by Kate Raworth
Where does all of this leave Arnold’s gym routine? In the 1980s, doctors were quick to warn against the ‘no pain, no gain’ exercise mantra, pointing out that painful workouts often lead to injury, not fitness. Economists, misled for decades by the erroneous Kuznets Curve, have taken far longer to reach the same conclusion, but it is finally hitting home. Equitable economies don’t emerge after an unavoidable process of economic pain: they are created by pursuing an intentional pattern of design. As far as the economy goes, pain is out and distributive design is in, leading to a fundamental shift in the economist’s mindset. It’s farewell to the mythical rollercoaster ride: bring on the network.
Rather than wait (in vain) for growth to deliver greater equality, twenty-first-century economists will design distributive flow into the very structure of economic interactions from the get-go. Instead of focusing on redistributing income alone, they will also seek to redistribute wealth – be it the power to control land, money creation, enterprise, technology or knowledge – and will harness the market, the commons and the state alike to make it happen. Rather than wait for top-down reform, they will work with bottom-up networks that are already driving a revolution in redistribution. What’s more, they will match this revolution in distributive economic design with an equally powerful one in regenerative economic design, as the following chapter explores.
6
CREATE TO REGENERATE
from ‘growth will clean it up again’ to regenerative by design
Travelling through Europe in 2015, I met Prakash, a student from India who was studying for an advanced engineering degree in Germany. When I asked whether he had opted to learn about ecologically smart technologies, he just shook his head and replied, ‘No, India has other priorities – we are not rich enough to worry about that yet.’ Surprised, I pointed out that almost half of India’s land is degraded, the nation’s groundwater levels are falling fast, and air pollution is the worst in the world. A flicker of recognition crossed his face but he just smiled and repeated his words, ‘We still have other priorities.’
In one quick conversation, Prakash summed up the economic story that has been circulating for decades: poor countries are too poor to be green. What’s more, they don’t need to be because economic growth will eventually clean up the very pollution that it creates, and replace the resources that it runs down. It’s a story that once appeared to be backed up by data, along with an iconic diagram to embed its message. But, despite its continuing grip on the imagination of politicians and publics alike, it has turned out to be a myth, in India just as in the rest of the world. ‘India has performed remarkably economically,’ points out Muthukumara Mani, a World Bank senior environmental economist, ‘but that’s not reflected in its environmental outcomes. “Grow now, clean up later” really doesn’t work.’1
Ecological degradation is not a luxury concern for countries to leave on one side until they are rich enough to give it their attention. Rather than wait for growth to clean it up – because it won’t – it is far smarter to create economies that are regenerative by design, restoring and renewing the local-to-global cycles of life on which human well-being depends. It is time to erase the old diagram whose influence lingers on and replace it with a twenty-first-century vision of regenerative economic design.
What goes up might not come down
In the early 1990s, US economists Gene Grossman and Alan Krueger discovered a striking pattern. Studying trend data for GDP side by side with data on local air and water pollution in around 40 countries, they found that pollution first rose then fell as GDP increased, tracing out the shape of an inverted-U when plotted on the page. Given its uncanny resemblance to that famous inequality curve of Chapter 5, this new one was soon known as the Environmental Kuznets Curve.
The Environmental Kuznets Curve, which suggests that growth will eventually fix the environmental problems that it creates.
Having discovered another apparent economic law of motion, the economists could not resist the urge to use statistical modelling in order to identify the level of income at which the curve magically turned. For lead contamination in rivers, they found, pollution peaked and started to fall when national income reached $1,887 per person (measured in 1985 US dollars, the standard metric of the day). What about sulphur dioxide in the air? That appeared to fall when income hit $4,053 per person. As for black smoke? Wait until GDP exceeds $6,151 per capita and it will begin to clear. Overall, they claimed, growth would start to clean up air and water pollution before countries hit the $8,000 per capita mark – equivalent to around $17,000 today.2
It’s hard to miss the irony: just as the debunked Kuznets Curve was being ushered out of the economic limelight, its environmental cousin stepped centre stage. But Grossman and Krueger, like Kuznets before them, were careful to add a caveat to their findings. They acknowledged that they only had data for local air and water pollutants, not for concerns like global greenhouse gas emissions, biodiversity loss, soil degradation, and deforestation. They noted that national outcomes depended on the politics, technologies and economics of the day. And they pointed out that an observed correlation between economic growth and falling pollution didn’t demonstrate that growth itself caused the clean-up. But, like most economists who think they have uncovered an economic law of motion, they couldn’t resist drawing the conclusion that, for most environmental indicators, ‘economic growth brings an initial phase of deterioration followed by a subsequent phase of improvement’.3
Despite those careful caveats their hypothesis soon turned into a widely cited economic mantra, repeated in policy briefings, newspaper op-eds, and economics lectures worldwide: when it comes to pollution, growth – like a well-trained child – will clean up after itself. Some, like the pro-market economist Bruce Yandle, twisted this message into the much stronger claim that ‘economic growth helps to undo the damage done in earlier years. If economic growth is good for the environment, policies that stimulate growth (trade liberalisation, economic restructuring, price reform) ought to be good for the environment.’4 Yes, ‘no pain, no gain’ economics was back in town, this time recommending a perverse fitness regime for the living world. If you want clean air and water, healthy forests and oceans, then here’s the deal: it’s got to get worse before it gets better – and growth will make it better. So grit your teeth and feel the burn.
With the curve and its equations in hand, mainstream economists mocked what they called the ‘alarmist cries’ of environmental critics who argued that economic growth was severely degrading Earth’s soils, oceans, ecosystems and climate. Still, they acknowledged that there was no proof of a direct link between economic growth and environmental clean-up, so they put forward three possible explanations for it. First, as countries grow, they argued, their citizens can afford to start caring about the environment and so begin to demand higher standards; second, the nation’s industries can afford to start using cleaner technologies; and third, those industries will shift from manufacturing to services, swapping smoke stacks for call centres.
They might sound credible at first but these explanations for the curve’s rise then fall don’t stand up to scrutiny. First, citizens do not have to wait for GDP growth to deliver them the desire and power to demand clean air and water. That’s what Mariano Torras and James K. Boyce concluded when they matched up the very same cross-country data used to create the Environmental Kuznets Curve with measures of citizen power. Across a wide range of countries – and particularly in low-income ones – they found that environmental quality is higher where income is more equitably distributed, where more people are literate, and where civil and political rights are better respected.5 It’s people power, not economic growth per se, that protects local air and water quality. Likewise it is citizen pressure on governments and companies for more stringent standards, not the mere increase in revenue, that compels industries to switch to cleaner technologies. Third, cleaning up a nation’s air and water by shifting from manufacturing to servi
ce industries doesn’t eliminate those pollutants: it sends them overseas, letting someone else, somewhere else, feel the burn while those back home can import the neatly packaged finished product. That means it is a strategy for environmental clean-up that cannot be followed by all countries because eventually there will be nowhere left to outsource the pollution.
Lacking broader data, Grossman and Krueger could not investigate whether the Environmental Kuznets Curve’s rise and fall held true for wider ecological impacts such as greenhouse gas emissions, groundwater depletion, deforestation, soil degradation, agrochemical use, and biodiversity loss. Nor could they assess how much of each nation’s environmental impact was being incurred overseas. But thanks to advances in natural-resource-flow accounting those data are fast improving – and they tell a very different story from the one widely touted.
The extraction and processing of Earth’s materials within the borders of high-income countries has indeed been falling, leading to triumphant claims across the EU and the OECD of rising resource productivity and the decoupling of GDP growth from resource use – both touted as early evidence of the ‘green growth’ dream. But the celebrations have come too soon. ‘These trends make developed countries look more resource-efficient,’ warns Tommy Wiedmann, one of the experts spearheading the analysis of international resource flows, ‘but they actually remain deeply anchored to a material foundation underneath.’6
Recently compiled international data reveal that when a nation’s global material footprint is taken into account – by adding up all of the biomass, fossil fuels, metal ores, and construction minerals used worldwide to create the products that the country imports – then the success story seems to evaporate. From 1990 to 2007, as GDP grew in high-income countries, so did their global material footprints. And not just by a little bit: the US, the UK, New Zealand and Australia all saw their footprints grow by more than 30% over that period; in Spain, Portugal and the Netherlands they grew by over 50%. Japan’s footprint, meanwhile, grew by 14% and Germany’s by 9%: impressively lower than the rest, but still growing.7 Far from the promised rise and fall of the Environmental Kuznets’ Curve, these data point to a disturbing rise and rise.
Calculating global material footprints is a complex business, however, and some disagree with these findings. The resource analyst Chris Goodall, for one, compiled an alternative set of data for the UK in which the nation’s resource consumption – including imports – appears to have peaked and plateaued, or even started to decline.8 But even if these alternative data turned out to be close to accurate, there would still be a problem: the UK’s consumption would have peaked at an unfeasibly high level. If other countries were to follow suit – trusting that growth would eventually lead them to a similar peak and decline – it would require the resources of at least three planet Earths, pushing the global economy into extreme overshoot beyond planetary boundaries.9 In other words, if it turns out to exist at all, then the Environmental Kuznets Curve is a mountain that humanity simply cannot afford to climb because we cannot survive its peak.
Facing up to the degenerative linear economy
It’s time to put aside the search for economic laws demonstrating that growing national output will eventually deliver ecological health. Economics, it turns out, is not a matter of discovering laws: it is essentially a question of design. And the reason why even the world’s richest countries are still making us all feel the burn is because the last two hundred years of industrial activity have been based upon a linear industrial system whose design is inherently degenerative. The essence of that industrial system is the cradle-to-grave manufacturing supply chain of take, make, use, lose: extract Earth’s minerals, metals, biomass and fossil fuels; manufacture them into products; sell those on to consumers who – probably sooner rather than later – will throw them ‘away’. When drawn in its simplest form, it looks something like an industrial caterpillar, ingesting food at one end, chewing it through, and excreting the waste out of the other end.
This ubiquitous industrial model has delivered strong profits to many businesses and has financially enriched many nations in the process. But its design is fundamentally flawed because it runs counter to the living world, which thrives by continually recycling life’s building blocks such as carbon, oxygen, water, nitrogen and phosphorus. Industrial activity has broken these natural cycles apart, depleting nature’s sources and dumping too much waste in her sinks. Extracting oil, coal and gas from under land and sea, burning them, and dumping carbon dioxide in the atmosphere. Turning nitrogen and phosphorus into fertiliser, then offloading the effluent – from agricultural run-off and sewage – into lakes and oceans. Uprooting forests to mine metals and minerals which, once packed into consumer gadgets, will be cast onto e-waste dumpsites, with toxic chemicals leaching out into the soil, water and air.
The caterpillar economy of degenerative industrial design.
Economic theory recognises the potentially damaging effects – the ‘negative externalities’ – of such industry, and has its favoured market-based tools for addressing them: quotas and taxes. To internalise those externalities, the theory advises, put a cap on total pollution, assign property rights with quotas, and allow market trading to put a price on the right to pollute. Or impose a tax equivalent to the ‘social cost’ of pollution, and then let the market decide how much pollution it is worth emitting.
Such policies can have significant effect. From 1999 to 2003, Germany’s eco-tax raised the price of fossil fuels used for transport, heating and electricity, while lowering payroll taxes by an equivalent amount: it cut fuel consumption by 17% and carbon emissions by 3%, increased car sharing by 70%, and created 250,000 jobs.10 California’s carbon cap-and-trade scheme, launched in 2013, aims to bring the state’s greenhouse gas emissions back to 1990 levels by 2020. It still gives industry most of the quota for free, but intends to reduce the total quota and auction more of those permits over time, while using a price floor to avoid the collapse of permit prices, as occurred in Europe’s equivalent carbon-trading scheme.11
Tiered pricing is growing in use too, ensuring that the more that people use, the more they pay. From Santa Fe, California to water-stressed cities across China, tiered pricing is used to ration water use between households of widely differing incomes. Every household pays a low rate for its initial daily supply, intended for essentials such as drinking, bathing, and washing dishes and clothes. Beyond that – whether it is for cleaning cars, irrigating lawns or filling swimming pools – further water use is charged at three or four times higher rates. As water market expert Roger Glennon explains, ‘The beauty of tiered pricing is that it doesn’t prevent people from using water, and it doesn’t rely on government regulations. But it insists you pay more for extra water for your lawn than for basic human needs.’12 In Durban, South Africa, where access to water is recognised as a constitutional human right, each day’s essential supply is provided free to all low-income households, with pricing only kicking in beyond that level.13
Taxes, quotas and tiered pricing can clearly help to ease humanity’s pressure on Earth’s sources and sinks, but here’s the trouble with believing that they will do the whole job. In practice they fall short because they are rarely set to the level required: corporations lobby hard to delay their introduction, to lower the tax rate, to increase the quota, and to get permits given for free, not auctioned. Governments, in return, too often concede, fearing that their nation will lose competitiveness – and that their political parties will lose corporate backing. These policies fall short in theory too: from a systems-thinking perspective, quotas and taxes to limit the stock and reduce the flow of pollution are indeed leverage points for changing a system’s behaviour – but they are low points of leverage. Far greater leverage comes from changing the paradigm that gives rise to the system’s goals.14
When industry is based upon the degenerative linear design of take-make-use-lose, there is only so much that price incentives can do to mitigate its deple
ting effects. The visionary landscape architect John Tillman Lyle clearly recognised the limits inherent in such design. ‘Eventually a one-way system destroys the landscapes on which it depends,’ he wrote in the 1990s. ‘The clock is always running and the flows always approaching the time when they can flow no more. In its essence, this is a degenerative system, devouring the sources of its own sustenance.’15 What’s needed in its place is a paradigm of regenerative design – and that paradigm is now emerging, giving rise to a fascinating spectrum of business responses.
Can we do business in the Doughnut?
When companies first become aware of the scale of pressure that degenerative industrial design puts on Earth’s planetary boundaries, what do they do? Over the past five years I have presented the concept of the Doughnut to a wide range of business leaders, from senior executives in Fortune 500 companies to the founders of community enterprises. Their responses have varied widely, reflecting the many stages that lie on the journey from degenerative to regenerative design – and they can be summed up with what I call the Corporate To Do List.
The first and oldest response is simple: do nothing. Why change our business model, they reason, when it is delivering strong returns today? Our responsibility is to maximise our profits so until environmental taxes or quotas are introduced to shift the incentives we face, we’ll carry right on. What we are doing is (mostly) legal and if we get fined, we tend to consider it a cost of business. For decades, the majority of companies worldwide took this tack, treating sustainability as a nice-to-have that they didn’t need to have because it did nothing for the share price. But times are changing fast. Many manufacturers who depend upon worldwide suppliers – such as cotton growers and coffee farmers, wine makers and silk weavers – now realise that their own product supply chains are vulnerable to the impacts of rising global temperatures and falling water tables, so recognise that doing nothing no longer seems such a smart strategy.
