. To get back to health, it is time to give the economy a more meaningful purpose.

This post belongs to a reading series of Doughnut Economics by Kate Raworth. For quick access to all chapters, please click here.

Disclaimer: This chapter summary is personal work and an invitation to read the book itself for a detailed view of all the author’s ideas.

As illustrated by a widely used contemporary textbook,1 economics is taught as “the study of how society manages its scarce resources.” Therefore, the focus is on evaluating and monitoring production conditions. This is technically accurate but does not say anything about the goal of economic activity. It is assumed that, by default, this goal is the mere production of goods and services, that is to say, indefinite growth.

Since the 1950s, under the seemingly reasonable assumption that we all prefer more to less, growth has indeed been presented as the panacea for virtually all human ailments. Prosperity is supposed to provide peace through the betterment of the human condition. As Kate Raworth reminds us, psychologically speaking, “The idea of ever-growing output fits snugly with the widely used metaphor of progress being a movement forwards and upwards.”

However seductive the idea that economic growth equates to human progress might have seemed during generations, it is increasingly questioned today. Confronted with the planet’s physical limits and recycling capacities, the concept of growth needs to be refined by answering which type of growth is referred to, how it is produced, and for what.

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Most importantly, these limits remind us that, as humans, we are primarily searching for meaning, not just more stuff. We know that material and financial growth is not in and of itself a measure of happiness, political stability, or even prosperity. We also know that there might be ways to thrive as a society without destroying the world around us by erasing biodiversity and fueling climate change. But if the concept of economic growth needs to be refined to serve genuine social and economic necessities, why has that not been done earlier? To answer this question, one needs to understand how economic growth became the paradigm of contemporary economics in the first place.

Simon Kuznets
(April 30, 1901 – July 8, 1985). In the mid-1930s, the U.S. Congress commissioned economist Simon Kuznets to devise a measure of America's national income.
Simon Kuznets (April 30, 1901 – July 8, 1985)

In the mid-1930s, the U.S. Congress commissioned economist Simon Kuznets to devise a measure of America’s national income. That came to be the Gross National Product (GNP), defined as the value of all finished goods and services produced in a country in one year by its nationals. This proved to be an extremely useful tool in monitoring the changing state of the American economy in the first years of the New Deal. It also greatly helped convert the U.S. industry into a planned military economy during WW II, specifically by maintaining enough domestic consumption to generate further economic output.

Simon Kuznets himself, however, was well aware of the limits of the GNP as a measuring tool. The first of them is that the income value of all finished goods and services produced in a country does not include the enormous other economic value of goods and services produced by and for households as well as by society at large in daily life. Corporations’ bottom line does not reflect everything about the economy. Secondly, the GNP (later labeled GDP) gives no indication of how income and consumption are actually distributed between households. A country considered financially wealthy can yet be plagued by severe income inequality. GDP is a flow measure that only records the amount of income generated each year, and Kuznets saw that, in Kate Raworth’s words, “it needed to be complemented by a stock measure, accounting for the wealth from which it was generated, and its distribution.” This is why Simon Kuznets himself said, “The welfare of a nation can scarcely be inferred from a measure of national income.”2 Overall, he was adamant that “Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long term… Objectives should be explicit: goals for “more” growth should specify more growth of what and for what.”3

This was not some hard-core leftist speaking but a well-known, well-respected scholar trying to remind decision-makers about the necessity of critical thinking. Unfortunately, the appeal of a single, year-to-year indicator for measuring economic progress proved too strong. It became a convenient shortcut for politicians to seemingly prove with numbers how good they are at what they are doing. As for economists, GDP purportedly offered them a single metric neatly encompassing the whole of economic activity. As a result, virtually no one followed up on Kuznet’s reservations, basically making “growth” the object of a cult.

Donella Meadows (March 13, 1941 – February 20, 2001): "Growth is one of the stupidest purposes ever invented by any culture."
Donella Meadows (1941-2001)

Handed down as its own evidence from one generation of students to the next, the notion of growth has had no effective legitimacy other than its psychological appeal. From a rational standpoint, as the systems thinker Donella Meadows put it in her groundbreaking book The Limits to Growth in 1972,4 “Growth is one of the stupidest purposes ever invented by any culture.” Simply put, it would come to no one’s mind to ask their physician to help them weigh three tons. We intuitively know that no human physiology would support such a burden. Besides, the obvious question remains: What for? And yet, this madman attitude is exactly the one we have toward the economy and the planet that supports his constant race for more.

What makes us think that the economy can fundamentally ignore the reality of physical limits when we duly recognize them in our daily lives? Donella Meadows highlighted that paradox by underlining that, for centuries, the scientific view of things was supposed to be mechanistic. Ignoring the effective organic functioning of natural phenomena, this methodological stand proved useful but was intrinsically limited. Donella Meadows was actually among the ones who pioneered the idea that the proper model of reference to fully understand the organic nature of the living world, including our economic activity, is that of systems (and systems of systems). In our real, practical, and interconnected world, 2 plus 2 might sometimes equal 5. Systems evolve, and systems thinking is the methodological tool with which the real movement of things can be analyzed, providing all the predictability that any economist—or doctor—could ever require. However, while the latter recognizes herself as a practitioner, the former pretends that her role is to mimic Sir Isaac Newton.

Donella Meadows used to remind her students that we should always ask, “Growth of what, and why, and for whom, and who pays the cost, and how long can it last, and what’s the cost for the planet, and how much is enough?”5 This is not dismissing growth or wealth accumulation as such but asking to acknowledge what we are ultimately striving for. That implies broadening the economic scope toward the genuine and effective service provided to society instead of restricting it to the money made by corporations.

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Though there is no doubt that “What enables human beings to thrive?” was a question at the back of the head of someone like Adam Smith, it totally faded away once GDP became the main compass of the economic model used today. Lost in “the study of how society manages its scarce resources,” we forget that there is no wealth other than our own humanity. For lack of an actual finality assigned to it, today’s economy resembles a duck running without its head, ever faster to nowhere, confusing the means—money—with the end—a world where every person can enjoy a life of dignity, opportunity, and community within the boundaries of our life-giving planet.

Amartya Kumar Sen (born 3 November 1933): "advancing the richness of human life, rather than the richness of the economy in which human beings live."
Amartya Kumar Sen (born 3 November 1933)

The Indian economist and philosopher Amartya Kumar Sen rightly said that the alternative is not between having a financially rich economy or a poor one but between “advancing the richness of human life, rather than the richness of the economy in which human beings live.”6 Being growth agnostic is nothing to be afraid of, contrary to what growth fundamentalists shaping most economic policies in the world today would have us believe. No one is seriously thinking of banning trade or profits; the issue is, instead, to place the economy back in the broader social and environmental frame (i.e., system) it belongs to.

This has now become a practical emergency. The unprecedented progress in human well-being during the last three centuries may very well, otherwise, come to a brutal end in the twenty-first and the crumbling of our present-day form of civilization. It has already happened many times in human history on a local scale. Today, the phenomenon would be global. Nine critical environmental processes have been identified that maintain together the Holocene-like conditions that made the rise of highly sophisticated forms of civilization possible.7 Four of these nine planetary boundaries have been crossed: climate change, loss of biosphere integrity, land system change, and altered biogeochemical cycles (phosphorus and nitrogen).

That makes the political unwillingness to answer the challenge all the more puzzling. If governing is foreseeing, as governments proudly remind their citizens occasionally, then the geneticist and climate activist David Suzuki is right to say, “Conventional economics is a form of brain damage.”

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Footnotes

  1. Mankiw, N. Gregory, Principles of Economics
  2. Kuznets, S. (1934) National Income 1929–1932, 73rd U.S. Congress, 2nd session, Senate document no. 124
  3. (Kuznets, S. (1962) How to judge quality, in Croly, H. (ed.), The New Republic, 147: 16, p. 29.)
  4. See A Synopsis: Limits to Growth: The 30-Year Update
  5. Meadows, D. (1999) Sustainable systems. Lecture at the University of Michigan, 18 March 1999. See the video at: https://www.youtube.com/watch?v=HMmChiLZZHg
  6. Shaikh, N. (2004) Amartya Sen: A more human theory of development. Asia Society.
  7. Stockholm Resilience Centre: Planetary Boundaries – an update. See as well: Trajectories of the Earth System in the Anthropocene about the biogeophysical feedback for climate change alone.
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