Circular Economy: The Economy of the Future

Nowadays, we are experiencing a shift in our economic model from a conventional linear economy, where the goal is to maximize growth and create new consumer markets, into a circular economy. Governments, business, and academia are now realizing that it is actually beneficial to their future success to change the foundation in which they were once developed upon and change their existing model. The Financial crisis of 2007, climate change, water and soil pollution, acidification, exponential deforestation and diminished biodiversity in key tropical regions are a few of the indicators of the failure of this linear economic model.

What is root cause of this failure? It can be attributed to one of its biggest assumptions which states that resources are infinite when in reality they are finite. Given this and our insatiable desire to consume, raw materials prices are sky rocketing, land resources are deteriorating and food is becoming more and more unattainable. Estimates dictate that we have 13 years of Indium (In), which is the element use to build the screen of our iPhones and watches, 61 years of Copper (Cu), 14 years of Tin (Sn) and 59 years of Uranium (U). Now the question becomes, can we reverse the wheel? Is it possible to change our linear way of thinking into a systems way of thinking? I believe we can.

There is a new economic model that has been talked about for several years by business experts and scientist, and even more importantly, it has been proven that it works. It is called the Circular Economy. This new economic paradigm is based on the idea that we need to be more creative system thinkers when it comes to designing our products. That we need to design things in an entirely different way by designing products and packaging that can be reused. It envisions an economy where long term capital assets fuel our well being and increases productive capacity to provide goods and services. It relies on green or renewable technologies to obtain energy, it creates resilient communities and protects its ecological assets. And this latter is key to the circular economy success. It is not based solely on the concept of labor productivity where we need to improve efficiency by means of reducing menial work and increasing working hours. It relies in the quality of the time that we dedicate in the creation of these things which will create value in the services desire.

One interesting concept about a Circular Economy is the fact that it introduces a new business model, a service oriented business model. Now, some of you may be familiar with the “Cloud”. This imaginary bubble where you rent your servers to a third party company so you don’t incurred in the cost of buying and maintaining the network infrastructure but you still get the service that you need. In a sense it works exactly like that but with real tangible things that we use every day, like your cellphone. Let’s say you need a washer but instead of buying one you rent one until the end of its life-cycle. By the end of this life-cycle you then called the manufacturer, they pick it up and reused its components to create another washer or send them away for recycling hence minimizing the waste.  By executing this cycle all the parties benefit. First the upfront cost of obtaining a washer will be less for the consumer. Second, the materials used for the washer must be recyclable or reusable so the manufacturer gets benefits from then picking up the washer from you to create another one. This way we are closing the cycle and holding accountable the manufacturer for its product life-cycle.

“We need to start using things up rather than using them.”

In essence, we don’t need things, we need the services provided by these “things”. We need health, nutrition, social care, a strong education, leisure and recreation and quality in our lives.

Bottomline, the ultimate aim of an economy is beyond providing income, goods and services, or stability but to provide us with prosperity, a sense of well being. Is to give back a sense of hope.

I would encourage you to check out the Ellen McArthur foundation, a non-profit organization with the aim of, and I quote, “accelerate the transition to a circular economy by building a framework for an economy that is restorative and regenerative by design.” You will find some good stuff and reading materials regarding this topic!

-Gerardo