Saturday, June 17, 2017

Doughnut Economics:a step forward, but not far enough


Doughnut Economics, by Kate Raworth (Chelsea Green, 2017) is an interesting book that goes in the right direction in the sense that it promotes a circular economy, But it leaves you with the impression that it missed that extra step that would have lead it to define the goal in the right way. Bridging the gap between standard economics and biophysical economics is still far away.

So, what is this "Doughnut" that gives the title to the book? Initially, I had imagined that it was supposed to be a sort of mandala representing the concept of circular economy. But that doesn't seem to be the case: circular mandalas often represent the cyclical movement of a wheel, but the doughnut doesn't (as, indeed, most doughnuts are not supposed to be used as wheels). Here is how it is represented in the book:


It is described as "a radically new compass for guiding humanity this century." Ambitious, to say the least, but how is that supposed to work, exactly? Maybe I am missing something, but I not sure I can understand why the numerous concepts appearing in the figure should be arranged in a "doughnut."

The problem with the doughnut is not so much understanding why it is shaped like a doughnut, but what it lacks. Look at the outer ring; you will see 10 sectors, all related to pollution: climate change, ocean acidification, chemical pollution, etc. Something is conspicuously missing and it is not a minor element of the overall picture. It is natural resources and, in particular, non-renewable resources (*)

Natural resources, their depletion, and the related concept of "overshoot" are not just missing from the doughnut, they go mostly unmentioned and unnoticed in the whole book. To give you an example, Raworth mentions only once the 1972 study "The Limits to Growth" that was the first to pinpoint the resource problem. In a discussion of less than than two pages, I think her position can be summarized by the following statements:
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, 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 the effect of what the 1970s model simply called pollution ... World 3's modeling of pollution turned out to be prescient.... recent data ... find that the global economy seems to be closely tracking its business-as-usual scenario.
As it is often the case in this book, Raworth's statements need some work to be interpreted because they are always nuanced; if not vague, as when she says one should be "agnostic" about economic growth (**). Here, the interpretation seems to be that The Limits to Growth may have been right, but only because it took into account pollution. Instead, its treatment of non-renewable natural resources was wrong because depletion can be completely neutralized by market factors. Raworth doesn't seem to realize that she is contradicting herself, here: if the "business as usual" scenario produced good results in terms of comparison with the real world's economy, it is because it contained depletion as a major constraint. World 3 could also be run in the hypothesis of infinite natural resources, with pollution the only constraint, but the results would not be the same.

That's the thread of the whole book: natural resources are not a problem; we should be worried only about pollution. Raworth doesn't link the concept of the circular economy to recovering non-renewable resources; she proposes only in relation to abating pollution, with the corollary that it also brings about also better social equality. This is not wrong; it is true that a cyclical "regenerative" economy would be able, in principle, to reduce or eliminate pollution. Still, it is curious how the question of mineral resources is so conspicuously missing in the book.

Kate Raworth is described in the book flap as a "renegade economist", but she still reasons like an economist. The idea that the price mechanism will make depletion always irrelevant is old and it goes back to the 1930s, when the so-called "functional model" was presented, stating exactly what Raworth describes. The idea is that market factors will always re-adjust the system and magically make depletion disappear. By now, the functional model is deeply entrenched in the standard economic thought and there seems to be no way to dislodge it from its preheminent position.

The interesting point is that not only economists tend to dismiss depletion as irrelevant. In recent times, the whole "environmental movement" or the "Greens" have taken exactly the same position. All the debate about climate change is normally based on the supposition that minerals, and in particular fossil fuels, will remain cheap and abundant for the current century. If this is the case, it makes sense to propose to spend untold amounts of money for carbon capture and sequestration (CCS) rather than for renewable energy. It goes without saying that, if this assumption turned out to be wrong, the whole exercise of CCS, if it were undertaken at the necessary scale, would turn out to be the greatest resource misplacement of resources in human history, possibly even worse than nuclear energy.

Why is that? As a puzzle, it is difficult to solve. In principle, resource depletion and its negative effects would seem to be easy to understand. Easier than the complex chain of physical factors that leads from the emission of greenhouse gases to disastrous events such as sea level rise, heat waves, hurricanes, and the like. Maybe it is just a question of the lifetime of memes. The meme of depletion started before that of climate change and it is now in its downward trend. Whatever the case, we seem to be locked in a view of the world that misses some fundamental elements of the situation. Where this special form of blindness will lead us is all to be seen. 

Getting back to Raworth's book, despite the criticism above I can also say that it is worth reading for its broad approach and the wealth of concepts it contains. Its discussion on how the science of economics came to be what it is nowadays is, alone, worth the price of the book. Although it misses part of the problem, it may open up new views for you.



(*) You may also have noticed that the concept of "overpopulation" is missing in the doughnut. On this point, Raworth maintains in the text that if people are given the possibility of having a life free of deprivation, they won't reproduce like rabbits - a concept on which I tend to be in agreement; even though its practical implementation in the current world's situation is problematic, to say the least.

(**) The idea of a "zero growth" or "steady state" society would seem to be a fundamental feature of a circular economy, but it is barely mentioned in the book


16 comments:

  1. The price mechanism is fine and well, but it can only adjust economic action to the value system of the consumers and help to find a path in the vicinity of the optimum - in exactly this respect. If the consumers are lacking foresight, the price mechanism will lack it too, and then the price signal is part of the problem.
    As an annotation: the consumers are not a specific , marked out set of people, but a part-personality of us all, of you and me. It is more a mode of action, a role more than a person, and it may even have a (limited) independence of the rest of the personality.

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  2. Ugo
    Very informative review - thank you.
    My guess as to the reason that these 'memes', both Climate Change and Depletion, get feeble or even declining mainstream ‘economic’ attention, is that neither can be said to have truly happened yet over the four decades. We can argue (correctly) that we have already seen the beginning and the effects of both, (in line with a LTG trajectory) but my guess is that even when aggregate world 'growth' / urbanisation / 'globalisation’ starts remorseless retreat, the ‘economic’ world will fail to grasp the connections with pollution & depletion. Massive carbon emission will continue. We see, if I remember correctly, the decade or so of acceleration in carbon emission beginning to decelerate a little (down turn in coal burn) but the world economy has still got some economic growth left in the system.

    best
    Phil

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    1. The thing that scares me is that not only will economists fail to grasp the connections that cause economic growth to stop and then recede, but most politicians will be quick to blame some group or other for the problems of a failing economy. That is when war will be even more likely than it is now.

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    2. Joe
      A previous discussion on Ugo's site suggested that the future in various forms is already happening in many places. I suppose they might be described as 'controlled wars'. But follow the money. Relative defence spending per capita and arms sales give us an idea. And 'diminishing returns' seems an iron law for most responses that are hi-tec and complex.

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  3. I too have long noticed that the environmental movement tends to focus on pollution and neglect resources, and have pondered about the reasons myself. I actually see an explanation though.

    First, pollution is something that directly impact people -- dirty air, polluted water, radioactive waste, etc., all those things have a very palpable negative effect on people, so they are easy to understand as immediate threats and to rally against. Resource depletion? Not so much, as it is a slow long-term process that will affect future generations but does not impact directly people here and now. Climate change has the same problem but it at least received a lot of attention, not necessarily for good reasons though, but because it got entangled in politics.

    Second, pollution is a problem the solution to which is relatively easy and improves people's lives. So that factory next door is spewing noxious gases all over town? We can force it to apply some sort of technological fix (or move it to India if that is not possible and have it be somebody else's problem). End result? Our environment is cleaner, we live better. But what about resource depletion? The only viable solution is a drastic downscaling of our population and per capita resource consumption combined with aggressive recycling. That is a major decline in perceived living standards ("perceived" being a key word). Is it any wonder there is little appetite for discussing that aspect of the sustainability crisis?

    The fracking situation is a perfect illustration of this dynamics. There were all these documentaries about people lighting their tap water on fire, fracking fluid chemicals polluting groundwater, etc. etc. Nothing about how fracking is a desperate attempt to squeeze out the a few more drops of oil/gas out of the ground, how energetically inefficient it is, how quickly individual wells deplete and what that means, etc.

    Finally, in addition to pollution and resource depletion, there is also a third aspect of the crisis, and it is biodiversity loss. Which is in principle independent of the other two -- we could be generating little pollution and not relying on nonrenewable resources and still wrecking biodiversity (indeed, we were doing precisely that prior to the industrial revolution). And I am not just talking about those species that could be classified as "renewable resources".

    That does not receive much attention for similar reasons -- it does not impact people directly so they don't care.

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  4. Yes Ugo you are right,the greatest misplacement about resources in human history, is assuming that fossil fuels will remain cheap and abundant and I would add... why politicians and their bosses continue fucusing on this propaganda, is the key to understand geopolitic and global economic.
    Gio

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  5. On overpopulation: In Africa the demographic revolution doesn't really seem to happen.
    On the cyclical,or non growth economy: Industrial economies are by definitition large scale economies. The personal trust is not there,and has to be offset by the prospect of profit and thus growth, or else investments will cease. Africa's superstitious backwardness (in light of their population predictions) and the impossibility of designing a functioning large scale economy without growth prospects,has anyone really been able to solve or thoroughly engage these problems without resorting to hand waving? Those I have read who have, seem to remain pessimists:( and of course the resource aspect, as you point out, seem to always be conveniently forgotten as well.

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  6. Economics is not a science, its a tool to justify the status quo.
    i.e. money is created by lending not borrowing, so any 'truth' based theory of economics is defined by human inadequacies.
    Not that I don't appreciate some of the posts that appear here.

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  7. I guess there is not a single word about overpopoluation either (or there is, but denying it). That's the other part of the issue "environmental movement" has been denying for a while now.

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  8. Depletion of non-renewable resources really is non-problem because markets will generate more recycling as resources become scarcer and prices rise, as well more use of substitutes. A steady state economy following Herman Daly would recycle 100 % of essential non-substitutable minerals, based on renewable energy, so knowledge but not consumption of stuff would grow. Daly is mentioned by Raworth, but she does not have much about the steady state economy, which is the most important point missed in the review.

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    1. Felix, recycling 100% is physically impossible, so consumption will continue. And as Georgescu-Roegen points out, an economy, which consumes non-renewables at any rate, even if a steady state, is not sustainable.

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    2. It is possible if you want to spend a lot of energy in the task

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  9. A "safe and just" place for humanity might be better represented as the hole in the center, in that it is a void. We have a very long way to go to fill that hole. All we have to do is quit war, consume little, and reproduce in an intelligent fashion.

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  10. I just got this today
    http://www.artberman.com/energy-nonsense-wall-street-journal/

    'Economic / Financisl' thought does not neglect misrepresentation and propaganda.

    We seem to lose our power of reason.

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  11. Ugo, it is always great to read people who accept there are limits to resource consumption. Do you have any great examples of depletion where substitution has not occurred? So the product just disappeared?

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    1. Good question. So far, we seem to have been able to substitute just about everything in terms of mineral resources, in some case with products with better performance. Just think of how digital storage displaced silver based photographic film. Sometimes, however, the replacement didn't come and that's often the case of biological resources. Today, a mammoth steak is somewhat difficult to find in a supermarket. A more recent case is that of black caviar from the Caspian sea. It still exists, but only as an inferior and polluted variety made from farmed sturgeon

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Who

Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014). His most recent book is "The Seneca Effect" to be published by Springer in mid 2017