Doughnut Economics – Quam Oeconomica

The Search for Oeconomica Phase III

The essence of Kate Raworth’s excellent book, Doughnut Economics, is that economics has to move from an understanding of the world in 18thor 19thC terms (based on a mechanical set of analogies) to a 21stC understanding based on how we understand evolution, our knowledge of systems theory and complexity.

Doughnut-Economics

In simple terms, the book suggests, that in order to develop from a perpetual journey to increase GDP and move to a world economy that “Thrives in balance”, we focus on critical issues such as inequality, changes in banking, CO2, new metrics and many other changes via a vast number of small experiments that will, under conditions of complexity, generate changes in our direction and potentially move us from this Phase of our economic experience (Phase II) via a phase transition to another. However, the range of changes that may be needed (this vast number of small experiments) do not appear to be extremely hopeful and each one is tiny compared to the enormous background material in which it exists. Any one may be successful or not and many, if successful together, may generate enough traction to propel society to the phase transition that it needs. However, it, or they, may not!

 

The dynamic set of changes that forged the industrial revolution, the move from a rentier society based around the ownership of land, to a capitalist-driven society based on the ownership of ideas, of speeding up production, of creating demand for goods and services, took on the form of a phase transition (if the continued use of analogies can be permitted). This dramatic change occurred over many years, but traction was firmly in place by the 1830’s in England. Years after this, by the time Karl Marx was writing das Kapital, capitalism had transformed the countries of western Europe and would do the same for the USA and elsewhere. While land remains a high value commodity, the demand for goods and services and the ability to pay for them has transformed most of the world and continues to do so.

 

However, this phase transition (Phase II) remains, even today, in a variety of stages of development. In the USA and western Europe, it is well entrenched. In India and China, it is feverish in its intensity. In sub-Saharan Africa and Afghanistan, it is well hidden. This means that prescriptions for moving beyond this Phase are unclear as different sections of the globe are at such different stages. No mention was made in the book of the Maslow hierarchy (that provides at least some analysis of the individual’s search for sustenance, from meeting purely physical needs to those of mental well-being) and it would be useful to seek some sort of understanding based on regional access to the Phase Transition of the industrial revolution before experimentations can be determined as useful.

 

This is because, while so much attention is given in the media, universities and in books, to the second and third industrial revolutions (supposed to be via computing and then via robotics, AI and bio-engineering), the real focus of Doughnut Economics is beyond this towards a third Phase – a post-capital-only phase. In driving towards that new Phase (if humans are to make it successfully), Doughnut Economics properly focuses on the Georgescu-Roegen notion of entropy being sufficiently understood so that the world  focuses on energy use and utilisation as the crucial underlaying of society, rather than the traditional notion of productivity (the making of goods and services in progressively more ‘economical’ ways). This is right but it is debatable whether this is the prime driver for change, at least from a human viewpoint. Humans exhibit potentially destructive tendencies when caught in a particular way of thinking. Kate Raworth described this in within the book (Easter Island as one example) and it seems that humans need to actually see and feel danger before they react. A good analogy is how the UK reacted to Germany before 1939. Rearmament did not take place until the enemy was rampaging through Europe. Why? Possibly, because the human tendency is not to give up on ways of life (having reached a reasonable plateau) unless forced by external change. Complexity theory would suggest that a plateau of living is only change when externalities require it – with ‘require’ being highly operative.

 

Phase II was driven by, as the book states, the notion of economic gain for those in charge of capital and ideas, focused on the desire of perceived need. This economic gain argument has been transformed over the last 200 years to permeate all of society not just through the notion of GDP at the macroeconomic scale but through accounting at the micro-level. Thus, financialization of the world at both micro- and macro-scales underpin everything that we do. Everything is priced and our utility (our desire for something) is only respected when it has a number against it. Recently, a charity worked out the value we place on parks. This notion of £974 per person per year is then used somehow to justify spending on parklands. The whole notion of natural capital flows from a need to show value of the aspects of life that make life worth living so that even companies and accountants can evaluate them in discounted cash flow techniques. This is where Phase II shows it has conquered the world or it may be showing that Phase II is nearing its end.

 

Changing this is an enormous challenge but Doughnut Economics, while preparing the way, seems to suggest that the world can be redirected by an understanding by economists about how the world is different to their theories and through the use of diagrams.

 

A more detailed analysis of the changes that induced the phase transition in England in the industrial revolution to Phase II would indicate the scale of the challenge now. The doughnut diagram is highly useful and the concepts that underpin Doughnut Economics are highly positive in that they speak in the language of the new century, even if hampered by the limits to our knowledge that such analogies provide.

 

However, if a phase transition in our model of living is required, and the book strongly argues in that way, then we need to assess how this can be done successfully in a world that it markedly at variance region by region and where, as a result, different nations and regions will adopt different attitudes. For example, those countries lower on the Maslow hierarchy (if it or something similar can be utilised on a national scale) will retain their pursuance of basic needs via growth in GDP for far longer than those countries that have reached higher levels of economic maturity, where post-quantitative norms may be considered. If this is the case, and it is highly likely to be, then how do the latter set of nations decide how to remain sufficiently competitive in productive means, assuming that they will not simply give up their desire to at least maintain a level of economic security in a world that will reward economic gains for many years because it is measurable?

 

Doughnut Economics posits, amongst many other things, repeated changes in GDP, up, down, level in no particular order and through a variety of changes in taxation from income and employment to energy usage or externalities. However, different countries will adopt different measures and taxes and there will be a vast range of unintended consequences in such a complex environment that will continue to drag down the impact of the desired moves to a new phase.

 

Of course, we do not even know what a new phase will look like. Doughnut Economics suggests some thoughts on this and they relate to the quality of life beyond the quantity of life that mature economies are building, where, having gained the basics (food, shelter, clothing), we have moved towards the second tier of luxuries (goods and services) and towards Maslow’s higher tiers of self-actualisation (although we would need to see this is national terms rather than individualistic).

 

What can economists and accountants (macro and micro) do for this future? Perhaps the role for such narrow providers of data is disappearing in the same way that the role of horses changed when the motor car appeared. To take us to the next Phase needs a whole new school of thought that understands the different levels of Phase II that has been achieved on a global scale and will address the new mix of qualitative and quantitative requirements of Phase III (against the background of natural resource despoliation and global warming). If the concept of ‘natural capital’ is the last cry of Phase II as an attempt to take a grip of the natural world by the accountants of Phase II, then Phase III has to develop a new breed of expert that can show how humans can retain the dynamism that ‘gain’ provided for many (although by no means all or even the majority) and moves us away from numeric (or financialized) gain towards a qualitative framework, from the historical meaning of economics – the art of managing a household (which, arguably, humans now understand) – to the art of managing quality of life.

 

This is likely to be back to the area of ‘political economics’, the relationship between the production of goods and services and the society within which they are produced and then forward towards an inclusion of the qualitative aspects of life (as individuals and communities) – ‘quam oeconomica’.

Is FIFA-world just a microcosm of the real one?

Russia's president Vladimir Putin (left) and Fifa president Sepp Blatter

FIFA-world: a virtual world where you get ahead by what you pay and stay ahead by denying the evidence

“When we get bribed, we stay bribed.”

Jon Stewart on his Daily Show in the USA – his take-down of Sepp Blatter and FIFA. The legal onslaught on FIFA-world  has been 24 years in the making – 24 years before the legal process (headed by the US Attorney General Loretta Lynch) went into motion. As Stewart remarked, “even Switzerland” itself had moved on FIFA.

Yet, Sepp Blatter was overwhelmingly affirmed by FIFA delegates for another four years – on the votes of Africa, Asia and Platini’s France amongst others. This was despite the obviously dangerous legal claims made against many senior employees and representatives of FIFA by the US and Swiss legal authorities. This was despite the fact that Blatter has been President of FIFA for so long – it has been on his watch.

The President of FIFA has (under its latest statutes) the following responsibilities:

32. President

The President represents FIFA legally.

He is primarily responsible for:

a)  implementing the decisions passed by the Congress and the Executive Committee through the general secretariat; 

b)  supervising the work of the general secretariat;

c)  relations between FIFA and the Confederations, Members, political bodies and international organisations.

Only the President may propose the appointment or dismissal of the Secretary General.

The President shall preside over the Congress, the Executive and Emergency Committee meetings and those committees of which he has been appointed chairman.

The President shall have an ordinary vote on the Executive Committee and, whenever votes are equal, shall have a casting vote.

If the President is absent or unavailable, the longest-serving vice-president available shall deputise.

Any additional powers of the President shall be contained in the FIFA Organisation Regulations.

As FIFA’s legal representative on planet earth, it seems clear that Blatter would be held accountable for all its actions whether he knows about them (and he claims a complete absence of knowledge) or not. Yet, FIFA members, by a great majority, supported his continued Presidency.

For some of us, this seems absurd. For those of us brought up under democratic systems, where wrongdoing in an elected body is normally punished by the voter, the inability of FIFA to sort itself out appears naïve as does the apparent understanding of the electorate. Yet, to many of those who voted for Blatter, their response was entirely logical.

How FIFA-World Seems to Work

The world has changed over the last fifty years to an extent that is now becoming highly visible. Until the 1950’s, the great western powers and the USSR held military power (hard power) over the rest of the world. One by one, states outside this power block became politically independent. Asian economic power-houses like Japan grew quickly and then China began its sustained and dramatic economic renaissance. After the break-up of the Soviet Union, instead of democracy, economic power brokers developed (with Putin at the top of that tree).

While we understandably focus on military and security threats posed by those like ISIS, the world has been moving on – with economic growth at the centre (softer power).

However, instead of the west’s domination, there are now various centres of economic power – such as China, India and Brazil – which are breaking down long-established norms.

These norms (such as the desire by Western nations to link good governance with economic aid) are under real threat as newly enriched nations like China care less about the good governance of its supply and customer base outside China than it does internally and less than the stated aims of the earlier economic hegemonies.

This compounds the pent-up pressure on the governments of the newly developing world that may be tired of the continuous pressure put on them to do more of what the west wants them to do – such as reduce corruption and improve good governance. This is not the reaction necessarily of their people (most are completely sick of the bribery and corruption that exists, often sick of the absence of real democracy and the absence of real representation) but in many parts of the world, the people do not have a say.

Also, populations are torn between a natural desire to see things properly run (good governance) and feeding their kids or having a roof over their heads. Elsewhere, like in Russia, the government has a rigid control over their people. The same is true in China.

Finally, nations are now (because of their own economic strength and because of alliances with those like China) less likely to fold against the old hegemonies of the USA and Europe.

For all these reasons, FIFA-world seems symbolic of the new world order that is taking place where an organisation that has been corrupt for so long is able to maintain good relationships with its supporters through its economic success and the ability to pass on that financial success to a range of nations and individuals – upon which it also survives. It pays to support Blatter – even if you are in receipt of dirty money.

Despite pressure from the west (notably the UK – via, mainly, its newspapers like the Sunday Times while government was just as mercantilist when London was in the running for the World Cup), FIFA refuses to change from the inside. As there is no ability to march into Switzerland and take over the company by force (the 19th Century ideal), the only method remaining is via international law as applied by the US Attorney General and the Swiss. It has taken 24 years to get to this stage.

What could we be learning from FIFA-world?

This microcosm represented by FIFA-world must have lessons for the new real world order but it is not easy to overcome the concern that fifty years of working towards better governance (e.g. where we have seen increases in the number of democracies throughout the world) is under threat.

The natural focus on material wealth as the highest priority for all nations and all people is understandable. Worldwide poverty indicators are reducing (even if mainly from Chinese economic success). As Maslow showed so clearly in the 1930’s, most people focus on material wealth creation well before there is a serious thought given to quality of life issues.

MAslow

This is clearly seen in practice as the world pursues economic gains even in those countries that are already wealthy. Even the safety and maintenance of nature and the environment becomes translated into a form of costed “natural capital” so that it can enter into our economic thinking. If it has no valuation methodology, then humans seem unable to evaluate it. If we can’t count it, we can’t imagine it, apparently.

This means that issues like corruption are treated as secondary to economic benefit or economic security in most nations. It is no longer just a case of saying “Corruption is bad, stop!” because the complexity of the each situation means that, in the short term, those who gain through corruption and / or being part of a corrupt environment do not visualise the problems quickly enough. Moral crusades are not high enough on Maslow’s hierarchy (which was developed for marketing purposes but serves as a useful tool elsewhere).

Even the use of legal sanction by the USA, while applauded by many in developed nations, is not so well received elsewhere. Blatter knows how to utilize this reaction by appealing to the sensitivities of nations that do well out of FIFA economically and see themselves (as nations and individuals) threatened economically by the ending of corruption. This is not much different from oil-rich nations like Angola preferring to sell to China than the west – because no-one in China is demanding good governance from Sonangol, the dos Santos-owned oil company. It is similar to tribal leaders in Afghanistan that react badly to the west’s demands for an end to corruption in that country.

Those legal sanctions operating in the West (through a range of anti-money laundering devices, FCPA, Bribery Act and the like) can have great power when used against corporations. They are now extra-territorial in scope and can remove any one nation’s or company’s ability to protect themselves from legal onslaught. However, in the UK, for example, implementation of laws such as the Bribery Act are completely under-resourced so reliance has been placed on the US to widen its military policing role to one of legal challenge – where an individual using US assets (banking, currency or legal) is liable.

Such legal sanction needs to be policed (a) by more than just the USA and (b) in a way that is not seen as hegemony by former military world powers.

The first requires resources and a willingness to attack the problem; the second is far more subtle – a need to assess how to convince the world that corruption is hugely damaging to economies, sectors or society and even security (as is seen in Nigeria, Iraq, Afghanistan and many others vulnerable nations where armed forces are depleted by funding being ransacked by a few elites) when the benefits are clearer than the problems.

As an article in today’s National Post in Canada shows so well, giving the World Cup to a country well down Transparency International’s Corruption Perception Indicator (CPI) is asking for trouble. Yet, not giving the World Cup to such nations (which are developing nations in need of such investment and focus) until they have cleaned up their act would be seen to be counter-productive – and construed as anti-poor. There is no support for such a move.

What needs to happen is that good governance is seen as a central tenet of major corporations and of governments (national and local) and, for this to happen, a huge and relentless shift needs to take place in the way the non-FIFA world works so that the real economic needs of people are met while the ugly needs of vested interests that stand to gain through corruption are not.

For corruption to be minimized should be seen as one of the world’s major aims – where we need nations to meaningfully sign up to this in the same way as we sign up to human rights as corruption erodes human rights as well as any impediment known to humankind.

FIFA-world is a microcosm of how the real world tolerates corruption and the 24-year corruption story in FIFA is by no means finished. We need to learn from that story not just to fix FIFA-world but to fix the way the world tolerates corruption.

Note: I am a Trustee of Transparency International – UK