Wednesday, June 6, 2018

Kate Raworth’s economics of miracles

My first Summer book  to read and review is Kate Raworth’s very successful “Doughnut economics: Seven ways to think like the 21st-century economist”. It is an ambitious book whose objective is to change the ways economists think and the economics is framed in order to respond to the “limits to growth”. It thus reconsiders the organization of the economy, from the financial sector, money creation, ownership structure of companies to the distribution of assets. It also wrestles with the “addiction” to economic growth, not only among the policy-makers but among most of the population (that understandably want more things) and it finally envisages a rich society with “zero growth”. The last term is avoided by Raworth by saying she is agnostic about growth and by presenting future growth as undulating around a stable level, with the economy at times going down and at times up “(“[we] embrace growth without exacting it”, p. 270).

The book is probably better than its competitors in the area. For example, Raworth’s discussion of inequality where she argues for the equalization of endowments rather than expansion of policies that  redistribute current income, makes lots of sense. Suggestions for the use of various incentives to make companies more environment-friendly are also plausible. Perhaps even the imaginative use of electronic currencies may help.   

Yet the book fails to convince for three reasons.

First, it never faces squarely (or even indirectly) the fact that if everybody in the world is to be “allowed” to have income level equal to the current median in the rich countries, world GDP would have to increase three times—not accounting for the rise in the world population. This is a fact for which Raworth has no answer and thus prefers not to mention it. (For obviously, if one is against trebling world GDP, one needs either to accept that half of the world population will continue living in poverty, or to produce some evidence that carbon intensity of production will suddenly plummet.)  

Second, numerous examples of companies and people who do innovative “green” things are listed (which is quite useful) but their importance is never assessed. The reader is right, I think, to feel that their importance is marginal and while progress is made, it is minimal compared to what needs to happen.

Third, the interpretation of the current phase of globalized capitalism is, in my opinion, wrong. Rather than seeing it, as Raworth does, as becoming more cooperative and “gentler”, it is more correct to see the inroads of commodification into our personal lives (which we not only willingly accept but promote) as moving us further toward a self-centered, money- and success-oriented society—that is, going exactly in the opposite direction from that which Raworth favors.  

I will illustrate this last point with Raworth’s discussion of intrinsic vs. extrinsic motivation. This last point (Chapter 3), where Raworth shows, based on empirical studies, that extrinsic (money-driven) motivations may at times produce worse outcomes than the use of non-cash motivation (emulation, social pressure etc.) is, in my opinion, the best part of the book—but it is also the one where I disagree, not with the arguments, but with Raworth’s interpretation of the current state of the world and tacit forecasts for the future.

Raworth very persuasively shows that working on intrinsic motivations may often be preferable (measured in terms of hard-nosed efficiency) than using cash grants. I agree with that (actually, I just follow the studies that show that) but I think that the contemporary hyper-commercialized capitalism leads us more and more to value only monetary incentives and to disregard others—even if the latter can produce better outcomes. But to do so they have to be grounded into traditional social norms, traditional hierarchy, social capital and the like, the very things which globalized capitalism erodes daily. Thus I conclude that non-cash incentives, despite their advantages in many situations, are doomed to extinction. Kate implicitly argues the opposite: if they are better they should be used more. But by whom? What are the social forces to promote them? Who has the incentive to do so? Is today’s societies’ ethos compatible with them?

And here appears the major weakness of the book. The world Kate has in mind is a world essentially devoid of major social contradictions. It often comes close to the world of Bastiat’s “universal harmonies”.  In many instances, Kate writes in the first-person plural, as if the entire world had the same “objective”: so “we” have to make sure the economy does not exceed the natural bounds of the Earth’s “carrying capacity”, “we” have to keep inequality within the acceptable limits, “we” have an interest in a stable climate, “we” need the commons sector. But in most of the real world economics and politics, there is no “we” that includes 7.3 billion people. Different class and national interests are fighting each other.

The same “we-ism” is apparent when Raworth calls for deemphasis (“agnosticism”) of economic growth. I have already mentioned that the world’s poor get a short shift, but the argument why growth in the rich countries should cease, and how to go about it, is also presented in a most confused fashion (and perhaps there is no way to present it better). Raworth acknowledges that economic growth is needed to soften distributional conflicts, to maintain democracy, as well as for people’s subjective happiness but she fails to provide any persuasive arguments  how a new “no-growth” regime will come about (who is going to vote for it?) nor how it would solve these real issues. “We” should somehow be magically transformed from acquisitive and money-grubbing beings, traits which the system itself encourages in us, to people, who under the same system, are rather indifferent to how well we do compared to others, and do not really care about wealth and income.      

Short of magic, this is not going to happen. It then becomes apparent  that Raworth’s book is a book of miracles, as well as why in such a world of miracles, the real “miracle” which is Chinese growth that has pulled out of abject poverty some 700 million people goes all but unmentioned. The reason is that poverty was eliminated by “dirty” growth that has polluted Chinese cities and the countryside, disrupted Arcadian idyll between man/woman and nature—and yet made the lives of millions incomparably better.

Raworth’s ideal world seems to be the one that we find in Giotto’s paintings of St Francis, but it is not the world we inhabit. In an attempt to convince us that “other worlds are possible” Raworth uses the example of an Indian tribe in northern Manitoba which a couple of centuries ago responded to an increase in price by providing fewer goods.   

Rather than proposing the economics for the 21st century, Raworth’s book brings us back to the imaginary world of the early Christendom. Perhaps that such imaginary people were then “thriving” (a term Raworth uses at least 50 times in the book), but the real world even in those times was different: it was the world of Augustus and Spartacus, burned temples and fortunes made through violence. Exactly like ours. Except that we are richer. Which is a good thing.

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