Creating global prosperity without economic growth

The Real Circular Economy

How Relocalising Production With Not-For-Profit Business Models Helps Build Resilient and Prosperous Societies


read the full paper here

In recent years, the idea of a ‘circular economy’ has come to the fore as a way to tackle carbon emissions and waste. It has gained traction with thought leaders and jurisdictions around the world as a way to stimulate economic growth, foster innovation and generate employment.

The circular economy builds on concepts including zero waste, cradle to cradle and biomimicry. It is focused on creating economic value and reducing environmental impact through design, highest and best use of materials, and efficient use of resources and energy.

How we design, make, use and manage things at the end of their useful life has enormous implications for everything from our demand on nature’s resources, our carbon impact, and the amount of waste we generate.

Efforts to crystallise and focus attention on creating a circular economy have created a huge awareness of, interest in and momentum for approaches that make a lot of environmental and economic sense.

At the same time, a technological approach to the circular economy is necessary, but not sufficient, to get us on track for a secure future.

The principles of a circular economy speak to material resources and our systems of managing them, however with a few exceptions, there is little mention in contemporary circular economy debate of the wider milieu of economic, social and cultural systems in which a circular economy must operate.

Adopting a broader definition of ‘circular economy’ can help us build a sustainable, prosperous and fair society.

 


 

The Circular Economy, Economic Growth and Biophysical Limits

The circular economy is primarily concerned with the flows of materials and energy, and it is often taken as a given that this circulation can happen within a growing economy.

However, the demand for materials and energy needs to be considered in the context of the limits of a finite planet.

Materials can keep circulating through being designed for disassembly and remanufacturing, or kept in use longer through being designed for durability, but if the ‘circle’ or total demand for materials and energy keeps expanding, we have not solved our civilisation’s challenge.

The earth is a finite system of nutrients, resources, minerals and energy. Human impact must fit within these limits, and leave some ‘breathing room’ not only for humanity, but for millions of other species. If the absolute amount of resource and energy use is still rising, economic growth will negate resource efficiency gains.

The drivers of growth are many, but they include money created as interest bearing debt, planned obsolescence, consumer culture and status envy, population, and the indicators that we use to manage our economic systems.

Economic growth, the overriding objective of governments everywhere, is measured by Gross Domestic Product (GDP). GDP is an indicator designed to track total economic activity, developed in the 1930s and 40s amidst the upheavals of the Great Depression and two World Wars. Its inventor, Simon Kuznets, the chief architect of the United States national accounting system, cautioned against equating GDP growth with economic or social well-being in 1934. Yet eighty years on, economic growth is seen as the pathway to prosperity and wellbeing.

Although many people today still lack basic needs, many more people today have a material living standard higher than that of an average citizen at any previous time in history. Economic growth has delivered that standard of living for many people.

However, as an indicator, GDP is a blunt instrument in that it adds up the total monetary value of economic activity, but does not distinguish between the desirability of that activity. It does not count the value created in the non-market economy of social production — caring work, volunteering, domestic labour, ‘work for the world’. Yet every car accident, razed forest, oil spill, heart attack and break-in is counted as ‘growth’ because it results in greater production and exchange of goods and services.

We are systematically incentivising unsustainable behaviours, wreaking destruction on ecosystems and communities with abstractions we have ourselves created.

In order to keep growing, a system dependent on economic growth must continually convert nature into goods and relationships into services — things once provided to us as gifts become monetised transactions.

Yet past a certain point, the costs of more growth — congestion, pollution, declining quality of life, inequality, destruction of ecosystem services (such as bees’ ability to pollinate or the ability of a watershed to filter and clean water) and liquidation of natural capital — start to outweigh the benefits.

Economic growth becomes uneconomic growth.

The UN defines uneconomic growth as:

  • jobless growth, where the economy grows, but does not expand opportunities for employment;
  • ruthless growth, where the proceeds of economic growth mostly benefit the rich;
  • voiceless growth, where economic growth is not accompanied by extension of democracy or empowerment;
  • rootless growth, where economic growth squashes people’s cultural identity; and
  • futureless growth, where the present generation squanders resources needed by future generations

Persisting with economic growth in a finite system is not only foolish when growth is no longer delivering the benefits it used to and the costs outweigh the gains, it is dangerous.

The ‘eat more’ message of growth economics is at fundamental odds with the ‘eat less’ message of sustainability.

This has been recognised with the emergence of concepts such as ‘green growth’, which is the bargaining stage of the end of growth grief cycle. It assumes we can still have growth, as long as it is ‘greener’ or more environmentally responsible. The idea is that we can decouple material throughput and energy from economic growth — that is, we can reduce the demand for new resources and energy, and still grow. Yet decoupling is not happening at the scale and pace needed.

In 2011, a study commissioned by the CEO of Veolia was published in a peer-reviewed journal focused on sustainability, with the objective of assessing the business opportunities of the circular economy and recycling. It found that the ability to ‘decouple’ is only possible if the total annual raw material consumption growth rate is under one percent, and that ‘the influence of recycling on resource preservation is negligible for any raw material with a greater than 2% per annum increase in world production’.

Even then, growth in material consumption kept below that rate is still insufficient to decouple, and requires a high rate of recycling (60% – 80%). Economist and Professor of Sustainability and Economic Anthropology Christian Arnsperger of the University of Lausanne analyses what this means:

Efficiency gains…become themselves the ‘raw material’ for generating new economic growth thanks to lower raw material requirements…and it explains why the circular growth economy attracts so much enthusiasm among businesspeople and industrialists: The mirage is that of perpetually expanding markets along with perpetually contracting raw material consumption…we have no use for a pseudo-circular metabolism that is actually a steadily widening spiral: circling, yes, but spinning slowly out of control nevertheless, in ever-broader circles of ever-growing circumference. We need a genuinely circular metabolism…one that doesn’t spiral outward but, rather, promises to keep the same circumference…

Images by Sharon Ede

Biophysical accounts for over 200 countries dating back to 1961 maintained by the Global Footprint Network show that humanity uses around 1.5 planets’ worth of bioproductive space, meaning the Earth takes one year and six months to regenerate what we use in a year. If population and consumption trends continue on their current trajectory, we will need the equivalent of two Earths by 2030. There are billions of people whose material living standard needs to increase, and many who wish to emulate consumerist lifestyles, yet we are already in overshoot — using more human demand on nature’s capacity exceeds what nature can supply.

The defining question of our age is not whether we can achieve the impossibility of sustaining more than nine billion people on a western industrial model of development, but how to deliver prosperous lives for the global population within the regenerative biocapacity of one planet.

 


 

Urban Metabolism: Ecological Cities and Relocalising Production in Fab(ricating) Cities

With their linear metabolism, cities are at the heart of the extractive, take-make-waste economy:

Estimates at the time of the Earth Summit (Rio) in 1992 found that 75 percent of the natural resources that we harvest and mine from the Earth are shipped, trucked, railroaded and flown to 2.5 percent of the Earth’s surface, which is metropolitan. At that destination, 80 percent of those resources are converted into ‘waste’.

Jac Smit, Urban Agriculture Network

The sustainability challenge will be won or lost in cities, which are now the most common human habitat, primary economic drivers, and the most powerful physical and political leverage points for change

To win the challenge we need to reduce urban Ecological Footprints by building, and reconstructing existing cities, as ecological cities.

Among many objectives, ecocities seek to ensure that cities’ demands on the Earth are within the Earth’s biological capacity.

An Ecocity is a human settlement modelled on the self-sustaining resilient structure and function of natural ecosystems. The ecocity provides healthy abundance to its inhabitants without consuming more (renewable) resources than it produces, without producing more waste than it can assimilate, and without being toxic to itself or neighbouring ecosystems. Its inhabitants’ ecological impact reflects planetary supportive lifestyles; its social order reflects fundamental principles of fairness, justice and reasonable equity.

Ecocity Builders

Cities, with their immense economic and political power, are central to global and local ecological problems, and they must become central to solutions. Cities should not only do less damage, but proactively work as an environmental repair kit — become biogenic, or generative, not biocidic, or extractive.

To successfully reduce our ecological footprint and move out of overshoot, we need to build ecological cities, including relocalising production of food, energy and things.

For cities to produce more of what they consume locally, they need to become productive, fabricating (making) cities – Fab Cities.

fab-city-global-initiative

A Fab City is a locally productive, globally connected, self-sufficient city.

Fab Labs (Fabrication Laboratories) and makerspaces offer opportunities for people to make and produce what they need for themselves, and to bring back to citizens the skills and knowledge needed to make things.

Harnessing these spaces and digital manufacturing technologies in service of the circular economy offers the potential for returning production to cities in the form of distributed manufacturing with microfactories — small scale, cleaner production that is also less wasteful, occurring as-needed, often customised, instead of over-producing for markets.

In Barcelona, a 1km x 1km area in the Poblenou district has been designated the ‘Maker District’ with the objective of prototyping a fractal of a Fab City, focusing on:

  • Fabrication & materials: with complementary production ecosystems happening inside the local network of Fab Labs, citizens have the possibility to produce what they consume, recirculating materials inside the neighbourhood and the city to reduce waste and carbon emissions associated with long-distance mass production and distribution chains.
  • Food production: growing food on the rooftops of Barcelona. Through urban agriculture practices, citizens can grow part of what they eat turning production of local clean food in a regular part of their lives.
  • Energy: Renewable energy production. With the arrival of domestic batteries and the cost drop of solar technologies, citizens have the tools to produce part of their domestic energy consumption.

 

The Fab City Research Laboratory team has recently initiated ‘Fab Market’, an online shop where designers can fabricate for low cost and sell their open source designs globally:

Using digital fabrication as its main focus, the network promotes the idea of distributed manufacturing. With this model, designs can be sent to the other side of the planet, modified and made on the same day.…you can find a variety of locally made products designed by people from all over the world. All products are open-source and sold ready for use, assembly or fabrication, giving people the possibility to participate in the making process. The more you participate, the less you pay for the product.

Other terms being used to describe the approach advocated by Fab City include ‘Design Global, Manufacture Local’, and ‘cosmo-localization’. In all cases, this means the ‘light’ things (bits, information, shared/open source design) travel, but the ‘heavy’ things (atoms, the physical, manufacturing) stay local.

The circular economy approach can reduce demand for energy and materials and production of waste, but if a city is not making things locally, does it truly have a circular economy? A city that is exporting recycled materials elsewhere to be remade into things arguably still has a linear economy.

A true circular economy means relocalising production in our cities, needing to move less stuff, and making more of what we need, when and where we need it.

Ecological Cities and Fab Cities, which have many similar objectives including reduction of urban Ecological Footprints, offer theoretical frameworks and practical ways to help us move out of global overshoot. Circular economy approaches are an integral part of both.

All are still embedded in and trying to change a world where the growth paradigm is dominant.

 


 

Circular Business Models for a Regenerative Economy

In an economic system that depends on growth, pursuing more growth is entirely rational. But there is a deeper question that goes unasked: is an economic system that depends on growth itself rational?

Growth of what, and for whom? Who benefits? Should the impetus for a circular economy, which tends to be focused on how to unlock business growth through better management of materials, be restricted to opportunities for business owners?

Growth is not working for most of humanity, it’s no longer working as well for those who have benefited, and it’s not at all working for the natural systems on which the security of our civilisation depends. But just like in the movie Speed, we are ‘stuck on the bus’, in a catch 22 of our own making.

Are we missing bigger opportunities to profoundly transform our societies through a broader definition of ‘circular economy’?

Part of the growth mythology is that ‘growing the pie’ enables wealth to trickle down, that giving tax concessions to the wealthy will result in investment and productive activity that creates jobs, however this is not necessarily the case. The lion’s share of the benefits of growth are typically privatised in the hands of a few, while the costs are socialised.

The primary legal responsibility of corporate executives is fiduciary, that is, to make as much profit as possible for returning to shareholders and investors. To do this, costs are externalised to the environment and to society. One report sponsored by the UN revealed that none of the world’s top industries would be profitable if they had to pay for the natural capital they consume.

This externalisation also relates to social costs, and is one of the drivers of both automation of jobs, and increasing precarity and casualisation of work — over a third of the US workforce is now freelance. The focus on maximising shareholder value is now being challenged in the business arena itself.

One consequence of a system structured this way is that wealth is increasingly captured and sucked out of the ‘real’ or ‘common’ economy of goods and services, and into the ‘elite’ economy — including an estimated $32 trillion in offshore tax havens — where it is then locked away from and unavailable to wider society.

Like our take-make-waste economy, our financial economy is also a linear, extractive economy.

If we want to move out of the danger zone of ecological overshoot, we must move away from dependence on profit maximisation and ever more economic growth, which drives extractive behaviour, extreme inequality and destruction of the Earth’s life support systems.

How can we harness economic, financial and cultural dynamics to get us safely off the growth bus before we run out of fuel, without the damage that will occur if we slow down?

One way to achieve this is through business models and modes of production that are more inclusive and share value, such as employee/worker owned co-operative enterprise, including platform co-operatives (such as a ridesharing platform owned by the drivers and other stakeholders), open co-ops, and approaches such as capped returns, which enable access to capital without requiring a business to deliver a perpetual claim on wealth, which drives the need to grow.

All of these examples shift us away from an extractive economy to a regenerative economy.

A powerful method which can support these approaches is detailed in the Post Growth Institute’s forthcoming book, How On Earth, makes the case that not-for-profit business models – which prioritise purpose/mission ahead of profit – will become the core of the global economy by 2050, because they will outperform business whose primary focus is profit.

By law, not-for-profit businesses are mission-based and they must invest 100% of their profits back into their mission. Because of this, they are more likely to care about whether or not their supply chains are ethical; about their environmental impact; and about their employees’ wellbeing. They are more likely to take into consideration the concerns of the local communities in which they operate and to give their employees the chance to express themselves. And they are not at all likely to sacrifice any of these concerns in the name of profit-maximization.

Donnie Maclurcan and Jennifer Hinton, Post Growth Institute in ‘How On Earth’ (forthcoming 2017)

A not-for-profit business works the same as any other business: it must be financially sustainable, everyone gets paid, and it can make as much profit as it likes — but it cannot distribute profit privately. Any surplus is required to be reinvested back into the mission or purpose of the business. These businesses see profit as a means to achieving deeper goals, rather than as a goal in itself.

Not-for-profit businesses have many advantages in the marketplace, including being more resilient in times of economic downturn, because they don’t have to provide dividends to shareholders.

Not-for-profit businesses that constantly cycle their surplus back into the real economy provide a practical, tangible way to redirect the flow of both value and capital, enabling us to prime the wealth circulation pump in the real economy, to meet social needs and ensure we are not undermining our ecological life support systems.

The not-for-profit model is about preventing value extraction and keeping it invested and circulating in the real economy. It promises value creation, rather than value appropriation, and is a system that runs on shared interest, not self-interest.

Not for profit business models are not a panacea, but they offer a practical approach and a realistic bridge from the old economy to the new economy, and most importantly, it is already emerging in the world we live in right now.

 


 

A real circular economy would expand the definition of the circular economy to one where its operating system is regenerative, not extractive, not only towards nature, but people; one where we change how value is circulated and distributed so that is more equitably shared.

A truly circular economy would mean that the circular ethos is also reflected in our social systems, including our financial services, our business structures, and the political frameworks and cultural norms that influence human behaviour.

What if circular economy businesses were commenced as, or transitioned to,
not-for-profit business models?

There is a way to fund circular economies in their truest sense — not just by moving to a circular economy of materials that has to keep growing and maximising profit, but by also making circular the value flows that could help fund the positive social and environmental change we need to make, creating a circular economy of wealth in service of the common good.

sharon-dec-2016

Sharon Ede

Cofounder, Post Growth Institute
Catalyst, Fab City Global Initiative

December 2016

 


 

References

Diez, Tomas (2016) ‘Locally Productive, Globally Connected, Self-Sufficient Cities’ – Fab City Whitepaper
http://fab.city/whitepaper.pdf

Hinton, Jennifer and Maclurcan, Donald (2017 forthcoming) ‘How On Earth’
www.howonearth.us

In addition to specified references, this paper reflects years of mentoring by, and collaboration with:

Paul Downton, architect and urban ecologist, Cherie Hoyle, community leader and urban ecologist, the driving force behind Adelaide’s ‘piece of ecocity’, Christie Walk

Mathis Wackernagel, Global Footprint Network founder and CEO and William Rees, creator of the Ecological Footprint concept

Donnie Maclurcan and Jennifer Hinton, co-directors of the Post Growth Institute

Michel Bauwens, founder of the P2P Foundation

Tomas Diez, instigator of the Fab City Global Initiative

 

Acknowledgments

Special thanks to Tomas Diez, Donnie Maclurcan and Jennifer Hinton for reviewing this paper, and for their contributions and suggestions.