Book club discussion: Doughnut Economics by Kate Raworth

Meeting

The Sustainability Finance Community (SFC) Book Club was launched in December 2020 to provide an inclusive environment for members to discuss sustainability themed books. Doughnut Economics by Kate Raworth was the choice for the inaugural meeting. It didn’t disappoint – members were moved by its ideas and had an engaging discussion covering the key themes, as set out below.

About the book

The concept of Doughnut Economics is instantly relatable. Picture a doughnut, the kind with a hole in the middle. The outer ring represents an ecological ceiling, while the inner ring is the social foundation to ensure that no one is left short of the essentials, like food, water, health and education. In between (i.e. the doughnut) is the safe space for humanity – a place where we can collectively thrive. The goal then, is to get into the safe space of the doughnut. Simple enough? Let’s hear what the Book Club thought.

The verdict – did you like the book?

It was unanimous – the Book Club enjoyed Doughnut Economics. Members found it very accessible. Raworth uses simple language consistent with the concept of the doughnut model itself – straightforward yet powerful.

Images, graphs and analogies were used to good effect to communicate key messages. However, there was a feeling that some of the examples given in the book were perhaps a little too idealistic and still in their infancy, and required proof of concepts.

Do you think the doughnut model is feasible?

Raworth highlights 7 ways to redesign traditional economics for a greater social and environmental outcome. One of these is Gross Domestic Product (GDP). The book argues that instead of being fixated on GDP growth, the focus should instead be on meeting the basic human rights of every person within the means of our planet. This is encapsulated in the concept of the Doughnut.

Members thought that the Doughnut is a good representation of what we must strive for as a global society. The ultimate aim – to bring every person inside of the Doughnut – has to be achieved. If we exceed the upper ring, we face the devastating effects of climate change and environmental collapse; if we exceed the lower ring, we face leaving billions without the bare essentials. At the moment, we seem to be on track to do both at once, which is really unfeasible.

The conversation then shifted to how we can make the Doughnut Model feasible. There was a general sense that there are still big challenges to solve, with not much time left to do so. One positive is that if the pandemic has showed us anything, it is how quickly society can change, and that we can be enormously creative. Members discussed cities, like Amsterdam, that are attempting to apply the model in practice.

Should GDP growth be a main policy goal? Could we become agnostic about growth?

Raworth outlines that the traditional thinking is that economies that need to grow for society to be able to thrive. However, society needs to be able to thrive whether or not our economies are growing. This is the topic of the final chapter of Doughnut Economics where Raworth redesigns Walt Whitman Rostow’s five stages of economic growth.

Members could relate to Raworth’s arguments and generally agreed that GDP growth shouldn’t be the main policy goal in isolation. However, the importance of improving living standards and job security was acknowledged. Members discussed the flaws of GDP and the merits of expanding this metric to better capture wellbeing. One member cited the Dasgupta Review, commissioned by HM Treasury, which suggests focusing on an ‘inclusive wealth’ metric that captures changes in natural capital and human capital in addition to produced capital.

Members also observed the link between past trend of growing populations and the pursuit of economic growth. The emerging trends of stabilising or decreasing populations may mean indefinite GDP growth is not achievable. In this context, a circular and more distributive economy seems better suited to continuing to maintain (or increase) living standards than a traditional linear economy.

What should a company’s purpose be?

Reconsidering the role of companies in society may be one solution to moving to a more distributive economy. There is growing public demand for companies to have a clear purpose.

The B Corporation movement is one example that was discussed. To become B Corp certified, companies are legally required consider the impact of their decisions on workers, customers, suppliers, community and the environment.

The group acknowledged that publicly listed companies have less flexibility in setting purpose and objectives, although members noted the Business Roundtable’s statement on the purpose of a corporation and the rise of stakeholder capitalism.

Growth should not always be the primary goal of a company. One member gave a great example – you want your local corner shop to be really good at what they do and serve the community well; you wouldn’t want them to pursue growth and expansion at all costs.

How could the themes of the book impact the work of actuaries?

Members commented on the importance of keeping up to date with developments in economics and sustainability to understand how trends may translate into potential risks and opportunities for their line of work.

North America, one member (who is based there) felt, is a little behind European counterparts in this area and so thinking is still emerging in defining non-traditional roles for actuaries. But that member saw huge potential for embedding sustainability in investments and products – a large insurance market exists around estate planning, what better legacy than leaving a healthy and prosperous planet?

Another member suggested that actuaries can extend the idea of analysing uncertain future cashflows beyond financial applications. For example, this concept could be applied to changes in natural capital over time or be utilised in designing carbon offsetting schemes.


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