There is no goal in conventional economics, 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, economics is taught as “the study of how society manages its scarce resources.”1 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. Consequently, it is assumed that this goal is the production of goods and services; that is to say, indefinite growth.
Since the 1950s and 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. The author reminds us that psychologically speaking, moreover, “The idea of ever-growing output fits snugly with the widely used metaphor of progress being a movement forwards and upwards.”
However seductive it might be, this idea that economic growth equates to human progress is, nevertheless, increasingly questioned. On the one hand, the concept of growth needs to be refined by answering which type of growth is referred to, how it is produced, and for what. And on the other, humankind is searching for more meaning, not just more stuff.
In other words, governments worldwide have dreamed their little dream for decades about economics, oblivious that, as with any other human endeavor, the how of economic output must answer the why. Material and financial growth is not in and of itself a measure of happiness, political stability, or even prosperity. Most of all, economics is not a religion. So, how did economic growth become the paradigm of contemporary economics in the first place?
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 the course of regular 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 can be considered financially wealthy yet plagued by severe income inequality. Lastly, national income is a flow measure that only records the amount of income generated each year, and Kuznets saw, in Kate Raworth’s words, that “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 some hard-core leftist speaking, but by a well-known, well-respected scholar trying to remind the rest of us about the necessity of critical thinking. But the appeal of a single, year-to-year indicator for measuring economic progress proved to be too strong for politicians and economists alike. Virtually no one followed up on Kuznets reservations, basically making “growth” the object of a cult.
And a cult it is. As the systems thinker Donella Meadow 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. This, however, is exactly what we are supposed to ask from the economy. Ignoring the organic view of things—which is the only valid one when it comes to systems health—, conventional economics has embraced the self-contradicting and abstract imagery of a production system that can: 1/ exponentially provide outputs to infinity; 2/ do it regardless of the broader conditions its own processes ultimately depend upon.
In a real, practical, and interconnected world, as Donella Meadows and most of us happen to live in, 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. For the sake of the human species, of course, but also for the sake of the economy itself. What is worth an economic system that ultimately undermines the environmental and social conditions of production?
Answering the proper finality of our economic activity is thus intellectually, morally, and existentially indispensable. Referring to GDP as its main compass, the economic model used today is upside-down and leaves us no choice but to reorder our priorities and stand firm on what they are. In short, what enables human beings to thrive? This question is the only one that should command the whole of our economic activity. And, unless one is willing to be defined as a mere production unit, its answer is self-apparent: we need a world where every person can enjoy a life of dignity, opportunity, and community—all within the boundaries of our life-giving planet. Achieving this fundamental goal is the exact purpose of what Kate Raworth calls “Doughnut Economics.”
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 All we need is enough self-confidence to truly believe that we are humans; the alternative being to sheepishly worship money.
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 it belongs to. It 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, likely followed by the collapse of human civilization as we know it. Too far-fetched? Ask yourself what your idea of human resilience is based upon.
Nine critical environmental processes have been identified that, together, maintain the Holocene-like conditions that made it possible for great civilizations to appear.7 Four of these nine planetary boundaries have been crossed: climate change, loss of biosphere integrity, land system change, altered biogeochemical cycles (phosphorus and nitrogen). Wrapped up in the abstract world of GDP, most economists seem intent to prove geneticist and climate activist David Suzuki right when he said that “Conventional economics is a form of brain damage.”
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- Principles of Economics, Mankiw, N. Gregory
- Kuznets, S. (1934) National Income 1929–1932, 73rd U.S. Congress, 2nd session, Senate document no. 124
- (Kuznets, S. (1962) How to judge quality, in Croly, H. (ed.), The New Republic, 147: 16, p. 29.)
- See A Synopsis: Limits to Growth: The 30-Year Update
- Meadows, D. (1999) Sustainable systems. Lecture at the University of Michigan, 18 March 1999. See video at: https://www.youtube.com/watch?v=HMmChiLZZHg
- Shaikh, N. (2004) Amartya Sen: a more human theory of development. Asia Society, available at http://asiasociety.org/amartya-sen-more-human-theory-development
- Stockholm Resilience Centre: Planetary Boundaries – an update. See Trajectories of the Earth System in the Anthropocene about the biogeophysical feedback for climate change alone.