FINANCE AND ECONOMICS

Fresh Economics

linda PiCkerinG

As with all academic disciplines, economics is constantly re-inventing itself. This could not be more prevalent than during a global pandemic! The discipline has traditionally subscribed to linear models, whereby a good is created, then purchased, and finally consumed. More recently, models which hold a more holistic view are rising in prominence. I believe this is largely due to the planet’s ever-depleting resources; namely, the push towards more environmentally conscious forms of production. Two such models which are gaining traction are Doughnut Economics and the Circular Economy.

DOUGHNUT ECONOMICS

Whilst it might sound like a tasty snack, Doughnut Economics is actually a revolutionary way of conceptualising economies. Developed by Kate Raworth, Doughnut Economics seeks to balance the social needs of people as well as respecting the environment. It reimagines what economic success looks like. Instead of focusing on what a country’s Gross Domestic Product might be, Raworth would instead be interested in whether an economy sits within the ‘green doughnut’. By now you’re probably feeling a little hungry and wondering where you can get one of these green doughnuts from. The green doughnut sits between the planet’s ecological ceiling and the social foundation. Shortfalls in the social aspect and overshoots in the ecological aspect are shown in red (climate change, nitrogen & phosphorous loading, land conversion, and biodiversity loss for those of you reading this in print). So, an economy which doesn’t deplete its environment and ensures its people are looked after would sit within the green doughnut.

And it’s not just a fantasy; Amsterdam has committed to using Doughnut Economics, working with Raworth herself. The city also aims to become a fully circular economy by 2050. It would be exciting to see more economies take on this initiative.

Reference: https://www.kateraworth.com/doughnut/

THE CIRCULAR ECONOMY

The Circular Economy is the synthesis of several economic schools of thought which have gained traction since the late 1970s. It essentially aims to cut out waste in our economies. Similar to Doughnut Economics, the Circular Economy requires an economy to make profound changes. This involves changing our methods of production and consumption. The economy could be viewed as more of a closed system with resources being reused and re-introduced into the economy instead of creating negative externalities such as landfill, or using more raw materials. It includes some revolutionary prospects, such as leasing a good from the manufacturer instead of purchasing it so that the manufacturer refurbishes it once it reaches the end of its shelf life.

We also might see more of the Circular Economy in the mainstream. The investment management company that Brian Deese has been working for has a “Circular Economy Fund”. This could indicate that, as Joe Biden’s most senior economic advisor, he will emphasise this way of thinking. I’m sure I don’t need to emphasise how significant it will be having one of the world’s most influential economies taking on this model.

THE PANDEMIC AS A CATALYST?

The economic crisis brought on by the COVID-19 pandemic has resulted in numerous changes in how people view economics. Due to high unemployment, governments strengthened their welfare policies. This has shifted the Overton window, allowing for more discussion on Universal Basic Income and other policies. The pandemic also revealed drawbacks of growth-based economies, which are more acutely vulnerable to negative shocks. This is because they have been streamlined so that resources are allocated towards the highest profit, creating greater profits in the short term, but making the economy weaker in terms of mitigating crises. It’s unreasonable to expect endless growth to be sustainable or without consequence. Models such as Doughnut Economics and the Circular Economy create more resilient and sustainable economies. This type of thinking looks to the future rather than the short-term thinking of linear economics. With these cracks being exposed, we should all expect changes in how we structure our markets.