by Kate Raworth
Avoiding collapse
A systems perspective makes clear that the prevailing direction of global economic development is caught in the twin dynamics of growing social inequality and deepening ecological degradation. To put it bluntly, these trends echo the conditions under which earlier civilisations – from the Easter Islanders to the Greenland Norse – have collapsed. When a society starts to destroy the resource base on which it depends, argues the environmental historian Jared Diamond, it is going to be far less adept at changing its ways if it is also stratified, with a small elite that is quite separate from the masses. And when the short-term interests of that decision-making elite diverge from the long-term interests of society as a whole it is, he warns, ‘a blueprint for trouble’.42 Instances of collapse are sometimes assumed to be rare aberrations along the path of human progress, but they have been surprisingly common. Indeed, the breakdown of civilisations ranging from the Roman Empire and China’s Han Dynasty to the Mayan civilisation of Mesoamerica makes clear that even complex and inventive civilisations are vulnerable to downfall.43 So can systems thinking help us to discover whether it might happen again?
That question was most famously explored in the 1972 study Limits to Growth, whose team of authors based at MIT created one of the first dynamic computer models of the global economy, known as World 3. The team’s aim was to explore a range of economic scenarios up to 2100, taking account of five factors that they saw as determining – and ultimately limiting – output growth: population, agricultural production, natural resources, industrial production, and pollution. According to their projections for the business-as-usual scenario, as global population and output expanded, non-renewable resources like oil, minerals and metals would be depleted, leading to a drop in industrial output and food production, ultimately resulting in famine, a large fall in the human population, and greatly reduced living standards for all. When launched, their analysis simultaneously raised the alarm about the state of the world, introduced systems thinking widely into policy debates, and caused an uproar amongst those committed to the goal of growth.44
Mainstream economists were quick to deride the model’s design on the basis that it underplayed the balancing feedback of the price mechanism in markets. If non-renewable resources became scarce, they argued, their prices would rise, triggering greater efficiency in their use, the wider use of substitutes, and exploration for new sources. But in dismissing World 3 and its implied limits to growth, they too quickly dismissed the role and effects of what the 1970s model simply called ‘pollution’, which – unlike metals, minerals and fossil fuels – typically carries no price and so generates no direct market feedback. World 3’s modelling of pollution turned out to be prescient: today we can name it in far more specific terms as the many forms of ecological degradation that put pressure on planetary boundaries, from climate change and chemical pollution to ocean acidification and biodiversity loss. What’s more, recent data comparisons with the 1972 model find that the global economy appears to be closely tracking its business-as-usual scenario – and that doesn’t end well.45
This should set the alarm bells ringing: in the early twenty-first century, we have transgressed at least four planetary boundaries, billions of people still face extreme deprivation, and the richest 1% own half of the world’s financial wealth. These are ideal conditions for driving ourselves towards collapse. If we are to avoid such a fate for our global civilisation, we clearly need a transformation and it can be summed up like this:
Today’s economy is divisive and degenerative by default.
Tomorrow’s economy must be distributive and regenerative by design.
An economy that is distributive by design is one whose dynamics tend to disperse and circulate value as it is created, rather than concentrating it in ever-fewer hands. An economy that is regenerative by design is one in which people become full participants in regenerating Earth’s life-giving cycles so that we thrive within planetary boundaries. This is our generational design challenge, and its possibilities are explored in Chapters 5 and 6. But what kind of systems-thinking economist can help to make it happen?
Goodbye spanner, hello secateurs
Thinking in systems transforms the way we view the economy and invites economists to drop off their old metaphorical baggage. Say farewell to economy-as-machine and embrace economy-as-organism. Let go of the imaginary controls that promised to pull markets into equilibrium and, instead, get a feel for the pulse of the feedback loops that keep them continually evolving. It is time for economists to make a metaphorical career change, too: discard the engineer’s hard hat and spanner, and pick up some gardening gloves and secateurs instead.
It’s a vocational shift that has been a long time coming: back in the 1970s, Friedrich Hayek himself suggested that economists should aim to be less like craftsmen shaping their handiwork and more like gardeners tending their plants. Yes, the metaphor may have come from a thinker with extreme laissez-faire leanings but, if anything, it suggests that Hayek never did a hard day’s work in the garden: as any true plantsman knows, gardening is far from laissez-faire. In their book The Gardens of Democracy, Eric Liu and Nick Hanauer argue that moving from ‘machinebrain’ to ‘gardenbrain’ thinking calls for a simultaneous shift away from believing that things will self-regulate to realising that things need stewarding. ‘To be a gardener is not to let nature take its course; it is to tend,’ they write, ‘Gardeners don’t make plants grow but they do create conditions where plants can thrive and they do make judgments about what should and shouldn’t be in the garden.’46 That is why economic gardeners must get stuck in, nurturing, selecting, repotting, grafting, pruning and weeding the plants as they grow and mature.
Economists need a metaphorical career change: from engineer to gardener (as demonstrated by Charlie Chaplin and Josephine Baker).
One approach to economic gardening is to embrace evolution. Rather than aiming to predict and control the economy’s behaviour, says Eric Beinhocker, a leading thinker in this field, economists should ‘think of policy as an adapting portfolio of experiments that helps to shape the evolution of the economy and society over time’. It’s an approach that aims to mimic the process of natural selection, often summed up as ‘diversify–select–amplify’. Set up small-scale policy experiments to test out a variety of interventions, put a stop to the ones that don’t work well, and scale up those that do.47 This kind of adaptive policymaking is crucial in the face of today’s ecological and social challenges because, as Elinor Ostrom put it, ‘We have never had to deal with problems of the scale facing today’s globally interconnected society. No one knows for sure what will work, so it is important to build a system that can evolve and adapt rapidly.’48
This has empowering implications: if complex systems evolve through their innovations and deviations then that gives added importance to novel initiatives, from new business models to complementary currencies and open-source design. Far from being mere fringe activities, these experiments are at the cutting edge – or rather, the evolving edge – of economic transformation towards the distributive and regenerative dynamics that we need.
If the economy is constantly evolving, how best can we steward its process? Learn to find the ‘leverage points’, said Donella Meadows – those places in a complex system where making a small change in one thing can lead to a big change in everything. She believed that most economists spend too much time tweaking low leverage points such as adjusting prices (which merely alters the rate of flow), when they could have far greater leverage through rebalancing the economy’s feedback loops, or even by changing its goal (she had little time, remember, for that cuckoo goal of GDP growth). In addition, instead of jumping straight in with plans for change, she advised, be humble and try to get the beat of the system, even if it is an ailing economy, a dying forest, or a broken community. Watch and understand how it currently works and learn its history. It’s obvious to ask what’s wrong, so also ask: how did we get here, where are w
e headed, and what is still working well? ‘Don’t be an unthinking intervenor and destroy the system’s own self-maintenance capacities,’ she warned. ‘Before you charge in to make things better, pay attention to the value of what’s already there.’49
Meadows was a skilled economic gardener in this sense, having spent much of her life watching the dance of social-ecological systems in action, and observing the value of what was already there. In fact, she noted, effective systems tend to have three properties – healthy hierarchy, self-organisation and resilience – and so should be stewarded to enable these characteristics to emerge.
First, healthy hierarchy is achieved when nested systems serve the greater whole of which they are a part. Liver cells serve the liver, which in turn serves the human body; if those cells start to multiply rapidly, they become a cancer, no longer serving but destroying the body on which they depend. In economic terms, healthy hierarchy means, for example, ensuring that the financial sector is in service to the productive economy, which in turn is in service to life.50
Second, self-organisation is born out of a system’s capacity to make its own structures more complex, like a dividing cell, a growing social movement, or an expanding city. In the economy much self-organising goes on in the marketplace through the price mechanism – that was Adam Smith’s insight – but it also takes place in the commons and in the household too – the insight of Elinor Ostrom and generations of feminist economists. All three of these realms of provisioning can self-organise effectively to meet people’s wants and needs, and the state should support all three in doing so.
Lastly, resilience emerges out of a system’s ability to endure and bounce back from stress, like a jelly that wobbles on a plate without losing its form, or a spider’s web that survives a storm. Equilibrium economics became fixated on maximising efficiency and so overlooked the vulnerability that it can bring, as we will see in the next chapter. Building diversity and redundancy into economic structures enhances the economy’s resilience, making it far more effective in adapting to future shocks and pressures.
Getting ethical
There is one further important consequence of recognising the economy’s inherent complexity and it concerns the ethics of economic policymaking. Ethics are at the core of other professions, such as medicine, that combine the uncertainty inherent in intervening in a complex system (like the human body) with having responsibility for significant impacts upon other people’s lives. Hippocrates, the father of medicine, inspired a set of ethical principles, summed up in the modern Hippocratic Oath, that still guide doctors today, including: first do no harm; prioritise the patient; treat the whole person, not just the symptom; obtain prior informed consent; and call on the expertise of others when needed.
Xenophon, the father of economics, conceived of household management as a domestic affair and so suggested no ethics to guide it (since he believed he already knew how to manage women and slaves). But economics now guides the management of nations and of our planetary household, profoundly influencing the lives of us all. Is it, then, time for economists to get serious about ethics? George DeMartino, economist and ethicist at the University of Denver, certainly thinks so. ‘When a profession seeks influence over others, it necessarily takes on ethical obligations – whether it recognizes them or not,’ he argues, bluntly adding, ‘I’m aware of no other profession that has been so cavalier regarding its responsibilities.’51
DeMartino believes that economic policy advisers too often follow what he calls the ‘maxi-max’ rule: when considering all possible policy options, recommend the one that would work best if it worked – without fully assessing whether it is likely to work. ‘Maxi-max has been the primary decision rule in the most important economic interventions over the past 30 years,’ he argues, pointing to the damage wrought by the shock policies of privatisation and market liberalisation implemented in Latin America, sub-Saharan Africa, and the former Soviet Union during the 1980s and 1990s.52
Economics is more than two thousand years behind medicine in honing the ethics of its own profession. That’s quite some catching up to do, so to get the ball rolling – and with inspiration from DeMartino – here are four ethical principles for the twenty-first-century economist to consider. First, act in service to human prosperity in a flourishing web of life, recognising all that it depends upon. Second, respect autonomy in the communities that you serve by ensuring their engagement and consent, while remaining ever aware of the inequalities and differences that may lie within them. Third, be prudential in policymaking, seeking to minimise the risk of harm – especially to the most vulnerable – in the face of uncertainty. Lastly, work with humility, by making transparent the assumptions and shortcomings of your models, and by recognising alternative economic perspectives and tools. Principles such as these may one day be included in an Economist’s Oath, to be recited by aspiring professionals upon graduation. But with or without the ceremony, what matters most is to bring such ethical principles to life in every economics student’s training and every policymaker’s practice.
‘The future can’t be predicted,’ wrote Donella Meadows, ‘but it can be envisioned and brought lovingly into being. Systems can’t be controlled, but they can be designed and redesigned … We can listen to what the system tells us, and discover how its properties and our values can work together to bring forth something much better than can ever be produced by our will alone.’53
If the global economy’s current dynamics continue – with their divisive and degenerative effects – then we face the very real risk of heading towards collapse. This overriding generational challenge calls on the twenty-first-century economist to embrace complexity and draw on its insights in order to transform economies – local to global – to make them distributive and regenerative by design, as the following chapters explore. If he were alive today I bet that Newton, apple in hand, would be up for the task.
5
DESIGN TO DISTRIBUTE
from ‘growth will even it up again’ to distributive by design
‘No pain no gain’: it’s the best-known saying of the world’s greatest ever bodybuilder and it has motivated millions of people to grit their teeth and pump iron. In the 1980s Arnold Schwarzenegger’s punishing workout routines took the fitness world by storm, and his favourite catchphrase became a celebrated gym motto that lives on today. Its message is simple: you have to push through intense physical pain if you want to build an incredible physique. That motto also happens to sum up an economic philosophy that came to dominate the late twentieth century: nations have to push through the social pain of high inequality if they want to create a richer, more equitable society for all.
The motto of no pain no gain clearly still inspires plenty of policymakers today, especially when justifying belt-tightening austerity measures that widen inequalities and hit the poorest hardest. But, as this chapter reveals, as far as the economy is concerned it’s a false belief based not on evidence, but on an erroneous yet deeply influential diagram. Far from being a necessary phase in every nation’s progress, rising inequality is a policy choice. It is a widely damaging one at that, with multiple repercussions that push humanity further out of the Doughnut.
Rather than accept growing inequality as a law of economic development, an inevitability that must be endured, twenty-first-century economists will regard it as a failure of economic design, and will seek to make economies far more distributive of the value that they generate. Instead of focusing primarily on redistributing income earned, they will aim to redistribute wealth too – especially the wealth that comes from controlling land, money creation, enterprise, technology and knowledge. And instead of focusing on market and state solutions alone, they will also harness the power of the commons. It’s a fundamental shift in perspective, and it is well under way.
The economic rollercoaster ride
If humanity is to thrive within the Doughnut, every human being must have the capabilities needed to lead a life of dignity, o
pportunity and community. Yet as we know from Chapter 1, many millions of people still lack the most basic means to do so. Where, then, do these people live?
Twenty years ago, the answer was easy to guess: almost all of them lived in the world’s poorest countries, classified by the World Bank as low-income, with GDP per person of less than $1,000 per year. As a result, tackling global poverty was seen to be a matter of channelling global aid transfers to provide basic public services and stimulate economic growth in those low-income countries. But today, the answer has changed and at first it seems counter-intuitive: three quarters of the world’s poorest people now live in middle-income countries. Not because they have moved but because their nations have become better off overall and so have been reclassified by the World Bank as middle-income. Many of those countries, however – including the largest such as China, India, Indonesia and Nigeria – are becoming more unequal, which explains how they can simultaneously be home to most of the world’s poorest people.
