These two new critiques of economics by economist Kate Raworth in Doughnut Economics and sociologist Manuel Castells in Another Economy Is Possible follow a long, but formerly obscure tradition. Some background may be helpful.
Critiques of the failures of economics as a discipline, a pseudo-science and why it nevertheless became a ubiquitous public and private policy tool, have persisted for over a hundred years, as I documented in The Politics of the Solar Age (1981,1988). The most powerful came from scientists: Nobelist chemist, Frederick Soddy in 1921 with his paper at Birkbeck College and the London School of Economics (LSE). Physicist Nicholas Georgescu-Roegen wrote “The Entropy Law and the Economic Process” in 1971, which I reviewed in the Harvard Business Review. Both these scientific critiques demonstrated the fundamental error in economic theories of whatever ideological persuasion: ignorance of the First and Second Laws of Thermodynamics and the consequent omission of energy as a basic factor of production.
Economists’ myopia stemmed from their narrow focus on human affairs —with little apparent awareness of how our home planet functions in relationship to our mother star, the sun, which provides our daily energy income and the source of life. Most indigenous peoples worldwide grasped this relationship, with many being sun-worshippers. Economics was a political power game in the England of Adam Smith, then correctly named: political economy. Smith’s brilliant observations of empathetic human behavior in his Theory of Moral Sentiments (1759) then widened to how humans behaved competitively at a distance, in larger groups beyond family and community, and as trust in wider markets grew along with technological innovation, in his famous Wealth of Nations in 1776.
Most of the critiques since then have also been from non-economists, including physicist Fritjof Capra’s The Turning Point (1981) and Kenneth Boulding’s Beyond Economics (1968) and Ecodynamics (1978), who failed to earn a Ph.D. from LSE but was embraced by the profession and elected President of the American Economics Association. The political strategy of economists of enfolding critics and colonizing their intellectual critiques continues to this day. The Bank of Sweden in 1968 lobbied the Nobel committee to setup its Bank of Sweden Prize in Economic Science (sic) in Memory of Alfred Nobel to legitimize economics as a policy science. Most recipients were Chicago School economists using dubious mathematics to dress up their theories. Others included decision-theorist Herbert Simon in 1978, game theorist Thomas Schelling in 2005, political scientist Elinor Ostrom in 2009 and psychologist Daniel Kahneman in 2002, were all thereby co-opted into the economics profession. John Maynard Keynes, a mathematician, was similarly embraced as an economist.
Both authors, Kate Raworth in Doughnut Economics and Manuel Castells in Another Economy Is Possible provide penetrating critiques highly relevant to today’s political debates. Raworth is a card-carrying economist with a Ph.D. from LSE while Castells is a sociologist of communications and information theory who founded today’s field of network theory in his Rise of the Network Society (2000) and Networks of Outrage and Hope: Social Movements in the Internet Age (2014). Kate Raworth courageously takes on all the sacred cows of economics and highlights their falsehoods and how these are still taught in most academic economics courses. She perceptively defrocks the power dynamics of the economics profession and its grandees, how it remains a lucrative career for graduates who buttress its precepts and how its peer-reviewed journals perpetuate its overwhelming influence in private decision-making and public policy.
The denouement of the 2008 financial meltdown has been insufficient—with most economists avoiding blame by calling this event a “black swan” or “perfect storm” that nobody could have predicted. Of course, many other experts did! Even the travails of the euro and the disastrous policies of “austerity” or ineffective “stimulus” (bailouts, Q.E., negative interest rates) have not shaken confidence in the economics profession and its prescriptions. Kate Raworth expertly dispatches all the economists’ excuses and point to the causes: exclusion of studies in finance, the politics of money-creation and credit -allocation, education, human nature and the evolution of work.
These deeper analyses have burgeoned, covered by non-economists from many other disciplines, including Jeremy Rifkin’s “The Third Industrial Revolution”(2011) and my Creating Alternative Futures: The End of Economics (1978, 1996) and later books summarized in “Mapping the Global Transition to the Solar Age” (2014, now an e-book).
Kate Raworth in her Doughnut diagram, correctly nests economic activities within societies, bounded by planetary realities outlined by Johan Rockstrom and Anders Wijkman in Bankrupting Nature (2012). She covers most of the antidotes to current political and economic policies: local and complementary currencies, demurrage, green technologies beyond fossil fuels and the need to shift to biomimicry following Janine Benyus and her Ask Nature model. For full disclosure, I am an investor in Benyus’ for-profit B.3.8 which offers biomimicry solutions to cities and corporations. Doughnut Economics will find a wide audience since all these alternatives and initiatives, social movements and critiques of economics’ failures have reached critical mass worldwide and Raworth’s views are empowered by her status as a Ph.D. economist.
The influence of this widespread deference to economics and economists is clear and tempts non-economists co-opted into the economics guild. Many, like me, stay on the outside, even when I was invited to preside over a major national economics association. I prefer to continue my broadsides that economics is now defunct and a form of brain damage, certainly a waste of time for students aspiring to be competent global citizens and policy wonks. They can study free on our MOOC, Ethical Markets focuses on re-tooling asset allocators’ models, reforming markets and metrics while offering our 2017 Green Transition Scoreboard® and Principles of Ethical Biomimicry Finance® to construct more sustainable and resilient portfolios.
Raworth’s Doughnut is beyond economics: as a multi-disciplinary systems approach to public policy. So I hope she is wrong in asserting that we all must master economics as “the mother tongue of public policy” in her summary Chapter “We Are All Economists Now”. This cannot take us beyond the bogus philosophy of “economism” to the Earth systems science of the next Solar Age!
Meanwhile Manuel Castells and his co-authors continue exploring the exciting world beyond economism …stressing at the outset in Chapter 1 that “Economy Is Culture”, with his co-author Sarah Banet-Wesier. In Chapter 2 Giorgio Kallis describes “Economics Without Growth”. Sviatlana Hlebik analyses “World Community Economics for Sustainable Local Development” in Chapter 3. Lana Swartz covers “Blockchain Dreams” in Chapter 4. Lisa J. Servon covers “Consumer Financial Services: Why Banks May Not Be the Answer” in Chapter 5. All these are packed will brilliant analyses and troves of examples. Chapters 6, 7 and 8 describe successful alternatives and practices in both markets and commons to cope with the crises of economism.
While both these exciting books are must reading, their differing viewpoints: Raworth’s from the inside and Castells remaining on the outside, are highly illuminating. Both are good summer reading for all financial players retooling their skillsets for the future…but will be largely ignored by economists.