Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist

by Kate Raworth

  Rather than presiding at the pinnacle of nature’s pyramid, however, humanity is woven deep into nature’s web. We are embedded in the living world, not separate from or above it: we live within the biosphere, not on the planet. As the American ecologist Aldo Leopold deftly put it, we need to transform the way we see ourselves, ‘from conqueror of the land-community to plain member and citizen of it’.41 Thanks to forty years of Earth-system research, we have a rapidly improving scientific understanding of how the Holocene epoch – with its stable climate, ample fresh water, protective ozone layer, and abundant biodiversity – has enabled humanity to thrive, and hence how we depend upon Earth’s continual flourishing in turn.

  This shift in perspective – from pyramid to web, from pinnacle to participant – also invites us to move beyond anthropocentric values and to recognise and respect the intrinsic value of the living world. ‘What’s really needed,’ suggests the thinker Otto Scharmer, ‘is a deeper shift in consciousness so that we begin to care and act, not just for ourselves and other stakeholders but in the interests of the entire ecosystem in which economic activities take place.’42 The need for such a shift in consciousness is particularly strong in WEIRD societies: in the US, for example, children growing up in urban centres today have a far more simplistic and anthropomorphic understanding of the living world than do children raised in rural Native American communities.43 One practical way to address this would be to teach and embody eco-literacy in every school so that coming generations develop a worldview based upon understanding the living world’s interdependent systems that make life on Earth possible.

  Changing our sense of how we belong in the world also depends upon finding better words to describe it. The political theorist Hannah Arendt once noted that a stray dog has a greater chance of surviving if it is given a name.44 Perhaps in that spirit, mainstream environmental economists now describe the living world in terms of the ‘ecosystem services’ that it provides and the wealth of ‘natural capital’ it contains. But the names we choose matter: calling a stray dog Champ rather than Scamp switches just a couple of letters but utterly transforms how he is seen in the world. And that is precisely why talking of ‘natural capital’ and ‘ecosystem services’ is so double-edged: it may give the stray dog a name but the chosen name simply shifts the living world from being man’s material means to being an asset on his balance sheet. When Chief Oren Lyons of the Iroquois Onondaga Nation was invited to address students at the University of Berkeley’s College of Natural Resources, he highlighted this risk. ‘What you call resources we call our relatives,’ he explained. ‘If you can think in terms of relationships, you are going to treat them better, aren’t you? … Get back to the relationship because that is your foundation for survival.’45

  No wonder new economic thinkers are searching for words that better describe how we belong in the world. The biomimicry expert Janine Benyus – whose ideas we will explore in Chapter 6 – eloquently speaks of Earth as ‘this home that is ours but not ours alone’. For the ecological writer Charles Eisenstein, it is time to recognise ourselves as ‘the connected living self in co-creative partnership with the Earth’.46 This kind of language makes some people squirm, but perhaps that is because it confronts us with the awkwardness of acknowledging our most profound yet most neglected relationships. It also indicates just how unused we are to talking about ourselves this way, a little like fish searching for a word for water. How do we belong in this world, and what is our role? Finding the words to say it may turn out to be more important than we can imagine in determining whether or not we as a species can learn to thrive with others.

  These five shifts provide preparatory sketches for humanity’s twenty-first-century portrait, but the work is still far from finished. First, we need to understand more about our economic selves beyond how we behave around money. Just as WEIRD students turn out to behave unlike most other people, so too money may turn out to affect our behaviour quite differently to the way that most other things that matter to us do. How might the Ultimatum Game be played if those involved were asked to share not money but food, water, healthcare, time or political voice? It is deeply unlikely that money invokes the very same sense of fairness as do these other things that we value deeply. In addition, we need to understand a good deal more about who all of us are, not just the WEIRD ones. A greater diversity in experimental research will no doubt reveal some more fascinating differences between peoples and cultures, but we may ultimately discover that – in the words of the late British MP Jo Cox – we have ‘far more in common with each other than things that divide us’.47

  How, then, can the insights from these five shifts in our self-portrait be harnessed in ways that can help to bring all of humanity into the Doughnut? This question will keep returning throughout the following chapters but one issue deserves particular attention here: the growing use of monetary incentives in policies aimed at ending human deprivation and ecological degradation. Initial evidence suggests that monetary payments often crowd out existing motivations by activating extrinsic rather than intrinsic values. As the case studies described below reveal, there may be far wiser ways – drawing on what we now know about values, nudges, networks and reciprocity – to nurture human nature towards the Doughnut’s safe and just space.

  Markets and matches: handle with care

  Traditional economic policy presumes that a reliable way to change people’s behaviour is to change relative prices, whether through creating markets, assigning property rights or enforcing regulations. ‘Just get the prices right,’ a typical economist will tell you: sort that and the rest will follow.

  Prices certainly do matter. When Malawi, Uganda, Lesotho and Kenya stopped charging fees for children to attend state primary schools from the late 1990s, school enrolments – especially for girls and for children from the poorest families – increased dramatically, taking those countries far closer to the goal of providing education for all. In 2004 the German government introduced a feed-in tariff for households and institutions generating renewable energy, offering to pay above the retail price of electricity. It helped to trigger transformative national investments in wind, solar, hydro and biomass energy technologies, which were powering the country with 30% renewable energy just ten years later.48

  But while prices matter, getting them ‘right’ is not such a simple solution as it first promises to be: twentieth-century theory has led economists to overestimate the effectiveness of price as a lever, and to underestimate the role of values, sense of reciprocity, networks, and heuristics. Crucially, the theory overlooks the fact that some things may be put in jeopardy when they are given a price. That is especially true when it comes to relationships that we have traditionally managed with our morals. Here’s why. Setting a price is like striking a match: it sparks intense interest but that spark ignites both power and danger. As Chapter 2 suggested, the market – like fire – can be extremely efficient at doing what it does, but it can also be a challenge to contain. And if it becomes all-consuming, it may transform the very ground across which it burns.

  Richard Titmuss first raised this concern in his 1970 book, The Gift Relationship, which contrasted the blood donor service in the US, where people were paid for their contributions, with the far more successful service in the UK, where volunteers gave more and healthier blood for free.49 That contrast prompted a fascinating question: do monetary incentives serve to reinforce and ‘crowd in’ people’s intrinsic motivation to act, or instead crowd it out by replacing it with the extrinsic motivation of money? This question has only become more pertinent since Titmuss’s study, given the growing international use of cash incentives and payment schemes for addressing both social and ecological challenges.

  Take, for example, Colombia’s experiments with educational schemes that offer conditional cash transfers to families of secondary school students. In 2005 teenage children from low-income families in Bogotá were randomly chosen to take part in a pilot scheme, which transferred 30,0
00 pesos (around $15) per month to their parents if they attended school at least 80% of the time and passed their end-of-year exams. The World Bank economists who designed and monitored the scheme found that students selected for the scheme were 3% more likely to attend school regularly than students who were not, and 1% more likely to re-enrol the following year. It was the positive response they had expected, albeit a small one.

  But the economists also uncovered a troubling flip side to the experiment that they had not been expecting. Students who were not selected by the scheme, but had siblings who were, became less likely to attend school regularly – and more likely to drop out – than students from similar families in which no one took part in the scheme. Most strikingly, this was particularly true amongst girls: those with siblings in the scheme were 10% more likely to drop out of school than girls from similar families in which no one was participating.50 What’s more, this unintended negative drop-out effect turned out to be far stronger than the positive effect on attendance and re-enrolment that the scheme was set up to achieve in the first place. The World Bank economists conducting the study described these findings – which were incidental to their research – as ‘worrisome’ and ‘intriguing’ because they inexplicably defied their theory and expectations.

  Perhaps what they had accidentally uncovered was the role that money can play in eroding social norms, such as student pride and parental responsibility, by replacing them with market norms, such as payment for effort and reward for compliance. The philosopher Michael Sandel has raised concerns about these very effects, arguing that cash payments can crowd out intrinsic motivations and the values that underpin them. He points, as an example, to the Earning by Learning programme, set up in low-achieving primary schools in Dallas, Texas, which paid six-year-old children $2 for every book that they read. Researchers found that the children’s literacy skills improved over the year, but what effect might such payments have on their longer-term motivation to learn? ‘The market is an instrument, but not an innocent one,’ Sandel remarks. ‘The obvious worry is that the payment may habituate children to think of reading books as a way of making money, and so erode, or crowd out, or corrupt the love of reading for its own sake.’51

  Despite such concerns, financial incentives are increasingly being introduced in social realms, bringing our market identities – as consumers, customers, service providers and workers – to the forefront of our attention. And when market norms displace social norms, the effects can be hard to reverse, as demonstrated in an experimental study in Haifa, Israel in the 1990s. Ten children’s day-nurseries all introduced a small fine for parents who were more than 10 minutes late collecting their children at the end of the day. The parental response? Rather than arriving more promptly, twice as many parents started arriving late. Introducing a monetary fine effectively wiped out any feelings of guilt, and was interpreted as a market price for overtime care. Three months later when the experiment ended and the fine was removed, the number of late pick-ups rose higher still: the price had gone, but the guilt hadn’t come back. The temporary marketplace had, in essence, erased the social contract.52 ‘As markets reach into spheres of life traditionally governed by nonmarket norms, the notion that markets don’t touch or taint the goods they exchange becomes increasingly implausible,’ warns Sandel. ‘Markets are not mere mechanisms; they embody certain values. And sometimes, market values crowd out nonmarket norms worth caring about.’53

  Merely mentioning market roles can crowd out our intrinsic motivation. One online survey asked participants to imagine themselves as one among four households facing a water shortage due to a drought affecting their shared well. Crucially, the survey described the whole scenario in terms of ‘consumers’ to one half of the participants, and in terms of ‘individuals’ to the other half. What difference did that single word change make? Those labelled ‘consumers’ reported feeling less personal responsibility to take action and less trust in others to do the same than did those referred to as ‘individuals’.54 Simply thinking like a consumer, it seems, triggers self-regarding behaviour, and divides rather than unites groups who are facing a common scarcity. In the context of twenty-first-century pressures on Earth’s sources and sinks – from fresh water and fish to the oceans and atmosphere – that insight could turn out to have pivotally important implications for how we describe ourselves in the challenges that we collectively face. Suddenly the words ‘neighbours’, ‘community members’, ‘community of nations’ and ‘global citizens’ seem incredibly precious for securing a safe and just economic future.

  Research into the use of valuations, prices, payments and markets to shape people’s ecological behaviour has turned up similar findings. In villages around Morogoro, Tanzania, community members were asked to spend half a day cutting grass and planting trees together in their local schoolyard. In villages where they were offered a small payment to take part, 20% fewer people were willing to participate than in villages where no mention was made of money at all. Furthermore, among those who were paid for the work – with a typical day’s wage – most said on completion that they were dissatisfied with the task and its pay, while those with whom money was not discussed at all overwhelmingly expressed satisfaction at having done something useful for their village.55

  Likewise, as part of a forest conservation scheme in Chiapas, Mexico, many farmers are compensated in cash for refraining from cutting trees, hunting, poaching, or expanding their herd of cattle. The more years that they participate in the scheme, however, the more their stated motivation to conserve the forest becomes financial rather than intrinsic, and their readiness for future conservation efforts depends increasingly upon the promise of future payments. In other parts of Chiapas, however, where the forest is managed through community planning and projects, it initially takes longer to generate the farmers’ engagement but the social capital that they build is far greater and their motivation remains centred on the inherent benefits of long-term forest conservation.56 Bringing money into the mix, it seems, can significantly alter our regard for the living world.

  These examples are not mere exceptions to the rule. The most comprehensive survey yet of research into the impacts of payments to promote ecological conservation – whether to collect more litter and plant more trees or harvest less timber and catch fewer fish – finds that most of the schemes studied were unintentionally crowding out, rather than crowding in, people’s intrinsic motivation to act.57 Instead of engaging existing intrinsic commitments, such as pride in cultural heritage, respect for the living world, and trust in the community, some schemes inadvertently serve to erode those very values and replace them with financial motivation. ‘Using money to motivate people can throw up surprising results,’ says Erik Gómez-Baggethun, one of the study’s authors, ‘we often don’t understand the complex interplay of human values and motivations well enough to anticipate what will happen, and so that calls for caution.’ Given that markets do indeed seem to be like fire, here’s one way to sum up the moral of the story:

  Beware before you strike a match or start a market:

  you never know what riches it may reduce to ashes.

  Evidence from a wide range of policy initiatives – from school enrolments to forest conservation – raises a warning signal around introducing cash incentives in social spaces: their deeper effects are still so little understood and the evidence to date shows that they can so often go wrong. Furthermore, there are other means of motivating behaviour change – drawing on reciprocity, values, nudging and networks – that may cost far less, in both cash and consequences.

  Tapping into nudge, networks and norms

  As our emerging self-portrait makes clear, we are motivated by far more than cost and price. So instead of turning first to markets to mediate our social and ecological relationships, the twenty-first-century economist would be wise to start by asking what social dynamics are already in play. What are the values, heuristics, norms and networks that currently shape human behavi
our – and how could they be nurtured or nudged, rather than ignored and eroded? With this question as a starting point, economists will become far savvier in blending the blunt power of markets with the subtle force of morals. And empirical evidence hints at the possibility that this strategy could help to bring us into the Doughnut.

  Nudges can have a big effect for a small cost, and digital technology makes smart nudging easier and cheaper than ever before. Take prescription medicines, for example: people often forget to take them regularly, undermining both their own health and possibly the drug’s long-term efficacy too. In the UK, where an estimated £300 million is spent annually on unused prescription medicines, researchers found that a simple text message reminder significantly increased the proportion of patients who were taking their medicines on time.58 A similar experiment among people living with HIV/AIDS in Kenya found that a weekly text message likewise led to 25% more of them strongly adhering to their course of antiretrovirals.59 No money sent, just a simple text.

  Environmental nudges can be effective too. ‘We have long showers, leave appliances turned on and throw away rubbish as part of daily routines that involve little thought,’ says Pelle Hansen, chair of the Danish Nudging Network. Basic nudges can easily be designed into buildings to offset these habits – using automated taps, shower timers, and motion-activated lighting – delivering substantial cuts in water and energy use. They work in public spaces too. In the streets of Copenhagen, Hansen and his students handed out sweets to passers-by and documented how many of the wrappers ended up on the pavement, in bins, or in other people’s bike baskets. They then painted green footprints leading up to the rubbish bins and found that littering fell by 46%. No need for fines or rewards to encourage compliance: the little green footprints artfully amplified an existing social norm.60