Throughout the 20th century, the global economic system has prioritized one performance indicator above all else – growth in gross domestic product. In recent decades that focus has propelled the global economy to almost unimaginable heights, pushing inequality to unprecedented levels and intensifying the pressure placed on the world’s most essential resources. The current system, characterized by excessive resource extraction and consumption supported by years of quantitative easing and highly leveraged balanced sheets, risks both economic and ecological collapse. The make, use and lose philosophy for human development and prosperity is clearly unsustainable and demands a fresh strategy that meets the needs of mankind within the means of Planet Earth.
From food, housing, energy, healthcare and even education, billions of people around the world fall short of their daily needs. Two-thirds of the world’s countries are more unequal now than in 1980. This has occurred at a time when our most critical life-support systems, ranging from a stable climate, fertile soils and a protective ozone layer, are under extreme duress. The estimated 55 billion tons of resources extracted from the Earth every year leads to the loss of at least 1,476 hectares of productive land every hour and 10% of tropical forest species every decade.
Kate Raworth, Senior Visiting Research Associate at Oxford University’s Environmental Change Institute and Senior Associate at the Cambridge Institute for Sustainability Leadership, has introduced a new, alternative and widely influential economic system – Doughnut Economics.
In order to fully understand this concept, we must first explore the circular flow of goods and money that forms the basis of modern economic theory.
Source: “Doughnut Economics: Creating a Safe and Just Space for Humanity”, Oxfam, Kate Raworth (2013)
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At its very core, the modern financial system has been based on households who provide their labor and capital to firms, in order to receive wages and dividends and buy goods and services. While this is at the heart of macroeconomic analysis and measuring economic growth, this economic theory is fundamentally flawed. Setting aside the financial sector with its wild speculation and money creation, as well as government interference with taxes and austerity, the global economy is deeply embedded in the environment. The global economy actually enables us to acquire and repurpose energy to fuel life, create products and offer services that create financial value. Unfortunately, this system relies on excessive consumption that ultimately damages the environment.
Raworth’s Doughnut Economy, shown in the diagram above, presents the economy in two circular layers. The inner layer represents sufficiency of the resources we need to live a fulfilling life. The outer defines the Earth’s environmental capacity to produce these resources, beyond which we cause damaging consequences. In Raworth’s definition, the area between the two is an ‘ecologically safe and socially just space where humanity can thrive.’ Raworth’s main objective with this theory is to repurpose economics so that we enter this sustainable space and create the external conditions to stay there indefinitely.
So how do we ensure resource-security and accessibility within the means of the environment? We need to create a closed-loop system where our resources are used and recycled in ways that create shared value. Today’s economies, which are degenerative by default, should be regenerative by design. This can be achieved by investing in the wealth that sustains global populations because it is from this that everything generated in our global economy flows.
Source: “Doughnut Economics: Creating a Safe and Just Space for Humanity”, Oxfam, Kate Raworth (2013)
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What we do to the Earth over the next 50 years will inevitably lay the foundation for the next 10,000. Let’s replace last century’s goal of growth at all costs with a system that prioritizes prosperity through social, environmental and economic balance. One of Primal Group’s core objectives is helping shape a global financial system that creates true value by strengthening society and the economy through the achievement of shared objectives. Our latest project ensures the planting of 10,000 neem trees every single week in developing regions of the world for the development of safe, sustainable and regenerative end-user retail products across the agricultural, beauty and personal care markets.