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) :
On growth and people: my reply to Kate Raworth’s reply
Let me focus on two most important issues on which Kate Raworth and I differ.
(My original review of Kate Raworth’s very good and challenging Doughnut Economics can be found here; Kate’s response is given here.)
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.
I enjoyed reading your review of my book and am glad that some parts of it chimed with you. Unsurprisingly I dispute or disagree with much of your critique, but since I think it is one of life’s great privileges to respectfully disagree, I look forward to doing so here. As I’ve tweeted to you before, I’d far rather be having this conversation in person (ideally over a drink ¬– so much more civilized a way to disagree!) but here we are on a blog, so although I’m writing, please take my replies in the spirit of a good pub debate.
You argue that Doughnut Economics fails to convince for four reasons:
1. It does not acknowledge that global GDP must rise significantly to end poverty.
2. Current ‘green’ innovations are marginal and their progress is minimal compared to ‘what needs to happen’.
3. The book portrays globalized capitalism as entering a ‘more cooperative and gentler’ phase – but in fact people are embracing ever greater commodification, leading to a self-centred, money- and success-oriented society.
4. The book conveys a world that is ‘devoid of major social contradictions’, and refers to a ‘we’ of 7.3 billion people that doesn’t exist: in reality, different class and national interests are fighting each other.
I will respond to each in turn, using our initials (BM and KR) to make things clear.
BM: 1st critique: “The book doesn’t acknowledge that global GDP must rise significantly to end poverty.”
KR: I disagree. The central premise of Doughnut Economics is that humanity’s 21st century goal should be to end poverty for all, and do so within the means of the living planet. Ensuring everyone in the world lives well above the Doughnut’s social foundation (in terms of healthcare, education, housing, food, water, energy use, mobility, and so on) will obviously lead to an increase in economic activity and hence global GDP. As I write in the book,
Across low- and middle-income countries (where national income is less than $12,500 per person per year) a higher GDP tends to go hand-in-hand with greatly increased life expectancy at birth, far fewer children dying before the age of five, and many more children going to school. Given that 80% of the world’s population live in such countries, and the vast majority of their inhabitants are under 25 years old, significant GDP growth is very much needed and it is very likely coming.
BM 2nd critique: “Current ‘green’ innovations are marginal and their progress is minimal compared to ‘what needs to happen”.
KR: I couldn’t agree more. If I thought ‘green’ innovation was already taking place on anything like the scale needed, I probably wouldn’t have felt compelled to write the book. But five facts (or views) of the world drove me to do so:
a. Ending poverty and deprivation worldwide will likely lead to a significant increase in resource use.
b. Humanity’s collective pressure on many of Earth’s life-supporting systems is already critical or excessive.
c. 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, while protecting Earth’s life-supporting systems, which are fundamental for conditions conducive to human thriving.
d. There is no evidence that any high-income country is decoupling its pursuit of endless GDP growth from resource use and ecological impacts on anything like the scale required.
e. The mainstream economic mindset – taught in universities and practiced in institutions worldwide – still fails to face up to this conundrum.
Together these five claims create the central challenge of the book. If you disagree with any of them, I’d be curious to know which one(s). And if you agree with them all, I’d sincerely like to understand how you proposing resolving the challenge they create.
My attempt at resolving it, as you know, is to advocate an economic mindset focused on creating economies that are regenerative and distributive by design and, simultaneously, to overcome the structural dependence of high-income countries on endless GDP growth. Yes, I think this growth addiction is the mother of all long-term economic challenges, and I certainly don’t have all the answers, but I tried to address it in the book because it doesn’t go away if we simply don’t confront it.
BM 3rd critique: “The book portrays globalized capitalism as entering a ‘more cooperative and gentler’ phase – but in fact people are embracing ever greater commodification, leading to a self-centred, money- and success-oriented society.”
KR: I certainly don’t think capitalism is entering, as you put it, ‘a gentler and more cooperative phase’ (you must be joking!). Instead, I see alternative forms of economic organizing emerging – running counter to the extractive drive of capitalism – such as in open-source design, platform cooperativism, and the creative commons.
You describe people as ‘acquisitive and money-grubbing beings’ and that ‘we accept and promote commodification in our personal lives’, moving us further towards a ‘self-centred, money and success-oriented society’ of ‘hyper-commercialized capitalism that leads us more and more to value only monetary incentives and disregard others’.
Ouch. Branko, I’m starting to worry that you lived for too long in Washington DC…but seriously, look to the literature. If empirical research into human behavior has told us anything over the last 30 or so years, it tell us that we, Homo sapiens, are far more nuanced than this. We are conditional cooperators and altruistic punishers (Bowles and Gintis), with a common set of universal values (Schwartz), influenced by both intrinsic and extrinsic motivations (Crompton and Kasser), and able to self-organize effectively not only through markets but also through the commons (Ostrom). Indeed I see you’ve been engaged in this discussion about human nature, behaviour and morality in this recent really engaging blog debate at Evonomics (http://evonomics.com/role-of-morality-in-a-capitalist-economy/).
Perhaps the nub of our difference in view is this: you think humanity is so far gone into capitalism that people have become irredeemably motivated by self-interest alone. I simply disagree, and see evidence to the contrary every day, in the street and in the worldwide news. Since you amusingly likened my worldview to Giotto’s paintings of St Francis (I very much hope not – it looks far too male-dominated for me), then I’ll stick with the high-art analogies and say your dismal view of humanity reminds me of Rodin’s Gates of Hell. “Abandon every hope, who enter here”. I chose a different gateway to the future and I think many millions of others do too.
BM: 4th critique: The book describes a world that is ‘devoid of major social contradictions’, and refers to a ‘we’ of 7.3 billion people that doesn’t exist: in reality, different class and national interests are fighting each other.
KR: I have to disagree: the book absolutely acknowledges the pervasive role of power relations between social groups. As I write in the book,
‘Power is at play in myriad places throughout the economy and society: in daily household decisions about who cares for the kids; in boss-versus-worker wage negotiations; in international trade and climate-change talks; and in humanity’s domination over other species on the planet. Wherever people are present, so too are power relations . . . When it comes to the workings of the economy, one power relationship in particular demands attention: the power of the wealthy to reshape the economy’s rules in their favour.’
And yes, at the same time, I very much believe there is a ‘we’ of 7.3 billion people: it is the ‘we’ of Homo sapiens, the most dominant species on the planet, whose collective activities have given rise to a new epoch on Earth, the Anthropocene.
Rather than avoiding social contradiction, I think the book actually goes beyond and takes on the major social-ecological contradiction of our times. As I write in Chapter 7:
No country has ever ended human deprivation without a growing economy
And no country has ever ended ecological degradation with one.
Over a second drink, I would love to hear how you see this challenge being resolved. I’m well aware that I certainly haven’t fully resolved it, but I believe that the seven ways of thinking that I set out in the book are, each one, an important part of a bigger answer.
Related to this, you were irritated that I used the word thrive / thriving over 50 times in the book (53 times to be exact). But you didn’t seem to notice, or weren’t bothered, that I used the word growth / growing over 180 times. Growth-centric thinking is so deeply ingrained in economics that it has become the water we swim in – but, as I argue in the book, I think it profoundly influences economic worldviews and creates an expectation of and belief in the possibilities of endless GDP growth, even in the richest of countries, and even though there is no evidence that it can be made compatible with preserving the integrity of Earth’s life-supporting systems on which we (yes, we) all depend.
Let me end where I began. I think there are few privileges greater than respectfully disagreeing with others. So I look forward to your reply (and the next round of drinks is on me).
All best, Kate