POINT OF VIEW: A New Compass for Economics by Kate Raworth

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Publication: F&D Magazine
Title: A New Compass for Economics
Author: KATE RAWORTH
Date: March 2024
Central claim: Economic renewal must begin with the goal of human flourishing on a thriving, living planet.

Historical framing:
- John Maynard Keynes quote from 1938: “Economics is the science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world.”
- Many influential models shaping current economic thought were created in Keynes’ era.
- Paul Samuelson’s circular flow diagram from the 1940s defined the macroeconomic model dominating 20th century thinking.
Critique of GDP as sole compass:
- Last century’s adoption of growth as the de facto goal made GDP the economist’s compass, measuring progress as an exponential curve using a single metric of monetary value.
- Prioritizing GDP growth over tackling inequality and protecting the living world has had clear negative impacts.

Core concept:
- The doughnut prioritizes essential needs and rights of every person—from food, water, and health to decent work and gender equality—while recognizing planetary boundaries: a stable climate, fertile soil, healthy oceans, and a protective ozone layer.
- It depicts humanity thriving between a social foundation and an ecological ceiling: meeting the needs of all people within the means of the living planet.
Measurement implications:
- Replace the single GDP metric with a dashboard of diverse social and ecological metrics.
- Redefine success as thriving in balance between social and ecological boundaries rather than endless growth.
Status check:
- “No economy in the world has met the needs of all its people within the means of the living planet (Costa Rica is the closest to doing so).”
- Conclusion drawn: no economy should yet consider itself “developed.”

Missing elements in conventional maps:
- Samuelson’s circular flow omits vast quantities of energy, materials, and waste involved in economic activity—these omissions are dangerous for life on Earth (quoting John Sterman on model blind spots).
Proposed re-map:
- Depict the economy as a subsystem of Earth’s biosphere, an open system with large inflows and outflows of energy and matter.
- Recognize the economy’s dependence on the living world as a biocentric starting point for economic analysis.

Energy as fundamental:
- Argument: energy, not money, is the fundamental currency of life, underpinning human, ecological, and industrial systems.
- Energy dependence should be central to economists’ understanding.
Planetary pressure and decoupling:
- Humanity’s continual use of resources places intense pressure on planetary boundaries, risking ecological stability.
- The ambition of decoupling consumption-based carbon emissions and material use from GDP growth in today’s high-income economies “is not happening at anywhere near the speed and scale required to avert critical tipping points.”
Implication:
- Necessitates questioning limits to growth and exploring postgrowth economic possibilities, particularly in wealthy economies.
- Facing ecological consequences of economic activity is framed as a critical moral obligation.

Four sources of provisioning to recognize:
- Market
- State
- Household
- Commons
Key points:
- Mainstream thought has focused on market vs. state, neglecting household and commons.
- Much value produced by household and commons is not reflected in GDP but is critical for human well-being.
- Examples:
- Unpaid caregiving done predominantly by women in the home subsidizes paid work and is essential to well-being.
- The commons can provide goods and services without monetary exchange value (examples cited: open-source software, Wikipedia, transnational watershed management).

Adopt a new compass and map for economics oriented to human flourishing on a thriving, living planet.
Redefine success:
- Move from a single GDP metric to a dashboard of social and ecological metrics.
- Prioritize thriving within social foundations and ecological ceilings.
Redesign finance:
- Finance must be redesigned to be in service to the real economy and in service to life.
Develop new macroeconomic models:
- Models should treat the economy as a subsystem of the living world and incorporate energy, material flows, and waste.
Explore postgrowth possibilities:
- Particularly relevant for wealthy economies where decoupling is insufficient.

Source: POINT OF VIEW: A New Compass for Economics by Kate Raworth, F&D Magazine, March 2024.

Point of View: A New Compass for Economics
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