Book review by Branko Milanovic
My first Summer book to read and review is Kate Raworth’s very successful “Doughnut economics: Seven ways to think like the 21st-century economist”. It is an ambitious book whose objective is to change the ways economists think and the economics is framed in order to respond to the “limits to growth”. It thus reconsiders the organization of the economy, from the financial sector, money creation, ownership structure of companies to the distribution of assets. It also wrestles with the “addiction” to economic growth, not only among the policy-makers but among most of the population (that understandably want more things) and it finally envisages a rich society with “zero growth”. The last term is avoided by Raworth by saying she is agnostic about growth and by presenting future growth as undulating around a stable level, with the economy at times going down and at times up “(“[we] embrace growth without exacting it”, p. 270).
The book is probably better than its competitors in the area. For example, Raworth’s discussion of inequality where she argues for the equalization of endowments rather than expansion of policies that redistribute current income, makes lots of sense. Suggestions for the use of various incentives to make companies more environment-friendly are also plausible. Perhaps even the imaginative use of electronic currencies may help.
Yet the book fails to convince for three reasons.
First, it never faces squarely (or even indirectly) the fact that if everybody in the world is to be “allowed” to have income level equal to the current median in the rich countries, world GDP would have to increase three times—not accounting for the rise in the world population. This is a fact for which Raworth has no answer and thus prefers not to mention it. (For obviously, if one is against trebling world GDP, one needs either to accept that half of the world population will continue living in poverty, or to produce some evidence that carbon intensity of production will suddenly plummet.)
Second, numerous examples of companies and people who do innovative “green” things are listed (which is quite useful) but their importance is never assessed. The reader is right, I think, to feel that their importance is marginal and while progress is made, it is minimal compared to what needs to happen.
Third, the interpretation of the current phase of globalized capitalism is, in my opinion, wrong. Rather than seeing it, as Raworth does, as becoming more cooperative and “gentler”, it is more correct to see the inroads of commodification into our personal lives (which we not only willingly accept but promote) as moving us further toward a self-centered, money- and success-oriented society—that is, going exactly in the opposite direction from that which Raworth favors.
I will illustrate this last point with Raworth’s discussion of intrinsic vs. extrinsic motivation. This last point (Chapter 3), where Raworth shows, based on empirical studies, that extrinsic (money-driven) motivations may at times produce worse outcomes than the use of non-cash motivation (emulation, social pressure etc.) is, in my opinion, the best part of the book—but it is also the one where I disagree, not with the arguments, but with Raworth’s interpretation of the current state of the world and tacit forecasts for the future.
Raworth very persuasively shows that working on intrinsic motivations may often be preferable (measured in terms of hard-nosed efficiency) than using cash grants. I agree with that (actually, I just follow the studies that show that) but I think that the contemporary hyper-commercialized capitalism leads us more and more to value only monetary incentives and to disregard others—even if the latter can produce better outcomes. But to do so they have to be grounded into traditional social norms, traditional hierarchy, social capital and the like, the very things which globalized capitalism erodes daily. Thus I conclude that non-cash incentives, despite their advantages in many situations, are doomed to extinction. Kate implicitly argues the opposite: if they are better they should be used more. But by whom? What are the social forces to promote them? Who has the incentive to do so? Is today’s societies’ ethos compatible with them?
And here appears the major weakness of the book. The world Kate has in mind is a world essentially devoid of major social contradictions. It often comes close to the world of Bastiat’s “universal harmonies”. In many instances, Kate writes in the first-person plural, as if the entire world had the same “objective”: so “we” have to make sure the economy does not exceed the natural bounds of the Earth’s “carrying capacity”, “we” have to keep inequality within the acceptable limits, “we” have an interest in a stable climate, “we” need the commons sector. But in most of the real world economics and politics, there is no “we” that includes 7.3 billion people. Different class and national interests are fighting each other.
The same “we-ism” is apparent when Raworth calls for deemphasis (“agnosticism”) of economic growth. I have already mentioned that the world’s poor get a short shift, but the argument why growth in the rich countries should cease, and how to go about it, is also presented in a most confused fashion (and perhaps there is no way to present it better). Raworth acknowledges that economic growth is needed to soften distributional conflicts, to maintain democracy, as well as for people’s subjective happiness but she fails to provide any persuasive arguments how a new “no-growth” regime will come about (who is going to vote for it?) nor how it would solve these real issues. “We” should somehow be magically transformed from acquisitive and money-grubbing beings, traits which the system itself encourages in us, to people, who under the same system, are rather indifferent to how well we do compared to others, and do not really care about wealth and income.
Short of magic, this is not going to happen. It then becomes apparent that Raworth’s book is a book of miracles, as well as why in such a world of miracles, the real “miracle” which is Chinese growth that has pulled out of abject poverty some 700 million people goes all but unmentioned. The reason is that poverty was eliminated by “dirty” growth that has polluted Chinese cities and the countryside, disrupted Arcadian idyll between man/woman and nature—and yet made the lives of millions incomparably better.
Raworth’s ideal world seems to be the one that we find in Giotto’s paintings of St Francis, but it is not the world we inhabit. In an attempt to convince us that “other worlds are possible” Raworth uses the example of an Indian tribe in northern Manitoba which a couple of centuries ago responded to an increase in price by providing fewer goods.
Rather than proposing the economics for the 21st century, Raworth’s book brings us back to the imaginary world of the early Christendom. Perhaps that such imaginary people were then “thriving” (a term Raworth uses at least 50 times in the book), but the real world even in those times was different: it was the world of Augustus and Spartacus, burned temples and fortunes made through violence. Exactly like ours. Except that we are richer. Which is a good thing.
Cross-posted from Global Inequality
Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth
Published by Penguin Books
Reply by Kate Raworth from 26 June:
Answer to Kate Raworth by Branko Milanovic from 1 July (Cross-posted from Global Inequality) :
Let me focus on two most important issues on which Kate Raworth and I differ.
When Kate allows that growth is necessary for poverty reduction and that countries with income levels less than $12,500 per capita should be “allowed” to grow, she fails to either tell us up to what level they should be “allowed” to grow or to provide an estimate of how much the world GDP would have to increase in order to accommodate such growth. As I mentioned in my review, any back-of-the-envelope calculation shows that “allowing” everybody in the world to live at an income level that is today considered barely acceptable in the rich countries involves a tripling of global GDP. Kate should show us what are, according to her, correct numbers. But the reason why I think she prefers not to do so is because it allows her to leave the whole issue in an area of deliberate vagueness where poor countries are “allowed” to grow but the issue of “unsustainability” of that growth is elided.
Now, in the next stage of vagueness, it is acknowledged that perhaps the space for future growth of poor countries can be provided by voluntary restraint of growth in the rich world (“high-income countries and individuals have a moral obligation to create ecological space so that others have the chance to lead lives free of deprivation”). Technically, it should imply a voluntary reduction of rich countries’ real GDP (that is, negative growth) in order to create the “space” into which poor countries can grow. Is this realistic? I already wrote about that in my discussion with Jason Hickel and I do not think that it is necessary to repeat the arguments here or to highlight the obvious fact that no rich country (or rich countries’ populations) display any observable inclination either to degrow (for if they did, they should have been cheerfully accepting the Global Recession) or to share their income with poor people (for if they were, they would not be creating right now such a fuss with migration both in Europe and the US).
So, we can take it as given: (1) if poor countries are “allowed” to grow, today’s GDP envelop will have to be expanded severalfold, and (2) rich countries’ populations will not voluntarily immiserate themselves nor will they share, out of the goodness of their heart, their income with poor countries.
The second issue is less amenable to such (in my opinion) clear cut conclusion. It is the issue of human behavior under conditions of hyper-commercialized global capitalism.
I have already explained my views (and will do so further in my forthcoming Capitalism, alone), so those interested can find them here.
Let me make just two paints.
The fact that people cooperate does not invalidate at all that people are motivated by self-interest alone. Self-interest can often be more effectively realized in cooperation than by trying to do everything alone. This is why companies, clubs and mafia (indeed, mafia) do exist. If accomplishment of self-interest required that one do everything alone, there will be no society, no family, and everybody would be self-employed. None of that is true. But none of that invalidates the notion that cooperation will be a form in which, at times, self-interest will be best realized.
The next point has to do with human nature under hyper-commercialized global capitalism. Here I respectfully decline to be moved by the results of any of the “games” that Kate cites and that are supposed to reveal human nature. These games are indeed games; they are not the way people behave in real life. Games are good in generating publishable papers but they tell us nothing about how the same people would (or do) behave in real life. There, if Kate wants to convince me and others of our “improving” nature and greater willingness to share, I would like to find the evidence that we are becoming less engaged in market transactions, that we contribute more to charity, that we care less about income, wealth and prices…
But all the real world evidence I see goes exactly in the opposite direction. And for a reason. Globalized capitalism has to create new goods and services and it moves into what was hitherto a personal sphere (homes, cars, leisure hours). It pushes us to exploit these in order to make more money (because money is the sole indicator of success). Thus marketization (and numeracy which goes together with marketization) is greater than ever in history, and the more developed a society, the more marketized and money-conscious it is.
What we observe is that people have become ever more aware of small differences in incomes and prices. This is why Internet has brought such fierce competition between airline companies, hotels, restaurants, retailers. People consider the tiniest differences in prices. They go to stores, take a picture of an item, and then purchase it on the Internet from Walmart or Amazon. If people were less commercially motivated, Walmart and Amazon would not be the behemoths they have become: people would have been happy to purchase the same item for a higher price in their local store. But they are not.
Professors, claiming altruism in their writings, bargain (as Kate must know) to the last possible cent when it comes to their salaries and fees. I have not noticed many of them foregoing higher income or altruistically declining higher fees. The same behavior is prevalent in all professions. I would like to be given examples of academics (among others) who have seriously discarded the pecuniary motivation. The majority of them are like the real-world people depicted in “Inside Job”. I wrote before that out of almost 80 top economists who are recipients of the Nobel Prize, I understand that only Jan Tinbergen donated about a half of his prize. Everybody else kept it in full. And here we are talking about a group of old, very rich, extremely successful people. Yet they hoard the money. What can be expected from those who are less rich?
Again, this does not mean that we care only about money (income). Other considerations certainly do play a role. But the key consideration is that of money.
Thus, on this point I see close to zero evidence that Kate’s picture of today’s Homo Sapiens is accurate. Actually, for the reasons that are intrinsic to hyper-commercialized capitalism, I see us moving further away from the idealized picture that Kate depicts.
Finally, let me mention that at times I think a peculiar hypocrisy creeps into people’s discussion of human behavior because the authors seem to think that by claiming that humankind is altruistic they are thereby showing their own munificence. I think that this feeling was not entirely absent even in Adam Smith’s explicit critique of Mandeville—even if Smith himself gives us in The Wealth of Nations innumerable examples of the behavior fully consistent with the view of human nature advocated by Mandeville.