Circular Economy

Circular Economy: How can we participate?

It is enough just observing the streets of any city or referencing any waste disposal site to recognize the enormous amount of residue our current life-style produces. It is not just about the production of waste, but also about not knowing how to dispose of it properly; this situation forces us to reflect on how we can continuously produce less waste. Beginning in the mid-1970s business models arose from an economy described by Walter R. Stahel, who outlined the overriding advantages of a type of economy based on circularity. He proposed to de-materialize the economy, or produce more with less, use less energy and fewer environmental resources in productive processes to decrease the amount of waste by reusing and recycling. Stahel, founder and director the Product-Life Institute in Geneva and winner of the Mitchell Prize, was a pioneer and early-adopter of the idea of “consuming services not products.” This strategy for maximizing product life also involves the creation of jobs, especially in the field of repair and reutilization, as well as reduced emissions of greenhouse gases, among other benefits.

In the 90s, Stahel extended this vision of consuming services and in 2006 he published a book titled The Performance Economy. With the goal of promoting his ideas among actors in the economic sector, he worked in conjunction with the Ellen McArthur Foundation --established in 2010 as a non-profit organization-- and thus accelerated the transition toward a circular economy, becoming a lead entity in pushing this paradigm shift in the agendas of business, government and academic leaders. Since then, it has been concluded that the advancement of a circular economy depends on a powerful normative framework. Since a number of centuries ago, Europe has set an example of how to produce with less waste, creating a financial support platform through the European Investment Bank, which unites investors and innovators around waste-to-energy transformation while also improving legislative proposals regarding specific dangerous substances in electronics and electronic devices.

In Mexico, a circular economy of producing less waste and transforming residue has been promoted very gradually. In part because we have operated as a linear society for many years, creating and distributing all types of materials that become useless to the economy and are costly to treat or transform. Although it is true that this occurs within large corporations and in the productive industry, we can all support a circular economy from within our own small social circles and from within each neighborhood in our cities. We can be conscientious about how we handle our waste, making an effort to separate it properly into the familiar blue, yellow and green bins for paper and cardboard, lightweight containers and glass. Separating garbage is far more beneficial that tossing out mixed waste that is difficult to separate and use.

The ke y to circular economy is that the circuits connecting materials should be increasingly shorter, that is, we are able to maximiz e our use of any product, facilitate recycling and privile-ging the disposal of less h armful waste. Unfor-tunately, this is not the norm. Today, garbage is transported by boat on thousand mile trips, and some materials circuits extend across the entire planet. To more easily understand how the circular economy works, we can use the life cycle of a forest as an analogy. The leaves that fall from a tree are recycled in situ into its own soil, that in turn feeds the same tree that will produce more leaves, and everything occurs within two or three meters of distance. In this same way, we can apply our human nature and intelligence to improve our environment and how we coexist.

Blue economy

By Elitania Leyva Rayon PhD in Economic Finance with a concentration in Banking and Stocks, Madrid Autonomous University.

Full research professor in the Economics Department at The University of the Americas Puebla.

The current economic system is a linear one in which natural resources are overused. Because of this overuse, coupled with elevated waste production, our system is reaching its limits. The alternative is a “circular economy” where the primary objective is an efficient use of resources. It is based on completing the life cycle of products, that is, it proposes that the value in products and materials remain active in the economy as long as possible, thereby reducing waste. The closest approximation to this is a “blue economy.”

This concept was presented by economist Gunter Pauli in 1994, while presenting his design of an environmentally-friendly economic model.

In a blue economy there are a number of sources of income throughout the productive process that should all be utilized in an innovative way. Specifically, waste is viewed as a business opportunity that should be contemplated by business people. Seeking out innovation is cost efficient, produces jobs, grows capital and benefits local economies. It is a new concept for the business world; one that tries to imitate natural ecosystems in order to achieve increased efficiency when utilizing goods and services while still respecting the natural environment. This concept was presented by economist Gunter Pauli in 1994, while presenting his design of an environmentally-friendly economic model. He also seriously criticized the concept of a green economy, which he considers inefficient because of the amount of investment businesses would have to make in their production processes to achieve environmentally friendly goals. That is, it promotes ecological products that respect the environment but are more costly. This greater investment made by each company implies an increase in operating costs, which ultimately is transported to increased consumer prices. In his book, The Blue Economy, Pauli addresses issues like sustainable development, manufacturing, agriculture and waste. He proposes a change in how we interact with the environment and a more efficient use of waste as integral to the cycle of sustainable development. He considers waste another source of revenue and suggests it be used in production, changing our current modes of global production that produce huge amounts of garbage, for a model that reuses the majority of the garbage it produces. He details a few business projects inspired by

n ature, which show how possible it really is to design a sustainable and competitive business model with environmental, economic a nd social benefits. Among his most innovative projects can be found: Cultivating edible mushrooms with used coffee grounds, production of bio-degradable detergents using orange peels and the t ransformation of gas stations into charging stations for electronic cars. On the other hand, the European Union (EU) defines the blue economy through the Euro-pean Regional Committee’s Commission o n Na-tural Resources, as an economic system that favors the development of coastal cities and creates opportunities that incentivize people living there. It recognizes oceans as a source of food, natural resources and raw material, for which reason regional c oastal authorities and other levels of government should align forces to consolidate the blue economy. I n this way, the blue economy focuses on oceans as impulse for development, stimulated t hrough responsible ocean management that integrates environmental, economic and social aspects of coastal economies. This would make f ishing and tourism sectors sustainable, along with the na-val industry and emerging i ndustries like ocean wind energy, aquatic biotechnology and mari-ne mineral resources. Investment opportunities and necessary p olicies would have to be desig-ned to have adequate international governan-ces of the oceans. There currently exist blue economy projects that generate sustainable marine environments, but they require external f inancing to move from theory to practice. Because of this, the EU has discussed creating a European investment fund directed by the European Commission and designed to motivate these projects so that the jobs they crea te are sustainable and so that they reinforce environmental conservation. The blue economy is the means by which we can reconcile the use of maritime resources with economic growth in local communities, through strategic investments, planning and in-creased cooperation between local authorities, communities, researchers and private investors, all aligned to guarantee a truly sustainable development.

Resolving Economic Inequality resolves almost Everything Else

By Edith Esquivel Eguiguren

MA in Political and Social Science, Humanities Research and Teaching Center for the State of Morelos.. Writer, translator, line editor and essayist for the Grupo Imagen web portal Money

Why is it important to combat economic inequality? The book by R. Wilkinson and K. Pickett reveals how countries with the greatest economic inequalities also have higher rates of mental illness and drug use, lower levels of physical health and a lower life expectancy (both for the wealthy and the poor), weaker academic performances and higher indices of unwanted teenage pregnancies. The primary factor that explains these issues is the economic inequality between people, and not the economic level of each person. The authors conclude that even among the most developed countries; those with the fairest distribution of wealth perform better across a wide range of indices for social wellbeing. Nevertheless, inequality is rampant worldwide. According to data from Oxfam, the wealthiest 1% of the population possesses more than double the wealth of the other 6.9 billion people in the world.

The origin of inequality At the end of the 19th century, the Italian engineer Vilfredo Pareto discovered a pattern in wealth distribution that is as universal as the laws of chemistry and thermodynamics. He saw that there are many more individuals in extreme poverty than in extreme wealth, but also noticed that every time the wealth is doubled among the richest top percent, fewer and fewer people pertain to this small group. That is to say that the wealthier the wealthy get, the fewer wealthy there are. Pareto discovered that nature and the economy tend to demonstrate distributions of 80/20. For example, in Canada, 80% of the people control 20% of the wealth. It could be said that this is a normal distribution rate. But in many countries 10% of the people control 90% of the wealth or 5% control 85% etc...

Conventional economic theories had been unable to explain the origin of the universal pattern noted by Pareto. But two physicists, Jean-Phillippe Bouchaud and Marc Mezar at the University of Paris were able to do so. Their volunteers used computers to simulate economic transactions, where the economy was a network of people interacting to make wealth flow between them through spending and investing. The result of the simulations was the same. After a time of allowing the wealth to move, the 80/20 Pareto law became evident, even though each person began with the same amount of money and the same investment opportunities. But why does it work this way? Transactions between people distribute wealth. A wealthy person founds a business, consumes more, builds homes etc.… causing the money to flow through the economy, which should diminish disparities. However, this does not happen because random profits and investment products generate a phenomenon explained as “money generates money.” Even if everyone starts out the same, with similar abilities, the differences in the luck that strikes their investments will make some richer than most. Those who were lucky will invest more, take away more profit, and a series of wins will make them rich not summarily, but exponentially. The more volatile the investments, the greater the difference between winners and losers and the more concentrated the wealth becomes among the winners. This suggests that basic inequality may have little to do with talent or ability, and more to do with a naturally-occurring law of economic life. There will always be inequality. The problem is extreme inequality, since there is such a big difference in the quality of life amongst the citizens that live in countries where 1% of the population controls The Increase in Inequality Financial market speculation causes greater accumulations of wealth. A wealthy person speculates on the stock market instead of spending that money, which impedes the flow of wealth out to the rest of society. You might think that the stock market should not be subject to regulations and taxes, since it is where businesses create the capital they need to be productive. However, between 70 and 90% of every 100 dollars invested in the markets are speculative, and speculation is not inherently productive: it is just a perceived change in the value of a company. A company, whose market value increases, does not necessarily have more clients, expand its facilities or hire more people. This brings us to another point. According to Oxfam statistics, only 4 cents per dollar raised by the governments are obtained through taxing wealth. Multimillionaires use their influence to pay fewer taxes and justify it by declaring it a strategy to generate employment. Nevertheless, they leave the governments’ vaults empty, spend less and ask for interest-free loans. By reducing government spending they affect the income of many businesses that provide government services. It is family and government spending that generates employment. No business is charity’s little sister to be hiring people when they don’t have an income. As you will see, despite the fact that some theoretic economists defend the non-intervention of the State in the economy, it is undeniable that the State must act, if only to charge taxes, declaring who and how much to charge and how that money will be spent.

Hands tied So then, can the government reduce inequality and call it a day? It can, but it won’t if the necessary measures affect the interests of its most powerful citizens. Institutional investors around the world are capable of displacing large quantities of savings world-wide and governments are subject to risks of speculation attacks that could provoke devaluations or even serious financial crises. Globalized and deregulated financial markets have erected themselves as authentic judges of economic policy within the governments. You voted for a president, but that president does not want to apply policies that investors do not like because they may disinvest from the country, bankrupting it with an unpayable debt. The president has to be likeable to investors, not citizens. This is what Henry Bourguinat called “the tyranny of the markets.” This reduced autonomy in economic policy for countries is a risk to democracy. But above all, it is a vicious cycle in which governments cannot slow-down inequality or the accumulation of wealth, and in which the hands that hold this wealth are ever-more powerful to continue deregulating markets and to generate greater inequality.

The decisive element for growth in financial markets was the deregulation that was first generalized and is now practically universal. In underdeveloped countries the International Monetary Fund (IMF) promotes financial deregulation. In the developed world, the current triumph of the financial markets would not have occurred without the intervention of the most powerful capitalist countries.

Inequality Inherited from Imperialism How were so many countries “convinced” to deregulate and adhere to neoliberal policies? John Perkins worked for ten years as head economist for the Chas T. Main firm, and claims to have been deeply implicated in the process. In his book, Confessions of an Economic Hit Man, he explains: “My mission consisted of persuading countries that were strategically important to the United States of America, from Indonesia to Panama, to accept massive credits to

“finance the development” of their infrastructures. These lucrative projects had to be executed by United States contractors and once the debt had been taken on, these countries were then subject to control by the United States, the World Bank and other institutions dominated by the United States. These entities acted as usurers, dictating payment conditions and forcing the foreign governments into submission. Even though the money was returned almost immediately to the corporations comprising the corporatocracy creditors, the debtor country was still obligated to reimburse the loan in whole, both the principle and the interest. The idea is that the debt becomes so large that the debtor country declares itself insolvent and unable to pay after a few years. When this happens, the country little by little has to give up sovereignty: they become captive votes in the United Nations, allow the construction of military bases or access to precious resources like petroleum. The debtor still owes the money, of course, and now has also been recruited into the global empire.”

The infrastructure that gets built ends up benefiting the wealthiest sectors of the country, expanding the nation’s inequality. When a country’s leader is unwilling to take on debt, the leader is assassinated, corrupted elections tend to follow in what is commonly called a “soft take-over” or, when both fail, troops may be sent in, as with Iraq.

The State and its role in reducing inequality Given that the volatile nature of the stock markets concentrates wealth and prohibits redistribution, greater financial regulations and increased capital gains taxes could reduce the inequalities by discouraging speculation and diminishing profits.

The amount of money moved in only four hours of financial market activity is equal to what Spain produces in one year. In eight hours the amount moved is equal to what France produces; in a week, what the United States of America produces. Imagine the enormous quantity of money the governments could raise by taxing these movements. Of course, the way governments spend these funds would also impact inequality. The impact would be positive if used to provide health services, food and social security for the disadvantaged classes; or negative if used to rescue irresponsible companies, strategically privatize public businesses or pay debts with enormous interest. In Latin America, for every 100 pesos of the GDP, 20.1% goes to paying debt and 6.8% to paying interests. Evidently, this money could be better used helping to provide well-being and opportunities to the bulk of the population. However, in order for fiscal policies to be effective, they would have to be implemented world-wide to avoid repercussions in any single country’s financial market. But instead of doing this, States serve their elite rather than their numerous voting population. Not only do they avoid redistributing wealth as they should, but they have cynically put in place anti-redistributive policies. They do this under our noses because we continue to believe that all economic growth is beneficial to humanity, and that the more growth a country sees the more and greater benefits to be shared. But while growth continues, continued inequality increases the power of a score of mega-billionaires that abuse their influence to manipulate the rules of the game in their favor, even putting at risk the stability of other millionaires. The number of wealthy people in the world decreased by 5% just in the last two years. The separation of powers The Greeks had an excellent system for separating economic from political power. Any young person with political aspirations had to remain in school longer that his peers. Once their studies were completed, they were politicians until the day they died. The State provided the politician and his family a house and food for life, but in exchange, he could own no private property. If you wanted to amass wealth, you studied commerce. If you wanted to improve your country, you studied to become a politician. Their democracy was “poca-yoque”, a Japanese term meaning “foolproof” (like the USB terminals of our computers, since you cannot insert the object incorrectly). Although the people had no idea for whom to vote, it was hard to get it wrong: every candidate met the basic educational, experiential and vocational requirements, along with the important commitment not to accumulate wealth. The government can be a great instrument for reducing inequality, for confronting environmental threats and for opening the world to more sustainable economic options. First we would have to fix one of its primary problems: Instead of serving society, it serves the 0.1% most affluent population in humanity’s history. Elite-State separation is the only way to draw a line for gigantic mafias that inhibit progress in energy, health, education, technology and more. It seems almost impossible to achieve, but if we decide together that it is necessary to separate political and economic powers, we can do it.

Bibliography Book: GUILLÉN ROMO Hector. Mexico facing Neoliberal Globalization, Era Editions, Mexico, 2005. Book: PERKINS, John. Confessions of an Economic Hitman, Uranis Editions, Mexico, 2005. Book: R. Wilkinson and K. Pickett. Spirit Level Turner Editions, Spain, 2010. Article: BUCHANAN, Mark. “Wealth Happens”, Harvard Business Review. United States of America, April 2002, pp. 49-54.