Wednesday, August 12, 2020

Is Economic Growth the Wrong Goal? (Ep. 429)

The endless pursuit of G.D.P., argues the economist Kate Raworth, shortchanges too many people and also trashes the planet. Economic theory, she says, “needs to be rewritten” — and Raworth has tried, in a book called Doughnut Economics. It has found an audience among reformers, and now the city of Amsterdam is going whole doughnut.

Listen and subscribe to our podcast at Apple Podcasts, Stitcher, or elsewhere. Below is a transcript of the episode, edited for readability. For more information on the people and ideas in the episode, see the links at the bottom of this post.

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On August 21st, the Freakonomics Radio Network is launching another new podcast. But not just any podcast. It’s an interview show hosted by my Freakonomics friend and co-author Steve Levitt.

Steve LEVITT: It won’t take you long to figure out that I’m not your regular interviewer. I’m not very polished. I’m not very articulate. But I just think differently than other people.

The new show is called People I (Mostly) Admire. 

LEVITT: Some of them are going to be household names and some of them are going to be people that you would never hear of otherwise.

Levitt has a tendency to ask questions that most people wouldn’t:

LEVITT: Were you kind of bad at that job? It doesn’t seem like you have a lot of the traits that would make someone a good computer programmer.

Subscribe now to People I (Mostly) Admire. It’s available on Apple Podcasts, Spotify, Stitcher, or wherever you get your podcasts.

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Kate RAWORTH: I grew up on the outskirts of London. My mum was a florist. My dad was a businessman. I didn’t really know much about that. 

That’s Kate Raworth.

RAWORTH: I’m a renegade economist. I’m passionate about rewriting economics. It needs to be rewritten. Let’s do it.

Raworth teaches at Oxford University’s Environmental Change Institute. She admits that as a kid, she was a bit sheltered.

RAWORTH: I led a happy, pretty innocent life, saw the world on the T.V. news, and it was much bigger than the world I lived in.

Through that T.V. screen, Raworth saw the Ethiopian famine of the early 1980s, which killed an estimated one million people. She saw the widening hole in the ozone layer, and other environmental problems.

RAWORTH: And I thought economics would be the subject to help me have the tools to help sort it out. 

Stephen DUBNER: Boy, were you wrong.

RAWORTH: Was I so wrong. 

Raworth did go on to study economics at Oxford. She learned all the foundational knowledge she was asked to learn; she memorized the diagrams she was asked to memorize; she felt she had a pretty good grip on basic theories like supply and demand. But she was frustrated.

RAWORTH: There just was no option to study anything environmentally. It didn’t exist. And it gradually began to creep up on me that that was a real problem.

Still, Raworth did get her economics degree — as well as a master’s in economics, also from Oxford. She then went to work as an economist: for the government of Zanzibar; for the United Nations; for the anti-poverty agency Oxfam. Along the way, she finally figured out what had been missing from her economics education: a focus on humanity, and the planet. She began redrawing those economics diagrams she’d memorized so diligently at university. Doodling away, she came up with something totally different. Rather than jagged lines and aggressive arrows, she came up with a circle inside another circle. It was essentially a doughnut.

RAWORTH: I know, it sounds ridiculous, right? A doughnut. 

But within that doughnut, Raworth saw great promise.

RAWORTH: Think of it as a compass for human prosperity in the 21st century.

How does this work?

RAWORTH: So, imagine a doughnut, the kind that’s got a hole in the middle. 

Okay, your standard doughnut.

RAWORTH: And we want everybody to be living in the doughnut. 

I’ll be honest — I had a hard time getting the visuals of the doughnut idea at first. So, stick with it.

RAWORTH: That means no one is in the hole in the middle where they’re falling short on the essentials of life without food, or water, health care, housing, education, political voice. 

Okay, so the doughnut is good; the hole is bad.

RAWORTH: But at the same time, don’t overshoot the outer crust of the doughnut. 

So, again, the doughnut itself is good — the safe zone. But beyond the outer crust:

RAWORTH: There, we put so much pressure on our planet we begin to push her out of balance, and we cause climate breakdown, and we acidify the oceans, and create a hole in the ozone layer. So, it’s a balance. Meet the needs of all people within the means of the planet.

Doughnuts are beloved by many people in many places. But rarely are they considered a symbol of balance. And yet, that’s how Kate Raworth saw things. In 2017, she published a book called Doughnut Economics. It was avidly consumed in certain circles — especially in places that pay attention to standard economics but feel that standard economics comes up short. And then came the global Covid-19 pandemic — a health crisis, an economic catastrophe, and more, rolled into one.

The pandemic has underscored the inequalities that Raworth was already concerned with — inequalities in income, in health care access, in the labor markets. Too many people being pushed toward the doughnut hole. But the crisis has also threatened progress in the environmental arena — pushing too much activity beyond the doughnut’s crust. China and Japan, for instance, have recently approved large numbers of new coal-burning power plants. While the Covid crisis was a shock to the system that no one saw coming, it has also shown just how vulnerable our modern economies are. So, today on Freakonomics Radio, Raworth talks about a new economic framework whose key feature is sustainability.

RAWORTH: How do we create economies that are compatible with Earth’s capacity to regenerate resources and absorb our wastes?

We also hear why, in the middle of the Covid crisis, the city of Amsterdam has aggressively embraced Raworth’s doughnut model:

Marieke VAN DOORNINCK: The biggest worry that people in Amsterdam have is, “Can I pay my rent, or can I pay my mortgage, or actually, can I live in Amsterdam?”  

And the political realities that a doughnut-friendly framework will face.

Jason HICKEL: When people hear “degrowth,” they think that sounds like a recession.

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I asked Kate Raworth how her ideas about a sustainable global economy differ from the standard economic models she learned years ago as a student at Oxford.

RAWORTH: So, the standard economics I learned was not based on a delicately-balanced living planet. There wasn’t really a planet. Anything natural was called an environmental externality and a degradation of the air or the water. “Environmental externality” — as if this was just an unbounded space, kind of a blank sheet, beyond which so much lies, and we never need to ask where it comes to an end. And the shape of progress that we’re told in theory of 20th-century economic thinking, is never-ending growth. So, we start on a delicately-balanced living planet and then ask ourselves, “How do we create economies that are compatible with Earth’s capacity to regenerate resources and absorb our wastes? How do we live in harmony with that?” And that’s completely different to any macroeconomic thinking, which just presumes growth is good.

DUBNER: In some countries over the past — well, really quite a long time, a great amount of policy has been established by economists and economic thinking. As you write, “Economics is the mother tongue of public policy.” Can you give me some examples of what you see as the worst manifestations of this privilege enjoyed by economists in policymaking? 

RAWORTH: Well, it’s manifested in speeches of politicians who stand up and just talk national success in terms of growth. You know, “G.D.P. is growing 0.25 percent faster than it was this time last year,” is an indication that everything is going well and everything’s fine. So, that’s the top level. At the micro level, I think it’s the obsession with what’s known as cost-benefit analysis by treasuries. And you can completely lose sight of the much bigger picture, the dynamics, the knock-on effects of systems that just can’t get picked up in there. I think at the macro level and the micro level, we need to release ourselves from these devilish tools that tie us to very short-term-ist calculations. 

When she worked at the U.N., Raworth was a co-author of the Human Development Report, whose Human Development Index measures countries not by economic power but by factors like standard of living and education and life expectancy. I asked Raworth whether the Human Development Report really mattered, long-term, or if it was just another important-sounding declaration from just another global institution.

RAWORTH: I think it hugely mattered. A simple reflection of it, the World Bank now reflects all those indicators in its own tables. It’s spawned so many other indexes of human well-being — the index of social progress, people talking about gross national happiness. I would say, though, what it’s missing is — what we’ve now brought into the picture in the early 21st century — is the recognition that you can’t just focus on human development. You have to focus on planetary health at the same time. 

Even before Covid-19 crushed G.D.P.’s around the world, some people were calling for high-income countries to intentionally reduce their G.D.P.’s — to pursue what has been labeled “prosperity without growth.”

HICKEL: “Degrowth” is specifically about actively scaling down resource use and energy use. 

That’s Jason Hickel. He is an economic anthropologist in the University of London system. He researches how different cultures organize their economic systems.

HICKEL: Clearly the objective is to transition our economies to 100 percent renewable energy as quickly as possible. But research in ecological economics and in climate economics is quite clear that that can’t be done fast enough while we grow the economy at the same time. And the reason is because the more you grow the economy, the more energy it requires. And the more energy it requires, the more difficult it is to supply the energy with renewables. 

Hickel has also come to think that G.D.P. is a flawed indicator of a country’s well-being.

HICKEL: I should actually admit, I used to believe these things, too. I mean, I’ve long believed that G.D.P. growth is really essential for an economy to function and is essential for improving well-being and so on. I remember going to a talk by Paul Krugman. This is the middle of the Great Recession, and he was going on about how America needs to really stimulate an economic recovery by getting the economy growing again. And I walked out of that thinking, “Yeah, that’s exactly what we need.” And the person I was with on the way home asks “Do you think that America, being one of the richest countries in the entire world, actually needs more G.D.P.?” And at first, I was like, “Of course it does. I mean, this is essential for the way an economy runs.”

But then I realized that I was just basically repeating an idea that I’d heard everyone else always say. And I’d never actually thought through it for myself. But interestingly, my main defense for G.D.P. growth was simply that it’s important for improving human well-being. What do you do with a country like Costa Rica that has higher life expectancy than the U.S., higher happiness indicators than the U.S., and yet 80 percent less G.D.P.-per-capita, right? Clearly — and ecological economics has demonstrated this over and over again — past a certain point, which high-income nations have long surpassed, there’s actually no fundamental relationship between G.D.P. and human well-being. It completely breaks down. And that, I think, should be a very liberating realization, that we can achieve the heights of human flourishing and even improve the lives of people in high-income nations without needing more G.D.P. growth whatsoever.

The downside of a constant growth strategy, Hickel says, is that it inevitably pushes up against what scientists call “planetary boundaries.” That is what lies beyond the outer crust of Kate Raworth’s doughnut.

HICKEL: And right now, the planet as a whole is dramatically overshooting planetary boundaries. But crucially, it’s high-income nations that are almost entirely responsible for this. If we were all to consume like the average person in the rest of the world, then we would be almost entirely within planetary boundaries. If we were to consume at the rates of the average person in high-income nations, we would be overshooting planetary boundaries by a factor of four or five, which is clearly not a viable development strategy. So, the key thing here is to recognize that high-income nations need to actively scale down their use of resources, and that can be done without harming human well-being at all.

DUBNER: So, an easy counterargument, or a common counterargument at least, would be that, well, yes, energy use tied to growth is maybe a core problem. On the other hand, I could say the technology that is a result of our capitalism produces efficiency, which theoretically would require less energy, which would theoretically in the long run, create opportunities for more growth with less energy. But only if aided by the sort of technology and innovation that is made possible by capitalism.  

HICKEL: Yes, and this is a marvelous part of capitalism, actually. Capitalism constantly produces efficiency improvements. But what’s interesting is that despite rapid improvements in efficiency in terms of resource and energy use, there has not been an absolute decline in either of those. So, we have relative decoupling where G.D.P. rises faster than resource and energy use. But long-term, absolute decoupling has never happened, right?

DUBNER: But I mean, that’s partly a function of the fact that so many people around the world are consuming more energy for the first time really, right?

HICKEL: Oh, sure. But this is true even in high-income nations like the U.S.A. And that’s curious, right? Like, we have to ask ourselves, why is that happening, especially given the fact that the U.S.A. has shifted so dramatically to services. It’s important to recognize that we can target the kinds of technological innovations and efficiency improvements that we want directly without growing the whole economy indiscriminately and hoping that we get the benefits that we want. So, if your goal is to create more efficient railways or more efficient solar panels, then why not invest in those objectives directly rather than growing the whole economy.

DUBNER: I can see many people listening to your argument and saying, “You know what, this person is intelligent, has evidence, has logic, has a kind of moral view of humanity that I’m in sync with. And I can see getting on board with “degrowth,” at least to a certain degree.” And then I can see other constituencies — many of whom are the entrenched constituencies in government, in industry, in technology, in academia, and so on — who say, “No, no. This cannot and should not be allowed or encouraged or even listened to, perhaps.” So, who hates these ideas the most? Who is going to push back the hardest? 

HICKEL: People are enemies when they misunderstand what we’re talking about. And it can be easy to misunderstand, I admit that. When people hear “degrowth,” they think that sounds like a recession. But here’s the thing, is that a recession is what happens when a growth-oriented economy stops growing. It’s a disaster. People lose their jobs. They lose their houses. Poverty rates rise, etc. “Degrowth” is calling for a shift to a fundamentally different kind of economy altogether. What I find is that people are actually really interested in this and really ready for this kind of message.

I think they realize on some level that the way we’re running the economy right now is not really working for people and certainly not for the living world on which we depend. And also, we’re seeing it in governments as well. Look at New Zealand, which has recently abandoned G.D.P. as an objective in their budget. Another misconception people have is that “degrowth” sounds like austerity, right? But in fact, it’s, again, the opposite. Austerity is a politics that’s organized around cutting public services, cutting wages in order to get growth going again. And “degrowth” calls for investment in public services and a fair distribution of existing income to ensure that growth is not necessary for human flourishing. And so, I think that it’s really a matter of communication.

RAWORTH: Yeah, I don’t use that word.

Kate Raworth again — and the word she doesn’t use is “degrowth.”

RAWORTH: Because I find every time I’ve ever been in or listened to a debate with it, people get confused about, what we’re talking about. So, I am advocating a global economy that is regenerative by design, works within the cycles of the living world, and that is distributive by design, shares value far more equitably with everyone who’s co-creating it. So, I would rather talk about what we’re for, the dynamics we’re trying to create, rather than focus on what we’re trying to move away from. And I find myself not using the word “degrowth.”

I find that if you generally take it to a public, people think, “Oh, you’re trying to make the economy go down.” And they misunderstand it. And I don’t want people to misunderstand it. I want people to be inspired by the direction we want to go in. So, I’ll talk about doughnuts instead. We’ve seen the emergence in the last couple of years of a small group of governments actually saying we’re never going to be the country with the biggest or the fastest G.D.P. growth. So, let’s go and do something more interesting. And they’re called the Wellbeing Governments Alliance. You’ve got New Zealand, Scotland, Iceland starting to do something more interesting. I think that is very powerful and fascinating. And they just all happen to have women as prime ministers.

DUBNER: You know, it does strike me — G.D.P. has been around for a long time. And almost since the beginning, people have warned of an overreliance on it, that it measures something and leaves out a lot of things. In fact the person credited with inventing it, Simon Kuznets, warned against an overreliance of it. It does seem in the last few decades, there’s more voice raised against it. And many of the most prominent voices are women. So, I think of people like yourself, certainly, Mariana Mazzucato. I think of the philosopher Martha Nussbaum. Do you think that’s a coincidence? 

RAWORTH: I think many women in professional lives know that their life has always been balanced with managing their personal lives. So, you know, recognizing that economic theory was predominant — well, not even predominantly — just written by men until almost this last century, it focused on the market and the state, the spaces of monetized interaction. And it took feminist economists coming along from the 1960s and 1970s to say, “Hello, there is the household. It’s actually the core economy on which everything depends. There is the commons, where people get together and co-create goods and services they value in communities.” And wow, the last months have really highlighted the importance of that. So, I’m not surprised that female leaders and nations are more likely to see the importance of that in the balance of well-being for the nation as a whole.

DUBNER: So, if we think about China now — for decades, they pursued a socialist communist agenda that killed millions and kept many more millions dreadfully poor. And for China, it was the pursuit of economic growth, of G.D.P. growth, as much as one might challenge the methodology of their growth in particular, but that alleviated poverty. So, what do you say about or to the millions of Chinese who’ve benefited from that growth? How can they find succor in your argument that G.D.P. growth per se is dangerous? 

RAWORTH: So, I don’t think I’ve ever said G.D.P. growth per se is dangerous. What I believe is dangerous is that we have economic systems that are structurally dependent on endless growth. So, there are many countries in the world that I believe absolutely need economic growth. I’m thinking of Zanzibar. I’m thinking of low-income economies where people are in the hole in the doughnut. They can’t meet their needs for food and water and health care and housing and education. And as the economy grows, if that growth is reinvested in the right places, it will meet those fundamental human needs. But there has to come a point at which nations grow up.

DUBNER: Let’s imagine that some years from now that 90 percent of the world’s nations have signed on to your notion of planetary boundaries and decided that, “You know what — we need responsible and sustainable growth, and we will do it in concert with giving people their basic needs, keeping them out of the hole in the doughnut.” But only 90 percent do it. And within that 10 percent are let’s just pick Russia and Saudi Arabia and Iran just to pick a few, who feel that now there’s an arbitrage opportunity. “If everybody else is dialing back, well, that makes it that much easier for us to keep going forward, to ignore those boundaries.”

So, you worked at the U.N. You know that there are sometimes signs of global unity and collaboration, but it’s mostly hand-waving and signaling, and that really countries are out for themselves. So, are you concerned that this may become a kind of — not an arms race, quite, but even if the right-minded countries go along and pursue this more sustainable economy, that rival nations will have an even wider avenue to pursue their agendas?

RAWORTH: Well, I don’t know that it is true that all nations are out for themselves. That’s like telling us rational economic man is self-interested. And then we become that. And if all nations are out for themselves, forget it, because we live on one delicately-balanced planet. And we share her life-supporting systems and we will blow right past them. And then no nation can help itself because we’ve destroyed the common wealth — a stable climate and fertile soils and healthy oceans that every nation depends upon. My strategy is I don’t try to push the doughnut on anyone. I have never knocked on a shut door because there is so much energy for transformation in the world that I just go where the energy is.

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Kate Raworth’s book Doughnut Economics is essentially an alarm, a warning that the blind pursuit of economic growth leaves out too many people and puts too much strain on the planet’s resources. But some policymakers who read the book wanted more practical ideas. So, Raworth has been busy setting up a Doughnut Economics Action Lab to create customized blueprints for communities in pursuit of sustainable growth.

RAWORTH: They’re very much bespoke portraits for those cities.

She’s already created these “city portraits” for Philadelphia and Portland, Ore.

RAWORTH: This is a very hard look in the mirror of the 21st century reality. How do we actually create more social equity for the most deprived neighborhoods in our city and cut our carbon emissions at the same time? How do we transform diets in our city and improve water quality and improve green rooves and have more green trees in the poorest neighborhoods? 

There’s one city that has embraced the doughnut philosophy more aggressively than any other.

VAN DOORNINCK: Hi, my name is Marieke van Doorninck. I’m deputy mayor for the city of Amsterdam.

Van Doorninck’s prime responsibilities are urban development and sustainability.

VAN DOORNINCK: Which has to deal with the energy transition, but also circular economy. 

What, exactly, is a circular economy?

HICKEL: Well, that’s the million-dollar question. 

The economic anthropologist Jason Hickel again.

HICKEL: So, the way that the Amsterdam plan is going to approach it is to maximize recyclability and minimize the extraction of new resources.  

VAN DOORNINCK: A lot of people are fed up with this kind of — “we throw away everything,” like this disposable society that we have created . 

Van Doorninck belongs to Amsterdam’s Green Left Party, which is — well, which is pretty much what it sounds like. They came to power in 2018. In April of 2020, Kate Raworth and Amsterdam officials announced that the city had formally implemented a version of Raworth’s doughnut plan, focusing on Amsterdam’s pain points: their especially high housing prices and high carbon emissions. But the doughnut plan was part of a broader strategy Amsterdam has been working on for years: to have a completely circular economy by the year 2050. That means by 2030, the city’s use of primary materials must be half what it is today. This lines up with a similar plan the Dutch federal government has in place.

DUBNER: I have to say, when I first read about Amsterdam and the doughnut plan, I was surprised, mostly because if I think of cities around the world that don’t need the doughnut plan, I would think of Amsterdam. When I think of a progressive view toward sustainability, toward energy, toward transportation, toward housing, we Americans think of you — maybe not Amsterdam per se but your part of the world certainly, as much more of a model than us. But plainly, you feel there’s an enormous amount of progress that needs to be made still, yes, on all those fronts?

VAN DOORNINCK: Yes. A lot of progress needs to be made only if you look at the climate crisis that we’re in right now. It demands much more drastic solutions. And if you’re not very careful, it will be on the shoulders of the people who are already in a social disadvantaged situation. For example, if we tax the gas or the oil much more, which is good in order to stop climate change, it will not benefit people with lower incomes. We don’t have huge differences in income — a bit more than we used to — but it’s there.

I think where we’re doing bad is that the prices of our houses are far too high. The biggest worry that people in Amsterdam have is, “Can I pay my rent, or can I pay my mortgage, or actually, can I live in Amsterdam?” Because it’s so expensive. And that is such a strange thing because we calculate our G.D.P., so how wealthy the city is, by the prices of our houses. So, we say, “Okay, we have very expensive houses, so we are doing well. We’re a rich city.” But actually, we’re saying, “There’s no access for a lot of young people, but also older people because it’s far too expensive.” So, how could we say that our city is doing well?

DUBNER: Yet another way in which G.D.P. is not a very useful measure sometimes, yes? 

VAN DOORNINCK: It’s not. It’s not. It actually shows inequality. 

DUBNER: So, what is Amsterdam doing about affordability, but affordability in concert with the sustainability and ecological goals? 

VAN DOORNINCK: Well, we have to build more houses. That’s not something that we can solve, overnight. But there’s two things that we’re doing in Amsterdam. And one of the things is that when we have new development, we always say that 40 percent needs to be affordable housing. So, that’s a fixed price that maximum rents can be asked. Then 40 percent has to be middle income and only 20 percent can be free market. So, that’s how we try to keep houses affordable. But at the same time, of course, it needs to be sustainable.

So, we have quite high standards for building companies who want to build in Amsterdam when it comes to energy use, when it comes to materials that they use, the kind of circularity that they put into their buildings. For example, you build a house for a larger family and later on there are smaller families that want to live there. So, you can easily adjust them. Or you have buildings that were built to be a school but after 20, 30 years, there will be less children in the neighborhood and you can easily adapt that building into a new one. So, you don’t have to demolish. You can just adapt it. That’s a very important circular method that we’re using.

DUBNER: I was surprised to see that CO2 emissions in the Netherlands aren’t much lower today than in 1990. Again, only because I perhaps wrongly think of Amsterdam and the Netherlands as pretty progressive when it comes to clean energy and pollution and so on.

VAN DOORNINCK: Amsterdam has grown immensely since 1990. So, actually, the fact that we have about the same as we had in 1990 says that we already have done good. But in order to really make the breakthrough, we have to speed things up. And we can do that by windmills and by solar, but it’s not enough. One of the things that we really have to do is to look at production mechanisms or production methods that actually cost much less energy. The energy transition is not only about using green fuels instead of fossil fuels, and then it’s over. We really have to change our behavior.

DUBNER: Are you talking about simply less consumption? Or when you talk about different mechanisms, are you talking about a different way to produce goods, a different way to transport goods, a realignment of basically that whole supply chain and production chain? 

VAN DOORNINCK: I think it’s both. I think we have to consume less. We have so much stuff that actually is made to be broken instead of made to last and I think most people are fed up with that. But we also have to do things differently. So, for example, for transport, how can we have much more emission-free transport or a different kind of transport? How can we, for example, use the water much more for transport than we’re using our roads? And with the Covid crisis next to the climate crisis, we see that we have to look at much shorter supply chains.

DUBNER: Meaning producing more locally or nationally than importing, yes, essentially?

VAN DOORNINCK: Yes. And much more using already existing resources instead of mining all these new raw materials, shipping them all over the world and making new things and then throw it away and then have a huge waste crisis.

DUBNER: While there’s inevitably waste in what you describe, there are a lot of efficiencies in that because you’re transporting things in massive quantities. The flip side is if you were to try to manufacture more things locally or nationally, then there are inefficiencies in that because the Netherlands isn’t as good at everything as it might like to be. So, I am curious whether you feel that you’re taking steps toward a kind of “degrowth” mindset?

VAN DOORNINCK: I don’t think “degrowth” is a goal, but growth is also not a goal. So, the whole idea is much more of being a thriving city, a city that is taking well care of its inhabitants but also taking well care of its environment and taking well care of the rest of the world. Because if we ship all these products from other parts of the world, we have no clue what the labor conditions are. Well, actually, we do have a clue what the conditions are. They are very bad. It’s just quite easy to turn our heads and don’t see it. But we know that products that we use quite often are causing labor exploitation, but also pollution in other parts of the world. And we can’t pretend we don’t know because we do. 

DUBNER: Can you give a specific example of how your plan might encourage the reuse or recycling of something like used clothing or maybe it’s even something a little bit more disgusting than that, medical waste or electronic waste?

VAN DOORNINCK: I do think a lot of people are interested in reusing or recreating or recycling things. But right now, it’s quite difficult because it’s still cheaper to dig the mines and get all the raw materials from other parts of the world to the Netherlands. That’s cheaper for a producer than to actually recycle. So, we need this incentive to make recycling and reusing and recreating much more interesting for a producer than raw mining.

One of the things that we need to do is completely change our tax system. Right now, we do have low taxes on primary resources and we have very high taxes on labor. And actually, the circular economy is very labor-intensive because all this reusing, recycling, you’re taking things apart and then making new things, is very labor-intensive. And so, I do think that by showing that using things again is not only saving the earth, but it’s also creating lots of employment — which at this moment is, because of Covid, a big problem in Amsterdam. Amsterdam has an economy which is highly dependent on tourists. If the economy goes well, our economy goes well. But also, if it goes bad, it goes very bad in Amsterdam.

So, actually, what we need to have is a much more resilient economy — which, actually, a circular economy is much more resilient than a linear. For example, right now we are working on a new policy on data centers, because they use enormous amounts of energy. But they want to be in Amsterdam because it’s a hub. So, we said, “Okay, you can be here. But you can only use green energy. The heat water that you have as a waste product from your cooling systems — you have to provide that for free in order for us to change our heating system in houses so we can exchange gas by this hot water that comes from the cooling systems.”

DUBNER: Oh, so you use geothermal from the data centers. Their waste product is your heat source. 

VAN DOORNINCK: Exactly. And we also ask them to have good architecture, because quite often data centers are like black boxes somewhere. 

DUBNER: So, let me propose an unintended consequence of your well-meaning policy. Let’s say you go to these big data centers and say, “If you’re going to be here, you need to use green energy, construct better buildings, reuse your waste, etc.” And at a certain point, they say, “You know what? You are making it too expensive and difficult for us to be here. We’re going to move to a different province 50 miles away. And there, we can pollute all we want because they don’t have the Green Party in power.”

VAN DOORNINCK: Well, of course, that could happen. And actually, it’s something that some of the companies tell me. So, they say, “Well, do you want me to stay here? Or do you want me to go to somewhere else where I can really, really pollute?” And I say, “Do you want to be a company that really pollutes, or do you want to be part of the solution?” So, no, I don’t have all the instruments to force companies to do so. But if you want to be in a city like Amsterdam, which is an attractive city, which a lot of companies want to be because they can also provide their employees a nice work environment, a green city, a friendly city. And this is the way we do it. So, yes, we’re maybe trying to work with the coalition of the willing, but I do think the willing could be an example for others.

DUBNER: You personally sound like you really appreciate the value of the carrot as opposed to the stick, or at least as many carrots as possible. I am curious: have you found industries or instances yet where you think that the stick will be much more necessary? 

VAN DOORNINCK: Oh, yes, absolutely. I do think that we have to have much higher CO2 taxes. I think we need to keep producers much more responsible for what they’re making. So, I think we should actually forbid a company to make a machine that if one little thing is broken, you have to throw it away. I think we should make it compulsory that something can be repaired — say, the right to repair instead of the right to buy. Also, in plastics, you know — quite often plastics are very hard to recycle because in just one little whatever cup, they use three different plastics, which actually cannot be taken apart in the recycling circle. So, I do think that we need to hold companies responsible for how they make their products. 

DUBNER: So, Amsterdam could go to zero carbon emissions in five years. And that doesn’t affect at all what, let’s say, India or China do. So, I realize this is not your job, per se, but I am curious to know how Amsterdam feels, being a citizen of the world, but knowing that even if you achieve your solutions across the board, not just with climate and pollution, but sustainability, housing, reusing, etc., what part that may play in the global march toward those sort of solutions.

VAN DOORNINCK: Well, if you only wait for the others to start, then nobody will ever move. And I know that there’s many countries in the world and many cities in the world who really want to make change, also cities within the United States of America. So, I do think as a city who puts a huge ecological footprint on the world because we are a rich city, and we use enormous amounts of fossil fuels, and we use enormous amounts of consumer goods that pollute the world by its waste, but also by the way it’s being produced, we do have a responsibility.

DUBNER: Let me ask you, finally: your plan is plainly dependent on social cohesion, right? People need to understand that you’re kind of all in this together. And again, as Americans, we think of Amsterdam and the Netherlands and much of Northern Europe as places where social cohesion and social trust are fairly high, certainly much higher than they are in the U.S. right now. So, I’m curious whether or how you think this kind of approach could work in the U.S., where the society is different, the economy is different, the relationship between the individual and the state is very different, and I’m curious if you have any advice for us. 

VAN DOORNINCK: Well, Amsterdam and the Netherlands and Western Europe has much more history of the welfare system, and I think Americans are much more self-reliant. And some parts of a circular economy are quite self-reliant, because with the stuff that you have, you can make yourself new things. Or your neighbor could do that, but at the same time, you could provide other services to your neighbor.

For me, the circular economy is about thinking globally but acting locally. What would a neighborhood be like if actually you can produce your own energy and you can exchange it with others and create these small grids where you don’t need the big companies anymore, which would be a complete democratization of the energy supply? And I think it would take the entrepreneurship that a lot of Americans have on a smaller scale. I think America could do that. Maybe even better than Western Europe, because you are a people who like to take care of themselves.

Ah, flattery: yes, we are all susceptible. Thanks to Marieke van Doorninck for speaking with us from Amsterdam. Also thanks to Kate Raworth and Jason Hickel, both speaking to us from England. We will keep our eye on Amsterdam’s efforts to embrace the doughnut, and we’ll report back if we learn anything particularly interesting.

*      *      *

Freakonomics Radio is produced by Stitcher and Dubner Productions. This episode was produced by Mary Diduch. Our staff also includes Alison Craiglow, Greg Rippin, Matt Hickey, Corinne Wallace, Daphne Chen, and Zack Lapinski. Our intern is Emma Tyrrell. Our theme song is “Mr. Fortune,” by the Hitchhikers; all the other music was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts.

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