Contributed by Joe Montero

George Monbiot is a thinker who has deservedly won widespread respect. He wrote an article that appeared in The Pen yesterday. It championed the doughnut economic theory put forward by Oxford academic Kate Raworth.  She raises some important issues, chiefly the need for sustainability and fairness in the way wealth is distributed. These things should be taken on board and they also provide a better and more useful definition of economic growth than the orthodox one.

However, as an economic theory, Raworth’s falls short. if the goal is to gain a better understanding and use this to create a better world, it is also important to be well grounded in our understanding of how an economy works.

A problem is that few have a working understanding of economic theory and a discussion needs a reference point. In short, economics is about how we utilise natural resources to meet our needs. In doing this, we operate as both individuals and as a collective. Economics is not just about putting inputs into one end and coming out with a certain output at the other. Thus it involves social relationships between human beings, as well as their interaction with nature.

Raworth makes the common mistake of essentially seeing economic activity in terms of circulation and distribution. In other words, the market is the chief player, through supply and demand conditions. The government may step in.There is a defacto acceptance of one of the great e errors of the twentieth century economics mainstream she is critical of.

Associated to this is the focus on financial flows. They are important. But it does not mean that this is the driving engine. Financial flows are the result of the way society carries out the primary function of how resources are used to meet needs. Therefore, the answer to the problems cited by Raworth must lie in what economists have traditionally called the production function.

The error of the economics Raworth is critical of has routinely neglected the importance of social relations in this production function. Instead, it is merely expressed as a mechanical interaction of capital, labour and natural resources (land). In the recent period, there has been an attempt to correct this omission with the concept of “rational” human beings, who make decisions based on future “expectations”.  The attempt has been a clumsy veneer that does nothing to change the old mechanical approach. Raworth is right to be critical.

As economic participants, all of us act according our role in society and this primarily takes the shape of our role at work. As a collective, we depend on each other to get things done.  Working together generates a collective consciousness. Without this, the economy and therefore society could not function.

At the same time, there is division within this collective consciousness, born out of a division of roles. The starkest interpretation is that some own and control the process and others do the work. It brings into conflict collective need and individual gain. Therefore, the key to a major change is lifting of the collective need, at the point where this wealth is created.

Raworth’s model deals extensively with the problem of finite resources and environmental damage. While she is right that this must be included in any economic model, the implication that the culprit is economic growth is not quite right. For most of the world there is not much economic growth and it is ludicrous to suggest from the small islands of relative prosperity that we need to go backwards. Raworth is not saying exactly this. The implication is still there.

The answer is that we must learn to do things better. A big part of this is knowledge. Human beings have the capacity to use science and technology to create harm. With this comes the capacity to undo harm and create good. What we will be capable of as a species in the future, we don’t know yet.

The capacity to move to alternative energy sources is already here.  History has taken humanity through the stone, copper, bronze, iron, steel, to the fossil fuel age and we are at the dawn of a new one. The problem is not ability. It is how we utilise natural resources to meet our needs, primarily the social relations involved that is the sticking point. This is what needs to change.

So long as only a small percentage of society maintains control over the creation of the means to meet needs persists, so will their sectional interests dominate and they will remain the mainstay of government policy, for as long as the big investor stays on centre stage.

Advancing in the way we use resources to provide for needs, above all, requires a change in the social relations that accompany it.  Inevitably, this means a transformation to a democratic economy, where the decision making and ultimately the power, is in the hands, not of a minority, but the majority.

Raworth does not allow for this. Her model sticks to intervention in terms of affecting the distribution of resources and wealth, through their distribution. Doughnut economics is also a static model that does not allow for change in the social relationships tied to economic activity.