Are you creating the space for doughnut economics in your organisation?
Doughnut Economics is surprisingly popular. It is almost guaranteed that someone in your organisation wants to talk about it. Are you creating the space for those conversations?
Last month the Aotearoa Circle hosted Kate Raworth, author of the 2017 best-selling book Doughnut Economics, to hear what doing business within the Doughnut could look like. It wasn’t our knack for conferences or our world-leading airline that attracted this renegade economist to Aotearoa. Kate told us it was our wealth of culture and indigenous knowledge combined with our increasingly interesting economic agenda that swayed her decision.
Kate isn’t the only one around the world that’s interested in what New Zealand is doing and how we’re thinking about it. Kate told Newshub that the wellbeing budget in particular ‘…will be watched worldwide, to see what does it look like when a country starts with a different paradigm, a different starting point of wellbeing and actually turns it into economic policy’.
An opportune time, then, for the Aotearoa Circle, a recently-established group of leaders in pursuit of prosperity in a country that the world is looking to for ideas, to hear from Kate Raworth.
The big picture: the safe and just operating space for humanity
Kate’s starting point for the Doughnut is critical and indisputable. It might even be approaching old news. The story goes like this. For the first time in the evolution of life on Earth, human dominance of the planet’s systems (i.e. biological, chemical and geological) is seriously disrupting our critical life support systems. We are both the first generation to understand this and we may be the last generation able to do something meaningful about it.
The Doughnut also ties in our social reality. This brings our multitude of social crises into the same conversation as our environmental and economic challenges, when we typically think of them as separate, discrete problems.
Intrinsically bound up in this story is the fact that while the economic orthodoxy has delivered rising incomes and increased living standards around the globe, the foundation of our modern economy is inherently a take-make-use-lose model. This model is clearly on shaky ground, we know we have overshot our resource base and it is coming at an unbearable cost.
The effect of the Doughnut is to lay our economic system bare, and it’s a smack in the face for all of us, in the form a big green and red Doughnut (see Kate’s slides here).
To avoid us leaving a polluted legacy for our children and grandchildren to clean up and an inequality of opportunity, Kate argues that the path to sustainable prosperity is to rethink business, finance and economics. We need a new business model.
Kate’s new business model for society is a circular economy, one that works within the living systems of the living world. This means an economy that designs out waste and pollution, keeps products in use, regenerates natural systems and runs on renewable energy. This new approach is already getting traction in New Zealand, through events like the recent Ōhanga Āmiomio, the world’s first Pacific Summit on circular economy. The summit explored the connections between indigenous worldviews and the circular economy mission, highlighting our wealth of knowledge and our key advantages and challenges.
The fun bit: the design of enterprise
Kate discussed the five key design traits that shape an organisation’s capability to drive change and operate within the Doughnut: purpose (profit-only or a broader, living purpose looking to deliver wider value), governance (narrow metrics and targets or broader issues of risk and return), networks (accepting the status quo or influencing supply chains and finding allies for change), ownership (shareholder ownership or mixed, employee and open ownership) and finance (using funders whose only focus is to make profit or those also focused on existing within the Doughnut).
Kate provided the interesting story of Unilever, an example of why all five of these traits need to be aligned in the long run. In 2017, Paul Polman (Unilever’s CEO) introduced a new sustainability purpose, created ambitious, measurable targets and linked up with business and NGO networks calling for strong environmental action.
However, the majority of the company’s shareholders were still profit focused, meaning that a strong conflict emerged between the organisation’s purpose, governance and networks (the top three signposts above) and the organisation’s finance and ownership, (the bottom two signposts) which were still pointing towards the 20th century, extractive enterprise model. This, Kate pondered, may have been at the heart of the attempted hostile takeover bid.
This difficulty in finding alignment across these five design traits is something we’re familiar with in New Zealand. For example, the Impact Enterprise Initiative recently published a report arguing that our current legal structures and financial expectations are focused on the 20th century model, creating issues for those enterprises that are seeking to utilise a business model that works for the 21st century (currently considered to be ‘social enterprises’ or ‘impact investments’ rather than mainstream business).
The critical bit: finance
The story of Unilever highlights that perhaps the most important part of creating more Doughnut enterprises lies in rethinking the purpose of the financial system. The recently launched New Zealand Sustainable Finance Forum is asking these big questions, questioning the purpose of the financial system and seeking to design a roadmap for change. Its vision is to ensure that the financial system supports (rather than hinders) sustainable social, environmental and economic wellbeing.
This is a profound shift, the need for which is relatively well understood within the financial sector, as demonstrated by increasing calls for action from central bankers, investors and pension funds. These financiers understand that operating outside the Doughnut is a serious financial risk to individual firms and to the economy.
The financial sector is increasingly looking to invest in businesses that will survive and thrive in the 21st century. A key part of this is shifting towards making investment decisions on the basis of a more nuanced understanding of climate-related risks and opportunities. For example, physical risks, (i.e. impacts of climate change like sea level rise), transition risks (i.e. policies like higher carbon prices) and liability risks (i.e. potential lawsuits brought against those that are seen to be propelling an economic system towards planetary collapse).
Again, context is critical. This shift in the financial system is not occurring in a vacuum. This is part of a global shift in financial markets, with New Zealand simply following the lead of others like the European Union, Canada and the United Kingdom. It’s just not a shift that is well understood or discussed in New Zealand, yet. Blackrock, the world's largest asset manager with $6.5 trillion in assets, has predicted that sustainable finance is ‘…no longer a niche area; it is going mainstream’.
This shift in capital aligns with the shift in business models that Kate prescribes, in that the purpose of the financial system can be to scale-up and drive generative enterprises that deliver value beyond their shareholders to society more broadly. The flip-side being a shift of investment away from extractive, unsustainable enterprises that are poorly placed to adapt.
The interesting bit: complexity economics
The Doughnut finally presents a well-structured argument about how obviously out-of-whack our orthodox economic ideas are with our new operating context. In the face of multiple crises—environmental degradation, biodiversity loss, inequality of income and opportunity— and with unanswered questions following the financial crisis, the ideas and assumptions behind today’s economic theory clearly fail to adequately explain or fix what is going so wrong.
Kate’s Doughnut also answers the call for new ideas that can better explain the economy. In particular, Kate embraces the need to treat the economy as a complex system that is embedded in natural environments, and deeply influenced by human history, cultures, values and behaviour. This is a promising new direction. What this means is understanding that the economy is not like a static graph at all, it is more like a flock of birds, flying dynamically and always moving, creating emergent patterns which agents then react to, creating patterns anew.
Encouragingly, we have a strong existing community of experts in New Zealand analysing the world in this way. Te Pūnaha Matatini brings together trans-disciplinary researchers around a complex systems perspective, delivering new insights on how our complex world works. Within Government, the Treasury’s Chief Executive, Gabriel Makhlouf, recently provided another signal that this shift is finding mainstream appeal, noting that ‘The economy, society, and the environment are all complex systems that are constantly interacting with each other.’ The Ministry for the Environment also has a new project with Johan Rockström and the Stockholm Resilience Centre, translating the planetary boundaries to New Zealand. This project will look to better understand the impact of our production and consumption on each of the Earth’s systems and the implications for New Zealand, including its connection (or reconnection) to economic thought.
Taken together, the conditions for a new, better understanding of the economy are beginning to emerge. We need to create the space to listen to and understand non-mainstream ideas, and debate them. Have you created a culture in your organisation where these ideas can emerge?
The appeal of the Doughnut lies in its ability to take us immediately past paralysis, focusing on the entrepreneurial potential of people within organisations to innovate and harness ideas, the ability to think holistically and solve multiple problems at once, while also turning a profit. This keeps the spirit of enterprise alive, but points it in the right direction: bringing us back within the boundaries of nature, the ultimate arbiter of wellbeing. It allows businesses a pathway to adapt, to rethink their direction and to better understand the dynamic system that they are embedded in.
We can no longer afford to focus our efforts and brightest minds on the pursuit of an out-of-date business model, with incremental environmental or social change as a side-hobby. We can’t leave the environment or our social issues to the charities, the philanthropists, the environmentalists or the next generation. This is about rethinking core business, economics and finance. We need to funnel our efforts in the direction of asking the harder, more exciting questions: how can we redesign business to be generative and distributive, delivering broader societal benefits beyond profit alone?