A New Economic Model?
The world has gone through several acute crises in the past few decades. What has become clear is that we need to think differently about humanity’s goals and what constitutes well being. The catastrophic consequences of these calamities brought economic thinking and societal goals into sharp relief.
Several financial upheavals, global warming and now the pandemic show that there are existential trade-offs that the capitalist system cannot efficiently handle. The relentless pursuit of GDP growth in the global economy and the capitalist system propelling it have been shown to have serious limitations. Alternative thinking and metrics are needed.
Oxford University’s Kate Raworth proposes a powerful alternative model for thinking about economics in ways that are socially and environmentally sustainable. She combines the concept of planetary boundaries (or ecological limits) with the complementary concept of social boundaries. She believes we should judge the performance of an economy by the extent to which the needs of people are met without overshooting earth's ecological limits. Easier said than done, surely, but a conversation that is critical for our survival as a species. And she provides a framework that is well thought out and balances human needs with planetary and environmental constraints.
The main goal of the new model (that uses the metaphor of a doughnut) is to re-frame economic problems and set alternative goals rather than those which revolve around GDP growth and using natural resources merely as inputs. In this model, an economy is considered prosperous when the social foundations are met without overshooting any of the ecological ceilings. The visual depiction of this (the doughnut concept) is of social and ecological limits of economic growth as concentric circles. The 'safe and sweet' space between the concentric circles necessitates institutions and economies that distribute wealth and regenerate ecosystems.
Achieving sustainability necessitates economic-societal models that are distributive and regenerative by design. How to achieve this will be one of the most critical conversations moving forward but in the business domain there are clear implications that need to be recognised and addressed at Board level. Carbon and energy standards are already being implemented and these carry necessary operational and investment costs. Sustainability concerns (and specifically the issue of climate change) need to become a key priority on CEO and Board agendas.