Brief 5, 16 Dec 2020. Beth Stratford and Dan ONeill.
The Doughnut of social and planetary boundaries is a framework for guiding and evaluating policy, where the goal is to meet the needs of all within the means of the planet. This policy brief considers what it would take to use the Doughnut instead of GDP growth to guide our Covid-19 recovery.
- Policymakers fear slowing GDP because our economy is currently dependent on GDP growth to maintain economic and political stability in the short term.
- This growth dependence makes it difficult to respond effectively to public health emergencies, such as pandemics, and to introduce environmental protections in line with planetary boundaries.
- This policy brief explains the causes of our growth dependency and outlines four key strategies to alleviate it: (1) safeguard basic needs; (2) empower and protect workers; (3) reduce our exposure to debt crises; and (4) reduce rent extraction.
Using the Doughnut to inform Covid-19 recovery
In Amsterdam policymakers have chosen a holistic framework to guide and evaluate their response to Covid-19: the Doughnut economics model developed by Kate Raworth.
The Doughnuts outer boundary represents the ecological ceiling corresponding to Earths critical life-support systems. The Doughnuts inner boundary represents the social foundation, the minimum quality of life to which every human being has a claim. Between lies a doughnut-shaped space in which it is possible to meet the needs of all people within the means of the living planet.
Can we live within the Doughnut and still grow GDP?
To live within planetary boundaries whilst maintaining and improving quality of life we undoubtedly need to grow certain things, such as renewable energy capacity, public transport infrastructure, ecological restoration projects, and insulation programmes. But scaling up the good stuff is not enough. To live within planetary boundaries, we also need to scale down the damaging sectors of our economy.
A key reason that governments have failed to impose the regulations and taxes necessary to scale down damaging forms of economic activity is because doing so would make it difficult to maintain growth as usual.
Pursuing what might sound like a modest target of 2% GDP growth per year implies doubling the scale of our output and consumption every 35 years. To get to net zero global carbon emissions by 2050 whilst achieving this exponential growth would require us to roll out currently unproven negative emissions technologies at a scale and rate that many experts do not think is feasible, expand renewables at a rate that many experts do not think is physically possible, and achieve a net energy payback from that renewable infrastructure that many experts do not think is plausible. A recent comprehensive review of the science, concludes that it would be virtually impossible to get back within planetary boundaries with historical rates of consumption growth.
Thats why this brief focuses on one of the biggest obstacles that stands in the way of achieving essential environmental policies: the fear of slowing GDP.
Why do policymakers fear slowing GDP?
The spectre of shrinking or stagnating GDP has repeatedly been invoked to block environmental policies, and recently to justify the lifting of Covid-19 restrictions in workplaces, in spite of the risks to public health. According to the Reset Inquiry, two thirds of the British public want government to prioritise health and well-being over GDP. So why are policymakers so preoccupied with GDP? Part of the answer is that our economy is currently dependent on growth to maintain economic and political stability. Our growth dependence expresses itself in at least four ways:
The threat of unemployment: Conventionally economic wisdom says we must stimulate consumption growth to soak up surplus labour resulting from automation and other innovations. But we could share out the remaining work, with shorter working week at a higher hourly pay rate.
The risk of private debt crises: We are dependent on growth to maintain financial stability because our economy is heavily burdened with debt. Debts are fixed in nominal terms, and if the interest cannot be paid, they grow exponentially. To make our economy resilient in the face of slowing growth, we must look for ways to reduce indebtedness, both for households and firms.
The inequity of rent extraction: Rentiers do not create wealth; they extract the wealth that other people create through their control of monopolised and scarce assets. When wealth creation stalls while landlords, financiers, monopoly interests, and other rentiers continue to extract wealth and accumulate assets the result is rising inequality.
The failure to safeguard basic needs: High levels of unemployment, indebtedness, and rent extraction are all-the-more dangerous in an economy like the UK, where essential goods and services like social care, energy, and transport are rationed by if you can pay. In this context, the ability of the poorest to meet their basic needs is threatened by a fall in income, or a rise in prices.
By reducing our economys growth dependence, we would give policymakers the freedom and confidence to respond decisively to public health emergencies, and to introduce tough environmental protections in line with planetary boundaries.
The Covid-19 crisis is exposing the vulnerabilities in our current system, but it also presents opportunities to tackle these problems head on. We propose four policy strategies to reduce growth dependence:
- Safeguard basic needs: Strengthen our social safety net and expand Universal Basic Services.
- Empower and protect workers: Shift the balance of power in workplaces to make working-time reduction a feasible solution to the threat of unemployment.
- Reduce exposure to debt crises: E.g. regulate to reduce exploitative, tax-avoidant, and inflationary forms of lending/borrowing; Avoid austerity measures forcing more households into debt.
- Tackle rent extraction: Reduce rent extraction by landlords, financiers and monopoly interests.
About the authors
Beth Stratford is a fellow at the New Economics Foundation and a PhD researcher at the University of Leeds.
Dan ONeill is Associate Professor in Ecological Economics at the School of Earth and Environment, University of Leeds
To cite this policy brief, please reference: Stratford, B. and ONeill, D.W. (2020) The path to a doughnut shaped recovery. Brief 5, Policy Leeds, University of Leeds. http://doi.org/10.5518/100/59