INTRODUCTION
“You know what the issue is with this world? Everyone wants a magical solution to their problem, and everyone refuses to believe in magic.” (Alice in Wonderland)
Industrial production, business and entrepreneurship have taken the center stage for global growth with a purely economic scope. The ideas of sustainability, conscious recycling and social entrepreneurship are extensively talked about but rarely acted upon, especially by the major economic agents of the world.
More than 137.7 million tonnes of municipal solid waste is landfilled in the United States every year. Are such figures attributable to the lack of initiative by most players of the world economy and a common perception that the resources are not going to end, just yet?
This article attempts to build upon the foundational theories of environmental stewardship and a feeling of conscience that all business models in the 21st century must carry. It talks about the idea of circular economy business models in detail, their presence in India and identifies them as a key feature of modernized economies that are environmentally relevant and responsible. It also tries to explore the scope of a key industry in India, e-waste, where circular economy, reuse practices and waste management could be most effectively used.
LINEAR ECONOMY BUSINESS MODELS – OUTDATED OR NOT?
For centuries, a linear economy model has been in place all over the world. It is essentially a ‘take-make-dispose’ model, starting with procurement of raw material, conversion of it into finished products, its consumption and ultimately disposal in the form of waste. The business essentially creates value for self and investor by producing and selling more. The current linear model of the world economy has innumerable problems, environmental and otherwise, and makes less sense for business sustainability than ever before. Scarce inputs, usually important resources, are extracted, converted, traded and then, simply thrown away. This not only reduces the possible number of years our businesses are going to be able to survive but also increases the cost of producing another unit. Since inputs get more scarce with every cycle of production and disposal of final products, they get more expensive for the next cycle, thus increasing the cost of production. Gradually, this linear model has begun to be replaced by a circular economy model, as a result of more awareness about sustainability.
ORIGIN AND CONCEPT OF THE CIRCULAR ECONOMY
The concept of circular economy in commerce was first developed in 2002 by McDonough and Michael Braungart, coined as ‘Cradle to Cradle approach’ first by Walter R Stahel in the 1970s. It classified all inputs used in the industrial and commercial cycles as either technical (metals, minerals, fossil resources) or biological (food, fibres, timber, etc). Inspired by nature’s biological cycles of reuse, it aims to develop a similar flow of industrial materials. Way before human intervention in these biological cycles, nature was a self-sufficient and sustainable model in itself. But now, when this sustainability and equilibrium has lost its balance, we have been forced to revisit the age old concept through these models. The main idea is to increase the lifespan of products and components. Clearly, the best way to accomplish that is by designing components (any form of inputs or intermediate goods that have a lifespan longer than at least one production cycle) that can be continuously recovered and reutilized, thus substantially reducing the impact of commerce on the environment.
When Stahel coined the term, he was working on developing a ‘closed loop’ production process, which would further form the base of circular economy business models in the future. It focused on producing goods with a life extension (i.e. goods that can be reused in the economy multiple times and tend to have a longer lifespan than usual) and on activities that endorse waste prevention. Such activities may include but are not limited to responsible consumption while buying, eating, using resources and responsible production by treating scarce inputs with care.
Literature on circular economy over the years has talked about how the concept creates value for society in the following ways:
Circular use of inputs: All factors of production including land, labor and capital are used efficiently and they are more often repaired and reused.
Extension of the cycle: Since the lifespan of most products is extended, in totality less has to be produced in the economy and products go through the cycle more number of times.
Multi-stage use value: Parts and waste materials are also reused in manufacture of other goods, if they are a commercially viable substitute for original inputs.
Increased liquidity in markets: This model can limit the waste of goods in markets, and more users get to benefit from less goods, making them more liquid. In the sense, that even supposed ‘trash’ is out to use in the production cycle once again and further liquidated. People tend to get more returns for every product/component than they will in the conventional models.
Circular economy models essentially aim at eliminating waste and encouraging the continuous use of resources.
The underlying principles of a circular economy, as developed by the Ellen MacArthur Foundation, are as follows:
Waste and pollution should be led out of designs and technologies
Materials and products should be kept continuously in use
Natural systems should be regenerated.
For example, an Indian start-up ‘Graviky Labs’, has built an innovation called AIR-INK which converts air pollution captured from car exhaust pipes, into ink, used in markers, silk screen and printing. It obviously serves the dual purpose of reducing pollution and reusing waste matter as an effective input, thereby reducing normal cost of production. Thus, in a circular economy, in contrast to linear economy models, resources do not have to be continuously extracted and they remain worthwhile for longer, reducing total cost. They fall into the ambit of ESG (environmental, social and corporate governance) investing, where you measure the sustainability of a business from a societal impact as well as the ethics of doing good business. You can be good as well as profitable at the same time.
CIRCULAR ECONOMY MODELS- A MIXED BAG
Circular economy models provide environmental benefits (promoting sustainability), increased business earnings (due to lower costs of production) and macroeconomic gains (in terms of shift towards labour intensive models from material intensive models when less financial input is going to be used).
But while such models have great benefits, they have some logical barriers too.
Firstly, the concept of circular economy is very vast and there are a variety of models to choose from. So it gets difficult for businesses to zero in on one desirable outcome and execute it practically. Finding the model that completely matches their purpose and resources available often leads to ample confusion. Secondly, while most circular economy models have the urge to address social challenges, they usually fail to make a strong business case and pitch to investors what commercial benefits they might yield to them. This is because making such models lucrative, financially, is a task that requires intensive study and research and is very subjective. Thirdly, financing is another major issue facing circular economy models. Financiers encounter different types of risks in linear and circular models and therefore, returns differ too. So the stage a company is in and the extent to which the spirit of the business model touches the community, influences the type and ease of funding it will receive to a great extent. Fourthly, most circular economy models require multiple businesses from diverse sectors to cooperate and coordinate to ensure a network of required inputs and outputs. Almost all types of such models would require building an infrastructure that facilitates recovery of materials or products and hence, non-competing businesses are more likely to collaborate. Lastly, When products are sold to customers, businesses acquire benefits of economies of scale easily through bulk selling. But when these products have to be reacquired from customers for the purpose of reuse or repair, cost-benefit is unlikely to match and is an obvious concern for companies venturing into such models. (Groene Brein, 2016)
SCOPE OF THE E-WASTE INDUSTRY AND SOME UNANSWERED QUESTION
A FICCI (Federation of Indian Chambers of Commerce and Industry) report claims that reusing e-waste from India alone, could yield $1 billion. The country alone generates about 2 million tonnes of e-waste annually, after the US, China, Japan and Germany. Recent informal research about the fertility of this sector brought focus on the Indian start-up, ‘Cashify’.
Started by three friends, Mandeep Manocha, Nakul Kumar and Amit Sethi, Cashify classifies what they like to call ‘Recommerce’. The company successfully estimated that the upgrade cycle for such electronics is doubling down and people are quickly replacing their gadgets with newer models, leaving the old ones to either a bad bargain or fate of the dump yards.
Cashify sends in representatives to the sellers’ houses after they fill in a few details online. This representative checks the device for a few functions and pays them the money that day itself. Since they all use fewer resources, the customers get a higher payment.
Each of these acquired second hand gadgets are then sold (post a few corrections and repairs) through a network of offline agents who specialise in selling used phones or electronics. This way, e-waste does not end up being dumped and polluting the environment, while buyers and sellers both get a better deal.
But multiple problems arise in such a type of model – primarily the uncertainty of the logistical costs of acquiring such e-waste from customers. Profitably reorganising and reselling e-waste as reusable materials is easier said than done. By incentivising customers to sell their e-waste once they lose utility, would such a model indirectly encourage consumers to recycle their gadgets more often? In case that happens, the whole purpose of encouraging cyclical use, that was, use resources scarcely, would stand defeated.
Such questions are yet to be answered and cannot have a definite explanation since they are behavioural and subjective in nature. How consumers respond to different incentives and whether or not such results can be generalized, falls under the purview of behavioural economics.
While businesses consider circular economy initiatives and whether to venture into them or not, sustainability as an idea, has become an integral and undeniable part of business strategy. As Michael Braungart said, “Cradle to Cradle is like good gardening; it is not about “saving” the planet but about learning to thrive on it.” It is together, that businesses, institutions, governments and people can ‘close the loop’ and thrive, economically and environmentally.
By Svetlana Sehgal
REFERENCES
1. Braungart. (2002). Cradle to Cradle: Remaking the Way We Make Things.
2. FICCI. (2019). Why we need a circular economy.
3. Koshy. (2020). E-waste recycling has doubled, says Centre.
4. Dewan. (2019). What to do with your old mobile phone? Mandeep Manocha will give you cash in exchange.
5. MacArthur. (2017). What is the circular economy?
6. Stahel. (2016). The circular economy.
7. Groene Brein. (2016). In Circular business models and supply chains?
8. Morse. (2019). Where does our garbage go?