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doughnut economy

Doughnut economy and making a profit can go together (with ideas how)

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This corona crisis offers perspectives to look differently at our society and economy. A column about how companies can make a profit while pursuing environmental and social goals. In other words: how do profit and the donut economy actually go together?

Read time: 9-11 minutes

These times of corona are miserable, but at least one thing has structurally changed in our society: no one can say anymore that ‘things cannot change just like that, hoho’. If we think something is important, we can do it.

Suddenly almost all office workers can work from home. Suddenly planes can stop flying Suddenly we can organize ourselves differently. Because we have to, to save lifes.

Economic damage

That doesn’t mean it’s easy, or that it won’t cause economic damage, because it does. SEO Economic research calculated that the corona crisis costs the Amsterdam region 1.6 billion euros per month .

Anyway more and more people realize that we need to organize our economy differently if we want to be future-proof and sustainable. And that’s what we think about at the Board.

If we continue like this we will plunge into the next crisis

Because there are a few flaws in our current system, which mean that if we continue like this, we will plunge ourselves into the next crisis, namely the climate crisis. Especially the fact that we only look at financial costs and earnings, not at social and social costs, means that we almost automatically go for maximization of profits, instead of making smarter decisions for our future. I’m not saying growth is wrong, but rampant growth doesn’t seem to work very well. In doing so, we collide with the limits of our planet, and we also perform poorly socially.

How can we look at the economy differently?

At the Amsterdam Economic Board we see that a conceptual framework such as the Doughnut Economy by Kate Raworth can be a way to work towards a broader economic perspective than just the financial one.

Good news is that Kate Raworth was recently appointed as Professor of Practice at Amsterdam University of Applied Sciences, and that the Amsterdam Doughnut Coalition was founded, in which we are also involved from the Amsterdam Economic Board, because of course we want to be aware of tools and ways to take our stakeholders in the region to a smart, green and healthy economy. And so after Raworth’s inauguration, there were drinks.

“It is one thing or the other: you cannot have companies that make profit and work fully with Doughnut Economy principles” said someone next to me at the get-together while drinking a beer. 

At that time, I didn’t have the right arguments to convince him of the oppositie. And I felt like the man was defending capitalism as a whole whilst the only things I could think of to say sounded like the world should adept to communism (and we all know how that went wrong). So I went looking for a better story to revise our economics, making profits and respecting societal values.

I have now asked Kate about this and based on her articles and previous insights that I gained at the Board, I can now also say: being profitable and fitting in with your company within the doughnut can both be done at the same time. But it doesn’t happen by itself. I’ll explain.

Staying above social minimums and below planetary limits

You probably already know the idea of the Doughnut Economy. In short: you want no one to fall below the social minimum (the inner ring) and for us to stop crossing the ecological limits that our planet has (the outer ring). We do well in between. That inner ring contains twelve social segments, such as democracy, access to health care and education. The outer ring contains twelve ecological parts, such as CO2 emissions, nitrogen emissions and water wastage.

Should the government then guard those borders?

You might think: it’s up to the government to guard those borders of the donut. But Raworth’s idea goes further: if every organization does its part, we achieve our goals much faster than if the government guards the cadres with a heavy hand.

If we are going to do all this, it means that we have to look at growth and profit differently. Growing for the sake of growth, at all costs, Raworth calls old-fashioned, 20th-century economics. An associated question is ‘how much financial value can we extract from this company’. According to Raworth, we need to move towards a 21st century economy, where growth is fine, but not the main goal. The accompanying question is: ‘How many benefits, in all areas, can we realize based on how we make choices in our business operations?’ . Growth and profit is necessary to realize ambitions, but not a goal in itself.

Yes, but what about the shareholders, if you are a publicly traded company?

The question is whether it is a good strategy for business operations at all: we would like to be different, more sustainable, but we cannot because our shareholders do not want that. It all starts, according to Raworth, with the purpose of your organization, and five key questions.

Do you want to get inside the Doughnut? Then you need to get started with these questions

According to Raworth, the answers to these questions determine whether companies help us within the Doughnut, ie to stay within social and ecological boundaries, or counteract us. And it also helps to understand why some companies aspire to the right thing, but fail to achieve it in practice. For example, think of Unilever (and read it great book by Jeroen Smit about Unilever’s CEO Paul Polman ). Shareholders who go for maximum profit in the short term are not helping the company become future-proof. The company’s purpose, leadership and network can all point in the right direction, but if the ownership and shareholders don’t want to, then things won’t get done.

It seems that more and more people want a greener and more social economy. How can we help companies with this?

When we are aware of why it is so difficult for companies to change, we can look from different perspectives where we can support them. The government can encourage more sustainable choices, demand that the social and ecological costs also be mapped out, and make (and implement) policy that encourages companies to limit CO2 emissions and work more sustainably. Preferably on a European scale, to create a level playing field.

Intermediary organizations such as the Board can help companies make better choices in the field of sustainability by linking them to others who are already one step further and then let them learn from each other. We also regularly invite companies to make agreements with governments and knowledge partners and to work together on a smart, green and healthy region.

Improving the exchange of data can also give a huge boost to the circular economy, which is why the Board is working on initiatives such as AMdEX and tada . In 2020 we will also focus on different purchasing as a means to stimulate sustainable development, under the title Buying with Impact . Because you want to ensure a smart, green and healthy region without subsidies, but through responsible choices. And also encourage companies to make a profit and use part of that to improve their own Doughnut. Because that combination, profit and donut economy, is certainly possible, and is exactly what we need after this crisis.