Dissertation

SHIFTING FROM LINEAR TO CIRCULAR ECONOMY PRINCIPLES FOR A SUSTAINABLE FUTURE: CAN BUSINESS DELIVER?

Anyone who believes in indefinite growth on a physically finite planet, is either mad or an economist. (Sir David Attenborough, 2010.)

There is no doubt that in the second decade of the 21st Century the world is in crisis. Population growth, competition for resources, climate change, mass species extinctions, nuclear proliferation, economic stagnation, war and international terrorism are but a few of the issues that grab the headlines on a daily basis.

European economic chaos and the ensuing global financial crisis of 2011 has propelled the issue to the forefront of the public consciousness. It is timely that a re-examination of the long-standing global economic system becomes a global priority. It may well solve a number of other crisis conditions.

It will not be easy to learn economic wisdom. But if we do not the human race may well be numbered amongst the species that have become extinct. (Schumacher, 1973:44) True ‘economic wisdom’ is having the ability to make a judgment about the right way forward in order for mankind to survive.

There is a current shift that is

beginning to emerge within our economy from a linear ‘take, make waste’ system to a closed-loop circular structure. Society is beginning to realise that our current approach is inherently wasteful. In a world of diminishing resources and rabid consumerism it seems not only unsustainable but also illogical to continue behaving this way.

This study aims to engender an understanding of how our current linear economic model developed, and then discuss the impact it has had across the three pillars of society: economic, social and environmental. The critical and integral role of business will be examined throughout this study.

1

The Circular Economic (CE) model as an alternative to the status quo will then be discussed, the role of government and the barriers to its success. Business and industry have an even greater responsibility to stimulate change because of their influence on our consumer-based market. The role of business in bringing about this shift, and its influence in delivering a sustainable future will be evaluated.

Â

2

CHAPTER 1: How the linear system developed and it’s consequences The current linear economic model has its origins in the Industrial Revolution. It is a one-way ‘take, make, waste’ model (see Fig. 1). “Resources are extracted, shaped into products, sold, and eventually disposed of in a ‘grave’ of some kind, usually a landfill or incinerator” (Braungart & McDonough, 2008:27). This system came about over 200 years ago after the advent of the Industrial Revolution. This chapter will describe the development of the linear system and will show that it has proved to be a wasteful and unsustainable system that has fundamental flaws.

1.1 – The Industrial Revolution It is necessary to look at how the existing linear and industrial system first developed. At the end of the 19th century Great Britain saw a transition from a previously

manual

and

agricultural-based

economy

to

machine-based

manufacturing. This transition has been repeated globally and has fundamentally changed the way the human species interacts with the environment. “The industrial revolution remains, rightly, the great event in economic history (Clarkson, 1990:1).

The Industrial Revolution started with the mechanisation of the textile industries, the development of iron-making techniques and the increased use of coal and subsequently refined oil. Whole communities grew up around these industries which were seen as using revolutionary processes at that time. This shift from manual labour to mechanisation raised the standard of living and was seen as progress.

The industrial revolution progressively replaced humans and animals as the power sources of production with motors powered by fossil fuels. (Stearns, 1998:5) One of the key developments was in the creation of an infrastructure. The improved roads, railways and canals allowed more people to enter the market causing trade and business to expand even onto the international stage. This enabled products to

3

be manufactured for less and therefore the price came down, thus generating an increase in demand.

Angus Maddison links this expansion of infrastructure to the economic growth that ensued. “Accelerated GDP growth and success in exploiting new technology needed great increases in the education level of the labour force, even greater increases in the capital stock, and a rapid expansion of international trade.”

(Maddison, 2008:77). This is a clear example of how economic growth led to social benefits at the time. “All levels of society were able to afford what had previously been the preserve of the cultural elite” (Woodham, 1997:11).

The overall effects of industrialisation were perceived, at the time, as entirely positive, “With higher standards of living, life expectancy greatly increased, medical care and education greatly improved and other advances raised comfort and convenience to a new level” (Braungart & McDonough, 2008:26). This view ignores the initial increase in poverty amongst the poor migratory workers who were drawn to the new industrial cities.

1.2 – Industrial business Business was at the centre of the evolving industrial movement. The Henry Ford Motor Company is an example of a business that was created through the effects of early industrialisation and also played a major role in developing it further.

Innovation and design were key to his success. In the early 1890s craftsmen, usually independent contractors, built a bespoke automobile that met the customer’s specifications. Leading manufacturers at the time were only producing a few hundred cars a year. These were luxury items, built slowly and carefully by hand. Henry Ford realised, when he set up the Ford Motor Company in 1903, that in order to make cars for the modern American worker, not just for the wealthy, he would need to manufacture vehicles cheaply and in large quantities (Braungart & McDonough, 2008:22). He introduced the legendary Model T in 1908; it was later dubbed “the ‘universal’ car and the industrial success story of its age” (Gross, 1996:75).

4

His introduction of a standardised, centralised production and a moving assembly line brought the automobile industry into mass production. Ford’s use of the assembly line to produce the Model T was revolutionary. In order to push down the costs of the Model T (from $850 in 1908 to $290 in 1925) Ford focused on increasing efficiency and sales rocketed. From a design perspective, the Model T “epitomised the general goal of the first industrialists: to make a product that was desirable, affordable, and operable by anyone, anywhere; that lasted a certain amount of time; that could be produced cheaply and quickly” (Braungart & McDonough, 2008:24). It is clear that Ford’s innovations and entrepreneurial flair allowed him to exploit and capitalise on the early advantages created by industrialisation, while also setting an example for others to follow. Ford was a capitalist and a business leader who could see the potential of an idea and exploit it for the greater good.

1.3 – Capitalism and the free market As discussed above, commerce became a catalyst for raising social standards and this gave birth to capitalism as a national economic policy.

The theory of capitalism developed, in which British factory owners, entrepreneurs, and other businessmen worked to increase Britain’s production of goods, promoting more international commerce for Britain and supporting an increase in profits on Britain’s industrial goods. (Clarkson, 1990:193) The birth of capitalism and the free market followed the Industrial Revolution. By definition capitalism supports economic growth, encouraging private ownership of the means of production, creating goods and services and developing competitive markets (Heilbroner, 2008). This became known as a free competitive market, where “prices are determined by supply and demand, where economic regulation and intervention by government was limited to tax collection” (Rothbard, 2008). This style of laissez-faire government policy was extremely attractive at a time of technological advances because it allowed, better still encouraged, industries like

5

Ford to expand and grow. This resulted in the economic boom of the 1920’s in America.

Intrinsically linked to the development of capitalism was the growth of consumerism. Here government again saw an opportunity to work with industry in order to boost economic development. Stearns (1998:33) supports this idea of reducing government restrictions on industry, stressing the importance of “vigorous economic competition free from government controls as a means of generating innovation and growing prosperity.” The 2002 BBC television series ‘The Century of Self’, directed by Adam Curtis, depicts the birth of the post Second World War ‘consumer’ and a government, accompanied by industry, who was able to capitalise on the Freudian concept of satisfying the inner desires of our unconscious mind. Edward Bernays, Sigmund Freud’s nephew, showed corporations how they could, “make people want things they didn’t need, by linking mass produced goods to their unconscious desires.” (Curtis, 2002). Undoubtedly the development of the free market was fundamentally linked to the development of consumer-based capitalism and this led to increased economic growth.

1.4 The negative consequences of the linear approach Having focused on the positive effect of the linear economic model that evolved throughout the Industrial Revolution, the increased standard of living, the technological advances and the economic growth; we must now examine the negative consequences.

1.4.1 - Cost of growth This expansion of economic growth begs the question, how great will be the cost of the ‘free’ market to our environment? Paul Hawken expands on this concept when he talks about how we measure economic growth, which will be revisited later. “We watch economic indexes climb, as measured in gross national product, but we have not yet formulated an accepted index of what that progress is costing on the

6

environmental side” (Hawken, 2010:26). Jeffery Newman (2000:1) gives us a general overview of how much our current patterns of production and consumption are costing the environment: “The dominant patterns of production and consumption are causing environmental devastation, the depletion of resources, and a massive extinction of species.” The current model of growth is literally costing us the earth.

The negative impact the economic system has on society and our environment is not taken into account when we measure the success of our economy by growth.

“The national economic measurement tool, known as gross domestic product, GDP, formalises our reliance on money to indicate well-being” (Thorpe, 2007:64). All the sources agree that there is a fundamental flaw to this measurement tool. “The problem is that the GDP counts any monetary transaction as a contribution to ‘economic growth’” (Thorpe, 2007:64). Cairncross (1995:100) uses the example of when a forest is cut down and a species is lost forever, the economic activity associated with the logging shows up as a ‘positive’ contribution to GDP. Crime and divorce also are good for GDP because they generate monetary transactions in terms of legal services, housing and security. Meanwhile, time voluntarily spent caring for our children or the elderly has no measurable value according to the GDP. The GDP as a measurement of progress emerged during an era when natural resources seemed unlimited and “quality of life meant high economic standards of living” (Braungart & McDonough, 2008:25).

1.4.2 - What we TAKE As outlined in chapter one, the entire Industrial Revolution and the system that followed was based on a ‘take, make, waste’ structure (see Fig. 1). Hawken (2010:27) gives an example of how much this economic system ‘takes’; “Every day the worldwide economy burns an amount of energy the planet required 13,000 days to create, put another way, thirty seven years’ worth of stored solar energy.” This illustrates our current one-way relationship with fossil fuels. Schumacher supports this view stating that, “One of the most fateful errors of our age is the belief that ‘the problem of production’ has been solved” (Schumacher, 1993:10). He argues that the astonishing scientific and technological achievements produced the current

7

illusion of having solved the problem of production; the latter illusion being based on the failure to distinguish between income and capital (Schumacher, 1993). This point relates to our failure to recognise nature’s resources as natural capital.

Jonathon Porritt (2007:8) elaborates, “As a global society, we depend on certain “services” delivered by nature, of which climate regulation is only one…This is natural capital.”

When considering the earth’s natural capital, fossil fuels are the major players. “If we treated them as capital items, instead of income items, we should be concerned with their conservation; we should do everything in our power to try and minimise their current rate of use” (Schumacher, 1993:12). Papanek supports this and passionately describes the damage industrial practices of ‘taking’ are having on people and the environment.

On average, three villages or towns have to be evacuated everyday somewhere in the world due to spillage of toxic chemicals and there has been a major oil spillage into the oceans every second day for the last eighteen years. (Papanek, 1995:28) Papanek’s information is shocking and yet matters have not improved, in fact there is an increased frequency of manmade environmental disasters. A clear example is the BP Deepwater Horizon oil spill in 2010. The blast killed 11 people and the spill caused extensive damage to marine and wildlife habitats, which crippled local tourism and fishing industries. The spill continued to flow unabated for three months and during that time close to 5 million barrels of oil gushed into the Gulf. The spill was by far the largest in US history, almost 20 times greater than the Exxon Valdez oil spill that occurred in Alaska in1989 (WWF, 2010). Such examples invoke a feeling of despair; we are trying to squeeze every last drop of the earth’s natural capital for our current selfish economic aspirations.

We are not behaving as if these resources or this natural capital are finite; in fact we are doing quite the opposite. Hawken (2010:4) points out how relatively quickly the consequences of our actions have become apparent: “A hundred years ago, even fifty years ago, it did not seem urgent that we understand the relationship between

8

business and a healthy environment, because natural resources seemed unlimited.”

However this does not entirely justify business behaviour. Theorists have been writing about the consequences of population and economic growth since Thomas Malthus’s ‘Principle of Population’, published in 1798, while Rachel Carson’s Silent Spring, published in 1962, is widely regarded today as the birth of the modern environmental movement. She was the first to link business behaviour to grave environmental outcomes in a language that people understood. In the last fifty years we have wasted time arguing over its legitimacy and this has delayed effective action.

1.4.3 - How we MAKE Products are designed and manufactured to be fit for a particular purpose and to have a finite useful life. The choice of the materials used in a product is primarily governed by the requirement to meet the design specification and to minimise cost.

However many products produced within the current industrial infrastructure contain materials and chemicals that are hazardous and dangerous. There are often far better materials available that would fulfill the design specifications; however manufacturers inevitably opt for the lowest cost solution. This can result in hightech products being composed of low-quality and globally sourced materials that may be bad for the environment.

An exercise machine assembled in the United States may contain rubber belts from Malaysia, chemicals from Korea, motors from China, adhesives from Taiwan and wood from Brazil. (Braungart & McDonough, 2008:39) This causes difficulties when it comes to the disposal of these products as the options to reuse and recycle are greatly reduced. Due to the poor quality and mixing of materials, it often becomes more cost effective to throw the product away than to try and salvage the materials and components.

This leads onto another flaw in how we make things; products are designed to be thrown away. Product obsolescence, or ‘design for the dump’, is a strategy

9

employed by companies to generate demand and boost sales. This strategic foreshortening of the lifespan of a product results in consumers purchasing products more regularly; promoting consumerism boosts the economy but creates yet more waste. Papenek (1985), states that designers employ insufficient care, disregard the safety factors and, when something is being designed to be thrown away, it is devalued. “That which we throw away, we fail to value” (Papenek, 1985:77). Undoubtedly obsolescence is a sound concept when applied to medical equipment and other areas where sterilisation is necessary. However it is clear that this strategy creates excessive waste when applied to products that should enjoy longevity.

Watson

(2009:139)

summarises

this

notion:

“Rapid

product

obsolescence, design for disposability and constructed needs have created a supremely wasteful system of production.” The control of product lifespan by corporations gives them greater influence over consumer consumption. This is proof of the authority business and corporations have over consumers and should make them responsible for the waste it entails.

1.4.4 - The amount we WASTE The current system is inherently wasteful and is linked back to the Industrial Revolution. Looking back to the Ford example, Ford’s River Rouge plant epitomised the ‘take, make, waste’ system. Huge quantities of iron, coal, sand and other raw materials entered one side of the facility and, once inside, were transformed into new cars. “Factories situated themselves near natural resources for easy access and beside bodies of water, which they used both for manufacturing processes and to dispose of wastes” (Braungart & McDonough, 2008:25). Focusing on how wasteful this system was, highlights the essential need for change because we are still behaving in a similar manner. “Ninety-seven percent of all the energy and material that goes into manufacturing our society’s products is wasted. Only three percent ends up as a finished product that retains any value six months later” (Anderson, 2009:40). This is clearly illustrated in Fig.1. Anderson goes on to say that, “We are operating an industrial system that is, in fact, first and foremost a waste-making machine” (Ibid). The waste created by our current system is untenable and at the moment we either bury it or burn it. However the time is fast

10

approaching when we will run out of space to bury our waste. In Heather Rogers’ book ‘Gone Tomorrow’ she highlights the extent of our ‘rubbish’ behaviour.

“From outer space several human-made objects are visible on earth: the Great Wall of China, the pyramids, and, on the southwestern tip of New York City, another monument to civilisation, Fresh Kills Landfill” (Rogers, 2005:1).

Rogers goes on to contextualise the US’s particularly poor behaviour, “The United States is the world’s number one producer of rubbish: we consume 30% of the planet’s resources and produce 30% of all it wastes” (Ibid:2). A staggering statistic when you consider the US only accounts for 4% of the global population (Rogers, 2005).

1.5 – Where we stand now It is necessary to evaluate the effect of the linear economic model on the three pillars of society, and consider the fundamental flaws in the ‘take, make, waste’ system. Braungart and McDonough highlight the negative impacts in Cradle to Cradle (2008) when they talk of industrialisation being a system designed to: …put billions of pounds of toxic material into the air, water, and soil every year; produce some materials so dangerous they will require constant vigilance by future generations; result in gigantic amounts of waste; put valuable materials in holes all over the planet, where they can never be retrieved; measure productivity by how few people are working; create prosperity by digging up or cutting down natural resources and then burying or burning them and erode the diversity of species and cultural practices. (Braungart & McDonough, 2008:18) Although this description focuses on the negative aspects, other sources also support this notion. Overall the system that has developed over the last 200 years is one whose prime objective is to drive down costs and maximise profits. It relies heavily on finite fossil fuels and natural capital. True, it has brought innumerable positive social and technological advances, however, can continuing on this road be justified when it is measured against the damage it has caused, and continues to cause, our environment? In line with Schumacher’s sobering quote in the

11

introduction, Papanek (1995:17) echoes that, “Unless we learn to preserve and conserve Earth’s resources, and change our most basic patterns of consumption, manufacture and recycling, we may have no future.” It is clear our current behaviour is unsustainable. The WWF (World Wide Fund for Nature) annual review (2010) gives a shock statistic on how unsustainable our behaviour has become.

We take more wood from forests than re-grows, catch fish faster than they reproduce and release more carbon into the atmosphere than our remaining forests can absorb. If this continues, just 20 years from now we’ll need the equivalent of two planets. The consequences for biodiversity, climate, the economy and human development are unthinkable. (Jefferies, 2010:21) This quote strongly supports the view Braungart and McDonough (2008) take when they comment on how industrialisation gave humans power over nature for the first time. “With new technologies and brute force energy supplies, mainly fossil fuels, the Industrial Revolution gave humans unprecedented power over nature…But in the process, a massive disconnection has taken place” (Braungart & McDonough, 2008:128). The question therefore that must be answered is can there be an alternative economic approach that allows the retention of the benefits enjoyed post-industrialisation but without the negative environmental effects.

12

DIAGRAMS OF THE TWO ECONOMIC MODELS:

Fig. 1: Crookes, 2010. The Linear Economy.

Fig. 2: Crookes, 2010. The Circular Economy.

13

CHAPTER 2: THE CIRCULAR ECONOMY - A POTENTIAL ALTERNATIVE? The Circular Economy (CE) model is primarily based on imitating nature’s basic principles; a school of thought that uses nature as the teacher and considers that our systems should work like organisms, processing nutrients that can be fed back into the cycle – hence the “closed-loop” or “regenerative” terms usually associated with it (Berliot, 2010).

2.1 – Nature is our teacher It is now necessary to define what is meant by sustainability, having established how unsustainable our economic system has become, since the advent of industrialisation. In 1987, the Bruntland Report defined it as, “meeting the needs of the present, without compromising the ability of future generations to meet their own needs” (Witham, 2009:10). With this in mind we must look to a successful system that has been around a lot longer than us: nature. According to Capra (1999) we need to understand that what is sustained in a sustainable community is not economic growth, development, market share, or competitive advantage, but the entire web of life on which our long-term survival depends. It is therefore crucial to understand the principles of organisation that ecosystems have developed to sustain the web of life. This is what Capra calls ‘ecological literacy’. Understanding nature and using it as a teacher is a concept many sources support. Webster and Johnson describe the cyclical systems nature uses to sustain the web of life; this cyclical concept is key to the CE (see Fig. 2).

In nature, waste equals food. Natural systems are self-sustaining and abundant. In healthy ecosystems competition and co-operation usually go together. Everything connects in a closed loop, circular feedback mechanisms help to ensure a dynamic balance and continuity in the system. (Webster & Johnson, 2010:15) This is clearly illustrated in Fig. 2. Capra (1999) highlights a key issue that taking nature as our teacher requires thinking in terms of systems. Employing design features that exist in the natural world has increased in recent years. “Biomimicry

14

involves taking inspiration from nature in order to solve design problems” (Thorpe, 2007:46). Thorpe (2007) describes how sharkskin has inspired new textures for airplanes and swimsuits making them more aero or hydrodynamic. Perhaps the most famous example is that of Velcro which copies the way a seedpod sticks to clothing. Capra (1999) implies it is not just at an individual product scale that mimicking nature can be of benefit.

We should no longer look at products as

isolated artefacts but focus on the systems they are part of and use nature as a model at a system rather than product level. This holistic, systematic approach is a central theme in the CE.

2.2 – CE definition and origin The CE is a generic term that can be applied to, and acclaimed by, many different schools of thought, such as Braungart and McDonough’s ‘Cradle to Cradle’ (2002), Stahel’s ‘Performance Economy’ (2006) also coined the ‘Lake Economy’, that all gravitate around the same basic principles, which they have refined in different ways. The notion of a CE is not a brand new concept; in fact it has been around since the 1970’s. Walter Stahel and Genevieve Reday first sketched the vision of an economy in loops and its impact on job creation, economic competitiveness, resource savings and waste prevention, back in 1982. Their report, ‘Jobs for Tomorrow, the Potential for Substituting Manpower for Energy’ (1982), for the European Commission in Brussels, was revolutionary at the time, as many were not focusing on the waste the economy was creating (Stahel, 2008). According to Stahel and Reday (1982), in an ideal cradle-to-cradle (or closed-loop) system, waste would not exist because waste would be used as a raw material. Scott (2008:140) gives a good example: “In other words, when a well-designed product reaches the end of its useful life it would be returned to its manufacturer to be reused, recycled, or remanufactured into a different or similar product.”

2.3 – Business is key The CE is a model for a new type of industrial ecology that is restorative as opposed to destructive. Hawken (2010:14) elucidates this idea, saying, “a

15

restorative economy is organised in a profoundly different way: it does not depend upon a transformed human nature, but it does require that business be an ethical act that mimics the interwoven, complex, and efficient models of natural systems.”

He suggests a new role for business within the environment, which is a crucial part of the CE. Anderson (2009:14) agrees that business is, “the only institution large enough, wealthy enough, and pervasive and powerful enough to lead humankind out of the mess we were making.” This notion is supported by many of the sources, mainly Hawken, Stahel, Braungart and McDonough and Branson. Obviously business has a major part to play in delivering a CE, but the crucial factor about the CE is that it dispels the issue business has with the ‘cost’ of implementing environmental practices. Hawken explains: When environmental issues are presented to businesspeople as one more cost and one more regulation, doing the right thing becomes burdensome and intrusive. And the way our current economy is organised, they are sometimes correct, doing the right thing might put them out of business. (Hawken, 2010:11) As Hawken suggests in order for business to profit from ‘doing the right thing’, by including the environmental and social factors, a reorganisation of the current economic structure is needed. It is clear that not all businesses can do this alone.

The CE will need government cooperation through new policies and laws to incentivise and promote investment in its core principles.

2.4 – The Five principles: The CE and its supporting movements are founded on five principles: waste is food; diversity is strength; energy must come from renewable resources; prices must tell the truth and a shift from products to services (Bleriot, 2010).

2.4.1 – Waste equals food The first principle of the CE, waste equals food, is a clear example of how intrinsically linked the CE is to nature and its systems. “If humans are truly going to

16

prosper, we will have to learn to imitate nature’s highly effective cradle to cradle system of nutrient flow and metabolism, in which the very concept of waste does not exist” (Braungart & McDonough, 2008:104). Here Braungart and McDonough are referring to one of the two types of metabolism, or cycles. Firstly, they refer to the nutrient flow, which is part of the biological cycle or, in other words, the cycles of nature. The second is the technical cycle, or the cycle of industry. Braungart and McDonough go on to explain how in the CE vision, the technical cycle not only mimics but also works with the biological cycle (see Fig. 2). Product design plays a major role. “Products can be composed either of natural biodegradable materials for biological cycles, or of technical/man-made materials that stay and continually circulate in closed-loop technical cycles as valuable nutrients for industry” (Ibid).

This visionary core concept of eliminating waste forms the maxim of the CE. The problem with this is that many individuals and businesses currently have little awareness of material properties (Watson, 2009) or even the existence of these metabolisms. This touches upon a clear barrier for business in delivering the CE. Within the current system most products continue to be made of hazardous toxic materials and chemicals that cannot be safely circulated within the technical cycle.

Even in the biological cycle, natural materials will need to be sustainably sourced. In order for the CE to be implemented, society needs to be educated to raise public awareness, and government cooperation is needed to ensure its success.

2.4.2 – Diversity is strength The second principle again relates back to nature. As stated before, nature works.

As Webster and Johnson (2010) state, nature survives because it is always changing. After all it has 3.9 billion years of experience. Stahel reiterates this point and argues that diversity and chaos are key elements in nature’s success. “Nature is a truly chaotic system in which attractors can develop at random because the system is biased towards diversity and entropy” (Stahel, 2010:270). An example of this can be found in the study of ants. Braungart and McDonough (2008) state that although we may have a notion of a typical ‘ant’, there are in fact more than eight thousand different kinds of ant that inhabit the planet. In the rain forest, hundreds of

17

different species of ant may coexist in the crown of a single large tree. The CE encourages industry to think of diversity as a strength in a local context.

Industries that respect diversity engage with local material and energy flows, and with local, social, cultural, and economic forces, instead of viewing themselves as autonomous entities, unconnected to the culture or landscape around them. (Braungart & McDonough, 2008:122) Unfortunately, most manufactured products are currently made and assembled using global material and energy flows. Products remain unconnected to their points of origin or culture and do not include their embodied energy. Local economies may not have access to key materials and the recovery of technical materials within the global context is logistically challenging, due to existing infrastructure and energy sources. Nonetheless, it is clear that diversity is a key strength that must be implemented in order for the CE model to work and overcome these barriers.

2.4.3 – Energy must come from renewable sources The third principle relates to our current ‘addiction’, as Hawken, Amory and Hunter Lovins (1999) put it, to fossil fuels forming our main source of energy. As stated in chapter one our current consumption levels are inevitably unsustainable. This is supported by another chilling fact: “If everyone lived like an average resident of the United States or the United Arab Emirates, we’d need more than 4.5 Earths to keep up with our consumption – nine times what the average Indian consumes” (WWF, 2010:22). It is clear that to live by a restorative economy model, such as the CE, we cannot continue our reliance on fossil fuels, mainly coal, oil and gas. In the case of oil, evidence shows that its days are numbered. “Today, we consume roughly 4 barrels of oil for every 1 barrel that is discovered” (Webster & Johnson, 2010:57).

Although we may have not technically reached ‘peak oil’, we need to be innovative and find an alternative solution, as the early industrial pioneers did before the first Industrial Revolution. Davis (1994:188) sums this up: “The first Industrial Revolution developed through the interaction of scarce fossil fuels with rocks bearing scarce,

18

inorganic elements. The second will depend increasingly on renewable sources of energy processing renewable resources.”

In a CE energy comes from renewable, rather than finite, sources supplied by nature, as illustrated here by Hawken: Wind, geothermal, and solar radiation provide permanent sources of energy, and they will always be available, whereas coal, oil and gas are in finite supply. Fossil fuels are too useful to be squandered out of exhaust pipes and smokestacks. (Hawken, 2010: 155) Hawken goes on to argue for green taxes to be placed on energy. This would create a scenario where it would simply become too expensive to deforest, degrade or destroy our environment. Anderson (2009:71) adds, “Solar energy does not pollute, does not cause asthma…does not destroy the forests with acid rain, does not seep into groundwater and does not…spill into the ocean”. A shift to renewable energy will not only have a positive effect on the environment it will generate jobs, stimulating economic growth. “Photovoltaic and wind-based energy systems produce two to five times the number of jobs as coal-fired or nuclear power plants” (Hawken, 2010:158). The concept of job creation resulting from choosing renewable energy is supported by Stahel and is one of the founding principles of his Performance Economy, “To create more manual and skilled jobs with greatly reduced resource consumption” (Stahel, 2010:1). This clearly shows that there are a number of advantages to choosing renewable energy over fossil fuels. Critics would argue that renewable energy sources cost too much when compared to the price of oil, gas or coal. However, currently, “Wind farms, which initially were five times as expensive as nuclear power plants in cost per kilowatt, today can generate energy at prices equivalent to those of coal and nuclear plants” (Hawken, 2010:158).

Despite these advantages, the UK Government falls well short on its renewable energy target; only 2.2% of total energy consumption comes from renewable energy (European Commission, 2011:68). Commitment to renewable energy schemes, such as the Feed-in Tariff (FIT), remains uncertain. The Government has recently, “cut feed-in tariffs from 43.3p to 21p paid per kWh of energy generated”

19

(Vidal, 2011). This leads us onto one of the main barriers to the success of the CE: the role of government. Government policy plays a major role in catalaysing a shift from fossil fuels to renewables. The substantial subsidies currently placed on fossil fuels distort the reality of their true cost. A recent online article (2012) titled ‘Governments Spend $1.4 Billion Per Day to Destabilize Climate’ states: “In contrast to the $500 billion in fossil fuel supports in 2010, renewable energy received just $66 billion in subsidies. Not only do fossil fuel subsidies dwarf those for renewables today, but a long legacy of governments propping up oil, coal, and natural gas has resulted in a very uneven energy playing field.” (Brown, 2012) These figures demonstrate how much of a role governments have to play in creating and incentivising a shift to renewable forms of energy. Governments have the power to stimulate this shift and the success of the CE relies heavily on their will to do so.

The example just given exposes a key issue that forms the next principle of the CE; renewable energy remains more expensive than using up our finite and depleted sources of fossil fuel in the present price-based market system.

2.4.4 – Prices must tell the truth The fourth principle of the CE states that prices must tell the truth. This refers to a significant flaw within the current ‘free’ market system, namely that the price of products doesn’t reflect their cost on both our environment and our social health.

“Free markets cause harm to both natural and human communities because markets do not reflect the true cost of products and services” (Hawken, 2010:85).

Worse still the price of products actually cause us to devalue things that are inherent to our survival. Thorpe (2007) asks why it is cheaper to use wood that has been obtained through destructive forest practices than wood that has been sustainably harvested? She goes on to explain: Many important values and resources, such as clean ocean water or diverse languages, are difficult or impossible to price in the marketplace. The market in effect gives these a price of zero, and the result is that we treat them as though they have no value at all. (Thorpe, 2007:66)

20

Hawken argues that this must change, “These other costs, commonly referred to as externalities, must be integrated into the price of a product” (Hawken, 2010:91).

This has to happen in order to deliver a CE and allow customers to receive the complete information conveying the true cost of their purchases. This would also lead to more innovation because, as many examples have shown, businesses are extremely competitive and in hard times creativity and innovation are often the best methods to minimise costs. “The purpose of integrating cost into pricing is not to provide a toll road for polluters but a pathway to innovation” (Hawken, 2010:93).

Some of these business examples will be highlighted in the next chapter.

Hawken expands this argument by stating that economic critics would claim that any forced integration of cost and price would lower productivity, reduce economic output, cause greater costs to be passed on to the consumer, lower real income, slow economic growth, and insinuate government further into the economic arena.

Therefore losing our ‘free’ market. However this argument ignores the fact that consumers are already paying the extra costs, “…in the form of higher health costs, in the form of mitigation costs to clean up toxic waste sites; in the form of lost economic output; and in the form of environmental degradation, which drives up the cost of resources” (Hawken, 2010:94). Anderson (2009:32) supports this view, “Only when all these ‘externalities’ appear in prices, profits, and losses can an honest free market function responsibly.” This is the goal of the CE to create an ‘honest free market that functions responsibly’ where businesses can be held accountable for their actions. In the CE businesses that are efficient and act responsibly and sustainably should be able to compete with large corporations that externalise their costs. “The ultimate point of cost-price integration is to fully enfranchise all business into the process of environmental restoration. It should not be so hard to do the right thing” (Hawken, 2010:101). Hawken’s conclusion sums up why the fourth principle of the CE is so crucial in stimulating a shift in the way our current free market works.

21

2.4.5 – Products to services The final principle of the CE suggests a shift for manufacturers away from producing products to delivering services. This brings the entire concept of ownership into question. When Stahel and Reday first sketched the vision of an economy in loops, back in the mid 1970’s, it was based around a system in which consumers obtained services by leasing or renting goods rather than buying them outright. This idea is also known as the products-of-service concept.

Under the products-of-service concept, manufacturers would view both the materials and the methods of production in an entirely new way, since they would always have to imagine how they would reuse and reclaim the product upon its return. (Hawken, 2010:79) Webster and Johnson (2010:26) support the concept that, “Manufacturers cease thinking of themselves as sellers of products and become, instead, deliverers of service, provided by long-lasting, upgradeable durables.” At present, the responsibility and ownership of products gets passed from the manufacturers on to consumers. It is in the manufacturer’s interest to design and make products for disposability in order to keep consumers consuming. “The constant modification and updating of products, where cost and convenience is of primary concern, forms the basis of our capitalist economy and throwaway culture” (Watson, 2009:139).

The CE solution maximises resource efficiency by making it in the interest of the manufacturer to produce their product responsibly. By utilising reusable materials and designing for disassembly and longevity, the manufacturer retains ownership of the component raw materials by collecting their product at the end of its useful life.

This clearly shows how the service principle supports the first CE principle; waste equals food, as it eliminates waste and closes the manufacturing loop.

The business logic of offering such continuous, customised, decreasing-cost solutions to an individual customer’s problems is compelling because the provider and the customer both make money in the same way — by increasing resource productivity. (Hawken, A.Lovins, H.Lovins, 1999:136)

22

The idea of leasing rather than selling has already seen huge success in industries such as carpets, chemicals and elevators. Many of the sources suggest that there is no reason why the idea could not spread to other industries.

Unfortunately leasing does not promise to close the manufacturing loop entirely. As Scott (2008) reveals, sometimes a customer will purchase a leased product at the end of the lease term and never return it to the manufacturer. Similarly, after a transfer of ownership, the customer may sell the leased product on the secondhand market. “Both of these practices can break the closed-loop cycle needed for leasing to provide its benefits. Additional problems include the fact that some products - such as inexpensive goods and short-lived consumables - are not seen as compatible with leasing” (Scott, 2008:144). Nevertheless, if implemented in the CE with its other principles, the concept would create exceptional services, innovations and more jobs while meeting every customer’s needs, resulting in genuine customer loyalty.

23

CHAPTER 3: CE PRINCIPLES IN ACTION The CE is first and foremost a business model. Without business this vision cannot be implemented. As Hawken puts it: “Business is the problem and it must be part of the solution.” (Hawken, 2010:20) It is therefore valuable at this point, to focus on examples of businesses that have already embraced the CE principles, without government support, and evaluate their success. Perhaps the most inspirational example comes from Ray Anderson’s modular carpet company, Interface.

3.1 - Interface Interface was founded in 1973 in Georgia. By 1994 Interface was considered a successful corporation seeing that it had nearly a billion dollars in sales, multiple factories in four continents and sales in 110 countries. In the summer of 1994 Anderson read Paul Hawken’s book, The Ecology of Commerce (1994 edition) and it caused him to question his industrialist past and his business principles. In his words, “It was an epiphany, a rude awakening, an eye-opening experience, and the point of that story felt just like the point of a spear driven straight into my heart” (Anderson, 2009:13). So Anderson decided things had to change and if government wouldn’t lead it, business would. He set his company an audacious goal: to take nothing from the earth that can’t be replaced by the earth. He named this challenge Mount Sustainability and wanted Interface to be “…the first name in industrial ecology and a restorative enterprise” (Anderson, 2009:17) all by 2020. Anderson (ibid) describes the hostility and confusion that he was met with after his speech outlining his objective. It is worth bearing in mind that at that time carpets were a petroleum intensive product and there was no source, or market for recycled carpets. Anderson, being an engineer, invited his staff to methodically analyse and address Interface’s ecological impact. Teams were formed and they subjected every aspect of the company to a whole new type of metrics and evaluation.

24

Fifteen years after Anderson’s initiative, Interface has: cut greenhouse gas emissions by 94%; cut fossil fuel consumption by 60%; cut waste by 80%; invented and patented new machines, materials, and manufacturing processes; increased sales by 66%, doubled earnings, and raised profit margins (Anderson, 2009). They achieved these astonishing statistics through one process: innovation. Interface introduced a number of new concepts and designs all incorporating the CE principles in different ways. Interface have cleverly focused on their business as a system, mimicking nature, and were able to find solutions across the entire life cycle of their products. For example they introduced their ‘Evergreen lease,’ which turned Interface from a traditional carpet company into a ‘floor covering service’. Scott (2008) describes its advantages: …the customer is not responsible for the costs of disposing the old carpeting because Interface takes it back to its factory and uses it to make new carpets. Further cost reductions for Interface and its customers have come about as the company substitutes oil-based carpet fiber materials with more environmentally friendly fibers that use less materials (and energy) and create less production waste. (Scott, 2008:143) This clearly supports the first (waste equals food) and fifth (products to services) principles of the CE. Interface also developed a recovery process called ‘Cool Blue’.

This allows them to recycle carpet scraps and worn out carpet tiles. The machine uses much lower process temperatures than the old melt down and extrude process and it runs entirely from heat generated by landfill methane gas. “‘Cool Blue’ increased our capacity to recycle waste into new carpet backing from approximately five million pounds a year to fifteen million pounds a year…it also allowed us to keep old PVC material from ending up in incinerators or landfills” (Anderson, 2009:116). This led to another profit generating solution; ‘Cool Carpet’ became the first ever climate neutral carpet tile as it creates no net greenhouse gases. Both these innovations help eliminate waste and close the manufacturing loop, supporting the CE’s principles. ‘TacTiles’ came next, a simple adhesive square that connects carpet tiles to create, “a floating floor, eliminating the need for liquid glues, volatile organic compounds (VOCs), odor and the expense of removing

25

a carpet that is cemented to the floor” (Hawken, 2010:71). However Interface’s most successful innovation comes directly from the Biomimicry school of thought. A forest floor, with its diverse its natural patterns, inspired ‘Entropy.’ It was designed so no two tiles were the same and so they could be laid randomly. “It became Interface’s largest selling line, comprising 40 percent of sales” (Hawken, 2010:71).

This shows that innovation is key to delivering a CE and businesses can see benefits on all pillars of society; environmental, social and economic. Interface has proven that it is possible to have profits and principles. Anderson states, “If we can do it, anybody can” (Anderson, 2009:foreword). This relates to the fact that if a company originally selling an oil intensive product, such as nylon-based carpet, can be transformed with the CE principles, what company can’t?

I think it’s because our transformation flew in the face of all the old rules that still drive the ‘take-make-waste’ economy, old rules that we inherited from the steam-driven days of the first industrial revolution and (many of us) unthinkingly accept as true. That old way of doing business seemed to work fine when we thought the earth could provide endless resources, endless energy, and endless room to throw away all the stuff we make and waste. (Anderson, 2009:2)

3.2 – Other business examples It is not just Interface that has adopted the CE principles and experienced success.

Steelcase Solutions designed a chair using the CE rules and this has given them a competitive advantage in a highly competitive market. The chair is called Think chair. It uses non-toxic chemicals and is designed using the product-of-service principle. It is designed for disassembly, so the metals can be reused in new chair components, or go back to be fixed up into part of a new chair straight away. “The fabric will compost, with no toxic chemicals leftover…in experiments they’ve made the fabric edible! They will even take back the chair if you really think it’s finished with” (Webster & Johnson, 2010:26). There are other big companies such as Nike, the sportswear manufacturer, truly looking at their product’s entire life cycle; Ford reinvented their River Rouge manufacturing plant under the CE guidelines; Rohner the textile company transformed their waste into new products while also developing 100% biodegradable fabric eliminating waste and maximising profit. The

26

list could go on. Key business figures, such as Richard Branson, founder of Virgin, have been convinced. In Richard Branson’s recent book ‘Screw Business as Usual’ (2011) he explains how optimistic he is about the future, stating that today there is an emerging generation of young people who have a different perspective from the old politicians and industrial leaders, a more balanced view.

Never has there been a more exciting time for all of us to explore this next great frontier where the boundaries between work and higher purpose are merging into one, where doing good really is good for business. (Branson, 2011:1) This view clearly concurs with the CE and the role of innovation and entrepreneurial initiative. Despite evidence of the UK Government lagging behind, many governments are starting to see the logic in the CE and its principles. China has committed to creating a CE and they are a crucial player to have on board if we are going to achieve a sustainable future.

Visionary political leaders and responsible business leaders alike should work together…to pursue economic development on the basis of resource conservation and build a circular economy. (Hu Jintao, President, People’s Republic of China, cited in Webster & Johnson, 2010:29) Clearly these business examples highlight the advantages economically, socially and environmentally of the CE in action. However these businesses are still in the minority. It is obvious that in order for the CE to be rolled out and for it to catalyse a significant change in the way most businesses work today, solely for profit, it will require substantial government cooperation and commitment.

27

CONCLUSION Throughout this study two economic models have been thoroughly examined. By evaluating the progression of the Industrial Revolution, within the western economic systems, it is clear that it provided a huge rise in the standard of living for the masses, gave birth to the free markets and was a major factor in the evolution of consumerism.

However

this

vast

economic

growth

was

to

have

grave

consequences on the two remaining pillars of society. The linear economic system that developed from industrialisation was inherently wasteful and there is no doubt continuing down this path will lead to devastation.

This study has investigated a possible alternative that primarily offers hope. The CE is based upon the maxim of eliminating our wasteful behaviours through job creation and resource efficiency. The CE’s five principles were anaylsed and the barriers to their success evaluated. It offers a logical approach based upon a much older, wiser and proven system: nature. Sources such as, Papanek, MacArthur, Hawken, Braungart and McDonough, Webster and Johnson and Capra all support eco literacy as a policy. Learning from nature is the mature approach and ultimately the extent of our understanding of it will determine our future.

The role of business has been central to this study; Henry Ford’s example showed what was possible with innovation and industrialisation combined with a laissez faire government policy. Business stimulated a change then, and must do so again now. Interface is a paradigm for what business can achieve even without changes in government laws and policy. However it was the combination of business with government that initiated industrialisation. In order for the CE to spread from a minority movement to mass acceptance it will need government systems to be put in place.

It is clear that for business to deliver a sustainable future, full commitment to the CE and its principles is of paramount importance. Hawken strongly argues for business to be the key part of the solution to the problems it has created and the majority of sources support this view, although delivering a sustainable future cannot fall solely Â

28

as the responsibility of business. Having illustrated some of the barriers to the success of the CE, such as shifting to renewable energy sources, it is clear that the role of government is also crucial. We need governments to work with business, as they did in the time of the Industrial Revolution, to create an era of opportunity for entrepreneurs and businesses. Examples in this study have shown how companies already adopting the CE principles have benefitted profoundly. However these companies are still in the minority. Innovation and creativity are both key to success and it is clear in times of hardship innovation booms through competitive spirit.

In conclusion a shift from a linear economic system to the CE is essential in order to deliver a sustainable future. Accepting that the CE is superior to the existing linear approach and using it as a framework has clear benefits across all three pillars of society. As competition and prices for resources continue to climb, it is evident that driving efficiency through a linear structure cannot work long term. We need a systematic shift towards a new circular based system driven by business. Despite significant barriers and disincentives there is evidence that business can deliver within this framework and it is becoming increasingly clear that businesses will have to learn to make this shift as we continue to run out of resources and out of time.

This is why I say, screw business as usual. We have to change the rules and fix things now, not wait for another twenty years. (Branson, 2011:125)

Â

29

Bibliography: Books: ABBOTT, Payson Usher. 1920. An introduction to the industrial history of England. Boston: Houghton Mifflin Company ANDERSON, Ray. 2009. Business lessons from a radical industrialist. New York: St. Martin’s Press BRANSON, Richard. 2011. Screw Business as Usual. London: Edbury Publishing BRAUNGART & MCDONOUGH. 2008. Cradle to Cradle. London: Vintage Books CAIRNCROSS, Frances. 1995. Green, Inc – Guide to business and the environment.

London: Earthscan Publications Limited CHAPMAN & GANT. 2007. Designers, visionaries and other stories. London: Earthscan CLARKSON, Leslie. 1990. The industrial Revolution: A Compendium. London: Macmillan DAVIS, John. 1991. Greening Business: Managing for sustainable development. Oxford: Blackwell Publishers GROSS, Daniel. 1996. Greatest Business Stories Of All Time. New York: John Wiley & Sons, Inc. HAWKEN, Paul. 2010. The Ecology of Commerce (Revised Edition). New York: HarperCollins HAWKEN, A.LOVINS & L.H.LOVINS. 1999. Natural Capitalism: Creating the Next Industrial Revolution. New York: Little, Brown and Company JACKSON, Ira and Jane NELSON. 2004. Profits with Principles. London: Doubleday PAPANEK, Victor. 1995. The Green Imperative. London: Thames and Hudson SCHUMACHER, Ernst Friedrich. 1973. Small is beautiful: A study of economics as if people mattered. London: Blond & Briggs STAHEL, Walter. 2010. The Performance Economy. (Second Edition). Hampshire, UK: Palgrave Macmillan STICKDORN, SCHNEIDER. 2010. This is service design thinking. Amsterdam: BIS Publishers SENGE, LAUR, SCHLEY, SMITH. 2006. Learning for Sustainability. Cambridge, Massachusetts: SoL (The Society for Organizational Learning) STEARNS, Peter. 1998. The industrial revolution in world history. Boulder, CO: Westview Press

30

SCOTT, Jonathan. 2008. Managing the New Frontiers – An introduction to the fundamentals. Florida: Management Education Services THORPE, Ann. 2007. The Designers’ Atlas of Sustainability. Washington: Island Press WEBSTER & JOHNSON. 2010. Sense & Sustainability – Educating for a Circular Economy.

Yorkshire: TerraPreta WOODHAM, Jonathan. 1997. Twentieth-Century Design. Oxford: Oxford University Press Reports: European Commission. 2011. Eurostat pocketbooks: Energy, transport and environment indicators. Luxembourg: Publications Office of the European Union. Available at: http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-DK-11-001/EN/KS-DK-11001-EN.PDF [accessed 22/12/11] JEFFERIES, Barney. 2010. The WWF Annual Review 2010. World Wide Fund for Nature.

Available at: http://wwf.panda.org/about_our_earth/all_publications/ [accessed 16/12/11] PORRITT, Jonathon. 2007. Forum for the Future (FFTF). Investments to combat climate change – exploring the sustainable solutions. The London Accord. [accessed 22/11/11] STAHEL, Walter. 1998. From products to services. IPTS Report. Greeneconomics.net.

Available at: http://www.jrc.es/iptsreport/vol27/english/STA1E276.htm [accessed 23/11/11] STAHEL & REDAY. 1982. Jobs for tomorrow: The potential for substituting manpower for energy. New York. Vantage Press Articles: BLERIOT, Joss. 2010. ‘The Circular model’s founding principles’.

EllenMacAruthurfoundation.org. Available at: http://www.ellenmacarthurfoundation.org/about/circular-economy/part-ii-the-circularmodels-founding-principles [accessed 08/9/11] BROWN, Lester. 2012. ‘Government spends $1.4 billion per day to destabilize climate.’

Treehugger – A discovery company. Available at: http://www.treehugger.com/energypolicy/governments-spend-14-billion-day-destabilize-climate.html [accessed 27/1/12] CAPRA, Fritjof. 1999. Ecoliteracy: The challenge for education in the next century.

Schumacher Lectures. Available at: www.ecoliteracy.org/publications. [accessed 14/12/11] HEILBRONER, Robert L. 2008. ‘Capitalism’ The New Palgrave Dictionary of Economics.

Second Edition. Dictionaryofeconomics.com [Online]. Available at:<http://www.dictionaryofeconomics.com/article?id=pde2008_C000053> doi:10.1057/97 80230226203.0198 [accessed 21/11/11]

31

MADDISON, Angus. 2008. The West and the Rest in the World Economy: 1000-2030. World Economics, Vol. 9, No. 4. Available at: http://www.relooney.info/00_New_2733.pdf [accessed 21/11/11] NEWMAN, Jeffery. 2000. ‘The Earth Charter’. The Earth Charter Initiative. Available at: http://www.earthcharterinaction.org/content/pages/Read-the-Charter.html [accessed 16/12/11] ROTHBARD, Murray N. 2008. ‘Free Market’. The Concise Encyclopaedia of Economics.

Library of Economics and Liberty. Available at: http://www.econlib.org/library/Enc/FreeMarket.html [accessed 13/12/11] STAHEL, Walter. 2008. ‘Cradle to Cradle’. The Poduct Life Institute, 1982, Geneva.

Available at: www.product-life.org [Accessed 22/11/11] STAHEL, Walter. 2011. ‘Point of View: Walter Stahel on taxation’.

EllenMacArthurfoundation.org. Available at: http://www.ellenmacarthurfoundation.org/explore-more/what-the-experts-say/point-ofview-walter-stahel-on-taxation [accessed 09/11/11] VIDAL, John. 2011. Clumsy handling of solar subsidy cuts may have ‘fatally damaged’ industry. The Guardian [online] available at: http://www.guardian.co.uk/environment/2011/dec/22/feed-in-tariffs-solar-subsidy [accessed 22/12/11] WWF. 2010. Gulf of Mexico Disaster: Species Impacts. WWF [online]. Available at: http://www.worldwildlife.org/what/howwedoit/policy/oil-disaster-species-impacts.html [accessed 22/12/11] Video: ATTENBOROUGH, Sir David. 2010. Cited in Ellen MacArthur at the RSA video. Ellen MacArthurfoundation.org. Available at: http://www.ellenmacarthurfoundation.org/videos?video=Ellen%20MacArthur%20at%20the %20RSA [accessed 27/1/12] CURTIS, Adam. 2002. The Century of Self – Four episodes: Happiness Machines, The Engineering of Consent, There is a Policeman Inside All Our Heads and Eight People Sipping Wine in Kettering. BBC 4, 29/4/2002-2/5/2002 [accessed 29/10/11] HATTUM, Rob. 2008. Waste = Food. United Nations Association Film Festival. Available at: http://vimeo.com/3237777 [accessed 18/11/11] Websites: MACARTHUR, Ellen. 2010. Available at: www.ellenmacarthurfoundation.org. [One of the most useful sources, provided excellent information and is a key driving force in pushing the CE today.]

STAHEL, Walter. 2008. Available at: www.product-life.org

32