It's high-time for an economic model that curbs waste while boosting productivity. But don't expect market forces alone to bring about the necessary shift.
BOGOTÁ — The circular economy is a system that minimizes the amount of resources used in the productive process, including residues, emissions and energy loss. It deals with production, consumption and post-consumption, addressing aspects such as production methods or what is done with residues and waste.
It is not an impossible system. China approved the circular economy as a developmental model in 2006, in its 11th five-year plan. Norway now generates so little waste that, to feed its trash-powered generators, it has to import garbage from the United Kingdom.
In that sense then, by making the various production and consumption phases more efficient, the circular economy is a desirable objective. It should produce the same amount of goods and services using less resources and energy, which in turn provides a simpler answer to the problem of poverty reduction.
The circular economy has not established itself on a massive scale.
This efficiency means greater workforce production and more capital and inputs. In addition, produced goods and their byproducts are used and reused. And yet, the question remains: If this kind of economy is so good, why haven't market forces brought it about naturally?
The answer is that moving toward a circular economy implies a generalized, technological change that can be attained by three complementary processes. First, a more efficient administration of the product and process, though this, by itself, quickly reaches its limitations unless superseded by the second process: investment in technological changes. That, in turn, requires a third development: economic, social, political and cultural institutions that favor and entrench such transformations.
The circular economy has not established itself on a massive scale due to the absence of incentives for implementing the technological changes this would need. In other words, markets are imperfect and riddled with distortions, and there is no structure of returns or prices that acts as a guide for private investors to spend on this transformation. The returns or prices that guide investors are, in fact, radically at odds with the social profitability, or the returns of interest to society.
In addition, there is neither a culture of thrift nor the institutions that promote it. Practically all Western market economies function around boosting consumption as a growth mechanism. This means manipulating people's preferences, the proliferation of goods and services with small modifications, and planned obsolescence in many products and services, which are programed for even shorter lifespans.
This kind of economy is necessary in a world overwhelmed by environmental problems.
You might say creativity could replace these. But generally, it is very difficult for creativity to replace the material and institutional conditions that allow the development or innovation of almost any productive process. If, for example, the country does not produce the thinnest metal plates, how could it design and build shaving blades? And a country that does not make blades will likely lack the means to resharpen millions of blades for reuse in the circular economy.
Ultimately, the circular economy is absent or weak because first, it is not promoted by the economic, fiscal, monetary and regulatory policies that define the price or returns structure; and second, other policies, such as education, promote the conservation of old or existing structures instead of new ones favoring a new, circular economy.
Still, this kind of economy is necessary in a world overwhelmed by environmental problems, climate change and uncontrolled waste. Yes, changing policies to create it represent a real challenge for society. But it's also an economic imperative and an ethical duty.