Economies do not need
to grow –
Doughnut Economics


Equating economic growth with economic health- and why this equation fails.

The construct of Gross Domestic Product (GDP) “measures the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time”, according to the International Monetary Fund.

Consumption, hence production, within a specific geopolitical setting is therefore a main criterion for economic performance. This means that the higher the final cost of all goods and services produced, the stronger the economic growth. And the healthier the economy. This assumption has been heavily criticized though, since its lack of numerous other factors that shape a healthy economy, e.g. sociopolitical wealth, sustainability and environmental components. Ever since the 1930s, when the GDP was developed, economic growth has been mistaken for economic health. Instead, it promotes policies aiming for growth rather than dynamic balance.

It promotes systems that focus on numbers rather than names, while the race for the most rapid growing industry and state inevitably leaves the majority behind.

 

With universal environmental and social challenges causing our global economy’s facade to crumble, alternative measures of wealth are crucial if humanity wants to meet those needs.  Despite their main focus on growth, some of the newly developed economic models dare to include innovative elements which merit a mention.

Alternative measures of wealth

Measure of Economic Welfare (MEW)

Developed in the seventies, MEW adds the values generated both within the economy and itself and substracts the values of environmental damage.

MEW = GDP + Leisure time + Unpaid Work – Environmental Damage

While it lacks in numerous aspects, the MEW became the foundation for more complex indices to be developed.

Genuine Progress Indicator (GPI)

The GPI adds the innovative factor of sustainable income, which is the amount of income an economy can consume without decreasing the consumption of the following time period. 

It includes 26 indicators classified in economic, social and environmental categories- a fascinating attempt to measure complex matters in order to define economic progress.

Due to the difficulty in the quantification of indicators such as “value of volunteer work”, the GPI has aroused scepticism- and just like the GDP it focuses strongly on the aspect of growth. Out of a linguistic perspective, “progress” implies the notion of moving forward for betterment. This linearity is re-occuring in various economic models of growth. But does a growing economy make a flourishing and happy society?

The Happy Planet Index (HPI)

Presented by the New Economics Foundation in 2006, the Happy Planet Index aims to quantify “sustainable wellbeing for all”. Its formula adds the categories of wellbeing, life expectancy, inequality of outcomes and then divides the sum by the corresponding ecological footprint. In an effort to make the data collection and measurement as transparent as possible, the matters of reliability and accuracy are being openly discussed here.

 

HPI 2016 Data retrieved from here

Interestingly, the GDP and HPI results do not correlate in every case.

Overall there are numerous other economic models in macroeconomics, most of them claiming growth to be essential for sociopolitical development.

So what if the paradigm of linear growth is misleading though?

Doughnut Economics

Oxford economist Kate Raworth thinks different. According to her, humanity’s obsession for growth should be substituted with a model of thriving, healthy and balanced economies. Her model includes the categories of energy, food, water, health, education, income and work, peace and justice, political voice, social equity, gender equality, housing and networks, in an attempt to meet 21st century needs. Further discussion might lead to the development of a new index, more complex than the GDP and the others mentioned above.

And since this model does not focus on growth, but on a cyclic balance instead it looks like… a doughnut.

It is an eye-opening talk she gave for TEDxAthens, presenting an elegant, yet simple and brilliant construct that invites us to re-evaluate and reflect.

Header image credits royalty free

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