Doughnut Economics (or "Donut Economics" for our American cousins) is something we think about a lot here at GoodFX, as it's a valuable framework in which to place our own efforts towards creating a more equitable financial system. You may have heard the term "Doughnut Economics", but aren't entirely sure what it means. To lay the groundwork, we're using this first blog on the subject to help with a brief overview, before we dive into some of its nuances in later posts.
What is Doughnut Economics?
Doughnut Economics is a concept introduced by British economist Kate Raworth. It offers a radical alternative to economic models that focus on perpetual growth. In Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, Raworth reimagines economics in a way that prioritises both human well-being and the ecological health of the planet.
At the heart of Doughnut Economics is the recognition that economies should serve people and the planet rather than the other way around. This model shifts the focus from GDP-driven growth to achieving a balance between meeting human needs and respecting ecological limits.
This framework is represented visually as a doughnut, a circular diagram that illustrates a "safe and just space for humanity":
The inner ring of the doughnut represents the social foundation, a minimum standard that everyone needs to live with dignity and security, covering areas such as health, education, income, and equity. If people fall below this line, they are living in deprivation, lacking essential resources for a decent quality of life.
The outer ring of the doughnut represents the ecological ceiling, which signifies the limits of Earth's natural systems, including climate stability, biodiversity, and the availability of clean air and water. If humanity crosses this boundary, it risks environmental degradation and catastrophic impacts on both nature and human life.
Between these two boundaries—the social foundation and the ecological ceiling—is the "safe and just space," where human needs are met without exceeding planetary boundaries.
Core Principles of Doughnut Economics
Doughnut Economics is built upon seven core principles, each challenging traditional economic perspectives and offering a pathway toward a sustainable and equitable future.
A summary of the 7 core principles is as follows:
Change the goal: Traditionally, economic success is measured by GDP growth, with the assumption that rising GDP translates to improved well-being. However, Doughnut Economics holds that that perpetual economic growth is neither feasible nor desirable. Instead, the goal should be to ensure a balance that allows human prosperity within the Earth’s ecological limits. By reframing economic success around this balance, nations will be encouraged to pursue metrics that focus on well-being, such as access to health care, quality of life, and environmental quality, rather than just GDP.
See the big picture: Conventional economics often isolates the economy from its social and environmental context, treating it as a closed system governed primarily by market transactions. Doughnut Economics emphasises that the economy is embedded within society, which, in turn, is embedded within the environment. Recognising this interdependence means understanding that human economic activities rely on natural resources and ecosystems, which are finite. This interconnected view pushes for policies that consider the impact of economic activity on ecosystems, society, and future generations.
Nurture human nature: Classical economic models often rely on the concept of "homo economicus"—an idealised individual who acts purely out of self-interest. However, Raworth argues that humans are social beings, shaped by values, relationships, and a natural inclination for cooperation. Doughnut Economics therefore encourages policies that foster community and collective well-being, acknowledging that people are motivated by fairness, altruism, and the desire to contribute to society, not just self-interest.
Get savvy with systems: Economies are complex systems characterised by feedback loops, interdependencies, and unexpected consequences. Traditional economic models tend to simplify these systems, often failing to account for non-linear dynamics or the long-term impacts of decisions. Doughnut Economics encourages a holistic and adaptive approach that appreciates this complexity. For example, policymakers are encouraged to look beyond immediate outcomes and consider how policies might trigger feedback loops that could lead to unintended environmental or social consequences.
Design to distribute: Doughnut Economics emphasises the need for equitable distribution of resources and opportunities. Instead of relying solely on redistribution after wealth is accumulated (through taxation and welfare programs), however, the goal is to design systems that inherently distribute resources more fairly from the outset. This includes fostering inclusive ownership models, such as cooperatives and employee-owned businesses, which ensure that those who create value also share in the rewards. By focusing on distributive design, Doughnut Economics promotes economic models that prevent wealth concentration and reduce systemic inequality.
Create to regenerate: Instead of simply sustaining current levels of resource use, Doughnut Economics calls for a regenerative approach that restores and renews natural systems. This principle goes beyond sustainability to advocate for practices that actively repair environmental damage, such as reforestation, circular economies that minimise waste, and agricultural systems that replenish soil health. A regenerative economy seeks to work with natural cycles rather than against them, creating processes that can be sustained indefinitely without exhausting the Earth's resources.
Be agnostic about growth: Economic growth has long been the primary goal of governments and economic policies, but Doughnut Economics argues that societies should prioritise well-being and ecological health alongside economic expansion. This principle recognises that some countries may need economic growth to meet their citizens' basic needs, while others may need to focus on redistribution and sustainability instead. The aim is to shift from growth as an objective to growth as a means to achieve genuine prosperity within ecological limits.
Here endeth the lesson. Hopefully that's given you the basics. Watch this space (or subscribe here) as we dive into the nuances of Doughnut Economics, challenge a few areas, and discuss how for-purposes business can align their efforts with some of its key messages.