Ken Webster is author of the book The Circular Economy: A Wealth of Flows (2017, 2nd edition) and from 2012-2018 was Head of Innovation at the Ellen MacArthur Foundation, where he remains an associate. He is a systems thinker who tries to look at the big picture and to influence the systemic discussion about the circular economy.
Editor’s note: to facilitate the reading and exploration of ideas, this conversation is divided into Part I and Part II.
Part I: effectiveness, leakages in a system, wealth creation and the commons, the values of a circular economy.
Hi Ken, it is a great pleasure to meet you in Amsterdam and go for a conversation together. Let me start with something that might sound a bit technical to some readers, but I believe is a good way to begin unveiling your systems thinking approach to the (circular) economy: the relation between effectiveness and efficiency. Peter Drucker, author of the Effective Executive, said that ‘efficiency is doing things right, but effectiveness is doing the right thing’. In your writings, you state that ‘effectiveness is a system’s aware approach, a context matter approach, an inclusive approach’. What is effectiveness and why does it have come to have a prominent role in a system? What about the conceptual distinction between efficiency and effectiveness?
One way to look at this is that there is no point in having a system if it isn’t effective, and an effective system is one that is able to maintain itself. Using the analogy from the living systems approach, it should be able to adapt to changing circumstances, it has got a degree of what is called homeostasis. It’s essentially a concept about maintaining form or pattern through time by making sure that inputs and outputs contribute to that homeostasis. An effective system has a purpose in that stability and inclusiveness. In other words, it’s the degree to which something fits the system and which is—I think—what Darwin was after. He didn’t talk about ‘last person standing’; he said survival and thriving are about those who fit the system best. That’s where I am starting from with effectiveness. And it has got another element to it: it’s going to have capital stocks in a crude way, it’s going to have flows and feedback.
On the other hand, efficiency is essentially a throughput concept I would argue; it’s trying to get the most from the least, and that feels like an end in itself. If you define the system quite narrowly, you can look at efficient throughput, but you might well be degenerating capital and exporting waste to the environment and broader context. That’s not effective, that’s merely saying ‘I want to look at a part of this—the flow-through element—and I am quite happy to substitute, say, financial capital, for other forms of capital, as if they were substitutable’. This contains a number of what I call errors of thinking: capitals are not substitutable, money does not stand for everything, and fitting a system is a subtle and ongoing process. You can’t describe it just by saying that we can get more out of less, and therefore we are efficient, assuming the purpose or context under a narrow relationship between input and output.
For sake of clarity, is effectiveness something that we should consider alongside the concept of efficiency, or should replace it?
Efficiency is a supporting concept to effectiveness. You could make a system work without efficiency but it would be too slow to change, too burdened, it would fail in the end. It would be like one thousand years of living in Ladakh, it works but it’s not going anywhere; the prospects for change are very poor. In a systems diagram (below)—illustrating nodes, connections and flows and how they are distributed—Sally Goerner and Bob Ulanowicz have a scientifically derived trade-off between, on the one hand, simplifying systems, which gives you efficiency but makes it brittle, and, on the other, a system which gets too sclerotic, stiff, unable to change – if there are too many nodes and connections and there is not enough space for the system to evolve. So, the sweet spot is of course a window of opportunity between these two extremes, where there is efficiency - resilience interplay in the system. You know resilience can go towards stagnation as an opposite to efficiency, so you don’t want to have either extreme, and this is sometimes the problem with people who want a sort of localism/back to basics approach to things. They think ‘oh, that’s how we fit the system, it has been good for a long time, we can now preserve the ecosystem and social order”, but most of people don’t want to live like that. History suggests that, through its course, we have always messed up our own supporting environment or been unable to cope with climate shifts. This approach also ignores all the technical, economic and other forces that have happened over hundreds of years. So, the sweet spot is that place where a system is effective and uses efficiency where appropriate, but not to the detriment of making the system brittle.
Thanks for sharing this graph on the relation between effectiveness and efficiency, how should we read it?
The Goerner/Ulanowicz image is a skewed-to-the-right normal distribution curve. So, although it is a systems perspective, there is this bias in the system, which favours a lean towards resilience, because being resilient tells us that we can come back from the shocks that the system receives. Even if not come back identically, at least come back. The homeostatic function is more important in the end than the function of being just efficient. In real world living systems the capillary beds at the periphery in a blood circulation system, for example, are more like the networked resilience function, while the more familiar arteries and veins represent the efficiency, big flow but brittle flow channels. So, efficiency is a narrow subset of an effective system and no way are they equivalent. One is more important than the other. It is hierarchical. Effectiveness first, efficiency is a good supporting tool. It’s a bit like Amory Lovins who said markets make a good servant, but a bad master and a worse religion; there is an order to these things.
An effective system is, essentially, one that is able to change and adapt through time to maintain itself. In your writings, you also mention the role of leakages inside a system…
Oh, leaky and nutritious!
Exactly! In this respect, you write that ‘too often circularity is thought to be a pipe-flow analogy—the firm recovers its stuff and remakes it again and again in perpetual flow—while instead circularity is wonderfully leaky’. Might you explore the role of leakages in a circular system? Going beyond the metaphorical level, which concrete examples of leakages can we see in our socio-economic system?
That’s not too difficult on one level. I wouldn’t put metaphors down, I am sure you are not, because—if Lakoff is correct—all abstract thought is metaphorical, so we can’t do without it. Now, in the circular economy sense, one parallel is work done at TU Delft in the Netherlands, and another parallel is about what a couple of academics at Exeter University call Type I and Type II circular economy systems. Type I is the idea that we want to eliminate leakages and minimize waste. But effectively, what we are saying is that this is a pipe-work analogy, like central heating; we don’t want things to leak, because we wish to get the value out of it.
A practical example is how Apple approaches the design of its phones. Apple is quite keen on getting the valuable materials back, but they don’t want anybody else benefitting. They don’t want third parties benefitting from fixing, repairing, and refurbishing, unless Apple gets a taste of that action. There’s a logic to that of course. Apple is saying ‘we don’t want leakages’ because leakages mean that value is going to somebody else, while they want to keep it for themselves as long as possible. This is also particularly evident when it comes to the new resource to be mined: data. Some people are keen to have data on top of materials, which allows the control of material resources, but not necessarily in a generous way. They want to be able to monitor the materials, know where they were and currently are, so that they can write derivative contracts on them, financialise them and get all the benefit. Now, this is clearly not an analogy with leaky and nutritious. That’s a very different way of looking at these systems. Kate Raworth, author of Doughnut Economics says ‘Nature would laugh at us’ with our central heating pipework analogies.
The Type II system is much more eco-systemic and wealth is built on the idea that you need to—using Janine Benyus’ phrase—‘be generous’. That is the case of the Fairphone, very niche phone example in the Netherlands, which is designed so that you can fix it, and they will even show you where the videos are to understand how to fix it. But the idea is that you can enjoy your phone, and then someone else can enjoy it too and have a good opportunity to have value out of it, or that third parties can. Now, I think this is the only sort of circular economy that will work long-term, because if it’s about the enclosure of products, components and materials for the benefit of a limited number of people, that is just another version of a long preference for private property rights to dominate over public interest.
Instead, the appropriate notion is that all private property really depends upon a social contract, which says that the real wealth comes from the commons. If you use that eco-systemic analogy, you can say the soil in the forest, the rain and sunshine are the commons, because the trees depend upon them and everything else. So priority 1 is making sure that the commons and different forms of capital are preserved and enhanced. Be regenerative. Walter Stahel, the godfather of the circular economy, says that the circular economy is a stock maintenance concept rather than an enclose the flow-throughput idea. This distinction is important.
As you just said, it is important to realize that real wealth comes from the commons. Which concrete examples in our socio-economic system can make us realize this?
A concrete example is about the rising value of land. If I got a nice house in Amsterdam, it’s valuable not because of anything I have done particularly; it’s because of the quality of Amsterdam itself, the community, the things that people have put into it over decades and hundreds of years. That has given the land some value. So, in a way, I am getting an unearned income or unearned benefit in terms of the value of that land and the way it changes while I haven’t done anything for it. Therefore, some of that value belongs to the community and that’s the age-old idea of land value taxing, which speaks about the obvious point: wealth comes from the commons and if you want to take the benefit of that because you have got control over part of it now, you have to pay a fee in order to do that. Otherwise, it becomes very hard to know how we would ensure the return of that value that you are accumulating and that you are withdrawing from the system. Circularity is about circulation after all, it’s not rocket science!
What is the connection between the central role of the commons in wealth creation and the need for a leaky system?
The big problem behind anything that’s based on ‘we don’t want it leaky’ is that you are not able to say how would the commons—the soil, the forests—how would society be able to thrive, if much more of the unearned income, the ‘economic rents’ in the jargon, is reserved to one group or to one set of IP owners. So, that’s what we mean by leaky and nutritious. The ideas go together because it’s about circulating value. This economic notion was familiar to Adam Smith who used to point to free and fair markets. We need markets which are free from landlords—in a modern sense this would be the rent-seekers—in order to circulate value effectively. We don’t want it to be the case that markets are dominated by those who are more powerful because they would earn an economic rent which is a charge for access to a resource limited in supply, like a toll booth on a road system. It is inefficient, to say the least. This question of looking for economic effectiveness has got a direct analogy for me with the idea of nutrients circulating through a system, so that everything is food for the system, and that none is captured permanently by one specific group. Sure there are big trees in the forest—if you want to go a bit further—but they are way outnumbered by the amount of smaller creatures, plants and animals, which are absolutely crucial to the functioning of that system. You have to feed the forest to feed the trees.
Shifting from the forest to society, how can we make sure to feed all the creatures and not only the big trees?
I am very keen on this idea that if you wish to enclose a part of the commons, then you have to pay a fee for that. That comes back to ideas such as basic dividend or basic income, as they are a way to say that the personal advantage you gained cannot be isolated from the fact that you have taken advantage of the commons to do that. And, while we love the idea of you being comfortable and productive, there is a fee to be paid that recognizes the degree to which this has happened. It’s only fair, just ask people like Walter Stahel who would say that we give our copyrights everyday to social media firms and we get back nothing for it; in a real sense, we don’t get a compensation. We get a service, but clearly from their profitability, it looks like a fairly strange deal. That’s why some people argue to take a proportion of unearned income and give it away. There is a certain logic to that and it goes back to the obvious: we have more circulation and less extraction of value from the system. This isn’t the traditional right-left political thing, it’s something much more subtle and related to this idea of open and closed loops and how systems really work.
For some people, a closed loops’ system is an extension of business-as-usual, just extended to capture new areas, whereas the fully systems-aware transformation people would say ‘hello, let’s see this differently’. This is a bit like with Michael Braungart’s cherry tree analogy. All that blossom and all those leaves are absolutely essential. The food from the tree does not feed the tree directly; that is a non-sense idea in a system’s sense, because in that way you do not rebuild the commons, which is the soil, and enable everything to thrive. It is the soil, together with other commons such as the rain and sunshine, which is the source of all wealth in a forest. It’s really quite an important shift in metaphor from pipework to a more ecosystemic notion. And it’s not a ‘cosy’ ecosystemic thing either; there is competition and cooperation going on, it’s both of those. It’s not ‘we all hold hands and everything will be alright’.
I would like to shift to a big question now, which concerns the values of a circular economy. A quote by professor and environmentalist David Orr says that ‘we know what we are against, but not what we are for’. Do we know what we are for when supporting the transition towards a circular economy? Or, to phrase it differently, which values should lead us in this transition?
That’s a really difficult one, because I think that story is just emerging. I was quoting to someone else today from Mark Blyth’s work at Brown University, and he says that ‘all economic stories are, in a way, stories of redemption’: they are a promise about utopia and, therefore, they have values built in them. In the post-war era Blyth recalls there was this social-democratic notion, where governments would make sure there is sufficient demand in the economy to enable things like full employment, free or very cheap education, free health, cheap housing. This was all part of a promise, which was jobs and growth, as a way of making sure the dreadful 1930s ad the war at the end of it never recurred.
Michal Kalecki, the Polish economist, predicted that when people have learned to game the system, the post-war consensus would break down in an inflationary spiral of costs and wages chasing each other. He wrote a paper on this in 1942, where he predicted what would come next: another form of utopia, which says that it is market fundamentalism, efficiency, which will bring us jobs and growth; the state is the problem and inflation the enemy. Kalecki said that there were in-built problems with this new approach, in an accounting sense. We will have to let the financial system free because there won’t be enough credit in the system to enable this to work otherwise. If you are restricting government spending, where is that spending coming from? Private credit creation from banks (1). When the private credit bubble went too far, in 2008, this story fell over, and is just kept alive like a zombie at the present time. It is being kept alive by ludicrous amounts of private credit in the system, and that’s the danger people like Steve Keen and Michael Hudson point to in a new round of financial dislocation upcoming.
So, going beyond market fundamentalism, how will the new economic story look like?
We don’t know what the next economic story will be, but—if Erich Beinhocker, a complexity economist, is correct—it will involve a new social contract, and a degree of idealism because we need to have a new story around to win the acceptance of a particular economic regime. That has not, in my view, properly emerged yet. We need a ‘new politics of paradise’, to quote Guy Standing, and it might well be a ‘new values economy’. It can’t be Keynesianism warmed up from the ‘70s; if anybody is suggesting that, they are probably just wasting their time. The rehash of market fundamentalism looks a busted flush too. It must be a new economic story and the circular economy, if it truly adopts a systems perspective, has got something—not everything—to say about it. The key will be a non-linear systems perspective. The shape of this new story, as far as society is concerned, has not yet emerged and it is the most urgent task. But some of these things won’t emerge until there is more pressure on the existing system. If you follow Milton Friedman’s dictum, “change only happens in a crisis, real or imagined”.
We will not choose this new system, we will be pushed to the edge of disaster, and then we will say what’s out there that makes more sense than this? And this is beginning to show in the work of Guy Standing, Michel Bauwens, and the work the architect Thomas Rau is doing with the Madaster Foundation (2), and lots of other people. I think the new economic story will be based around the notion of the commons as the source of wealth and that we want everybody to participate in this economy. We need to understand that the link between work and wages will be broken, so it’s not going to be a fully employed wage economy and I don’t think that a job guarantee scheme will mean anything neither. I am a big fan of universal dividend and of charging fees to prevent the rent extraction, which is going on like crazy at the moment. The rent extraction is the big problem.
Rana Foroohar with her book “Makers and Takers” very much nails it and if it doesn’t do the job for you, then Rutger Bregman should, he has been a skilful supporter of basic income for a long time. We don’t know what the new story is, but I am pretty sure it’s going to arrive soon because all over Europe democracy is under threat. Because social democrats don’t have anything new to say to the economic question, they are trying to focus on the social side: turning into an identity tied politics, ‘oh it’s about gender, it’s about race, about religion’…yes, and it must be about economics too! And that’s because in the end economics drives the politics.
Tolerance is a function of feeling OK, secure in life and its prospects, not as a member of the precariat where anxiety is pervasive, uncertainty dominates. Social democracy needs the new economic story as hoping they could have a financial sector big enough to pay enough taxes to let them continue with the welfare capitalism agenda is just not supported by the evidence. So I think there is something profound going on. We don’t yet know what the story is, but I think that the circular economy—because of its system’s orientation, because the notion of effective beats efficient—has something to say. So, that’s what I mean about David Orr’s task – we don’t know what we are for exactly. It needs to operate well in the field of imagination, for us to imagine a different economy first, not to try to use the old tools which only offer a ‘do less harm’ rather than a ‘do good’ perspective.
Part II: changing mindset, money circulation and complementary currencies, changes in tax regime, future of labour market, abundance, regenerative agriculture, humans in the transition.
Following from the previous question, to build the new economic story we also need a new mindset. In your book The Circular Economy: A Wealth of Flows, you write that ‘the main barriers to a wealth of flows are in our minds’. Simply put, how should our mindset change?
The mindset is related to what is your picture of how the world works. If you think that the world works like a machine, then we are stuck with that mindset that has been going on for decades. As George Lakoff says, we need to understand and learn indirect causation. It is not intuitive because we are not good at systems thinking, we are not schooled in that way. The very notion of schooling instead of education says we are not adopting an appropriate mindset; schooling takes the ends as given, while education does not. We need broader boundaries, understanding interconnectedness and second order effects, taking the longer view, asking the question ‘what’s next?’ whether in the products, components and materials universe —this has been the Bill McDonough cradle to cradle approach — or in the economy as a whole. We don’t usually do that. We prefer tight, short term, discrete boundaries: ‘that’s my job, I understand that bit, the rest is not up to me’. Well, it may not be up to you, but it’s your part to think about it.
Janine Benyus talks about the question ‘…and?’ with a big question mark. Do you know what happens as a consequence? This is a systems thinking approach, because science now understands the world as a collection of complex adaptive systems and we have to learn how to think it through. It isn’t easy, because we were brought up with direct causation: causes are proximate and discernable. An example: house price rises are about supply of housing and demand, it’s simple. Right? In reality the prices have more to do with a bank’s willingness to lend than anything else but not a person in a hundred understands or perhaps believes this.
There are always other elements in the mix; it is a bigger and interconnected system. It’s not about the parts, it’s about the connections, about stocks, flows and feedback. It is having a different metaphor, or a group of them, when you are faced with a problem. I always go back to the same point: how should we look at this from a systems perspective? As soon as you are in this mindset, you understand that you have to maintain stocks and you are going to have a relationship between stocks, flows and feedback. So, how do we get that?
Exactly, how do get that?
In this diagram (above), there is a kind of progression in thinking; it might help. All of these are real, but which is most akin to contemporary thought based on contemporary observation of real world systems? Which are more simplistic, more mechanistic or deterministic? How does information flow here? What kind of order do you wish to see, perhaps it is OK to keep more than one in mind as it might depend on what the purpose or scale of the system are? For me it is the one on the right which feels most comfortable in general.
I am not looking for an equilibrium, that obsession of those economists who see the economy as always in long-run equilibrium. Like it was a rocking horse that’s been disturbed but it goes back to rest in the end. Where did that come from? That’s, you know, very strange. That’s what I mean by mindset. It’s really profound to shift the framework for thinking and it will take quite a while to get there. And we’ll only get there when it proves useful. At the moment, the economy works fine, it works brilliantly if you define it as the attempt to increase the potential for accumulation. If you say that the aim of the economy is circulation and dynamic homeostasis, you get a different answer.
Talking about circulation, more specifically the circulation of money, what is the potential function and contribution of complementary currencies inside an economic system?
If we are talking about the essential function of money, it is as medium of exchange. There are other functions, but let’s ignore unit of value or account for the moment, and focus on store of value. Do the complementary currencies carry new or additional spending power or are they just substituting one medium of exchange – the national currency—for a local one? When complementary currencies act in a way to create new credit, so that new exchanges can take place, I think that’s really good. Some local currencies are only attempting to circulate activity in an area, they have no credit function; they don’t allow anything new to happen. It’s much more limited but if it means that less circulates out of the area, then it's a plus. So it’s the provision of credit, in a way, that excites me about some of these currencies and that usually means a public bank or similar institution – local government perhaps.
Do complementary currencies have a role for the circular economy, more directly?
It does have a role because if you want the periphery or base of the economy to thrive—particularly if waste is going to become food, if stuff is cascading and flowing around—you need the means to put it into action. As a silly example, if a local government puts out a complementary currency with credit enabling people to buy chicken manure, it would help stimulate use and the exchange of this commodity (create new markets) and, if local taxes could be paid in this currency too, then chicken manure becomes interesting. This is a silly example, but at the moment there is a monopoly on the currency and monopolies—they say—are not necessarily good things, sometimes they ignore the small and local and diverse pathways. By analogy with a living body, the blood needs to go down into the toes as well as through the main artery, so it’s always a problem of effective circulation. If the main currency won’t reach that, there is no problem, because all currencies are social trust, a social construction, so there is no reason why you can’t have complementary currencies. They work in a mixed sort of way at the moment, the subtleties in this go beyond this discussion; Bernard Lietaer has a good book on this. They sometimes work and sometimes don’t, but I think they work best when they have an element of credit in it. We also need public banking, where we take state money or a city surplus and reinvest it in local businesses. The public banking debate is quite vibrant now.
Some supporters of the circular economy advocate for a change in the tax system, away from labour taxes towards greater taxation of raw materials and other non-renewables. Taxes on labour currently represent a huge part of government revenues. Drastically decreasing them would create a significant income gap for the government, wouldn’t it?
Who really believes that income tax will raise what it is supposed to raise in 15 or 20 years time? With the rise of Artificial Intelligence (AI), robotization, stagnating incomes for wage-earners over decades and the rise of the ‘precariat’—the workers on contracts, in the gig economy etc., usually low-productivity jobs—who are you going to tax? The middle class is disappearing, and you based your previous system on taxing the middle class, who would insure themselves for the future by that payment to the government and get it back as pensions. Ha! If you don’t have a strong middle/ working class, you can’t use income tax. I would put it that way. Income tax is going to be weaker and weaker as a source of revenue, therefore why bother? You can’t rely on it in the future. So, it sends the question back to the government in one way.
Ok, let’s not bother about income taxes. Where should we point to then?
Modern monetary theory suggests that expenditure happens before taxation, so you don’t have to borrow money to put it into the system, you can create it if you have sovereign control – the UK with the pound or US with the dollar. You can create your currency as much as you like, put it into circulation and then adjust the taxation to make sure that resources get employed and you don’t get inflation. So there is no problem (in this model) in having revenues to get things going, but the bigger principle here is that if labour is in surplus, taxing them does not fit a number of many other aims. You want to make sure we don’t have any more climate change and pollution than we are getting coming down the road, so you want to be sure those resource prices tell the truth. If you got the dominance of the economy by financialization and rent-seeking, you have an obvious place where to start. You ought to tax that unearned income. That is the foundation of Adam Smith’s complaint hundreds of years ago.
There is a great little story from Robert Reich, a former Labour secretary in the US, who wrote a book called “Saving Capitalism”. There is this woman working at McDonald’s all week, really hard-worker. She takes home about $1350 a month. Reich asks her what does she spend it on. She says that her rent is $900 a month. You can see that the problem for her is not working harder—because she is already working really hard—is that her rent is so high. Let’s guess that a proportion of that is going straight as unearned income to somebody. If the rent was $450, and not $900, she’d probably live ok. The problem is that now things are so skewed towards the price of assets and getting access to them, that it is hard to make any normal job work financially. Some people say that that’s not right, that’s not a way to promote what is needed; you can’t just assume that everybody can accumulate whatever they like on the back of cheap credit and housing bubbles. As a friend of mine said, the older than 55 have never had it so good as they have it now, because they bought into housing years ago and they have the wealth…and they are going to keep it! There is this generation gap going on. The young, yourself, how can you get a house? Unless are you given a deposit or inherit it from your parents, you can’t. But the point is that it is supposed to be about a society that works for everybody.
The story you just recalled about the woman struggling with poverty while being an hard worker is a story that has become way too common in our societies today. We know the dramatic social and psychological consequences that follow from this condition, but what about the consequences for the degree of entrepreneurial initiative in a society and for business more generally?
If people are not going to earn enough money, they need to be given a possibility to go to sleep without anxiety. They have shown already that people that are anxious don’t think about the future very well, they can’t. You can’t have an entrepreneurial enterprise-orientated community if people are going to bed scared and worried whether they are going to be on the street in a month or so. With the decline in welfare and the austerity meme, there are less and less public services, which makes that anxiety even stronger and pushes to populism as a visceral resistance, inviting strong men—usually men—to be the populist alternative. This is not a great plan as far as democracy goes.
If I were role-playing a productive business, I’d say that I want there to be production and consumption. I want customers. That’s the first rule: the first job of the corporation is to create and find customers. The shareholder value is going to come from customers. So, I want customers and customers need money. Where is that money going to come from? Ok, maybe we can lobby the government to make sure they have enough money; we want those customers buying our stuff and enjoying life. I’d rather run a nice café or bakery where I have lots of customers and people won’t come in and say: ‘can I have a few pieces of bread that you do not need?’ I want happy, prosperous customers, because then the conversation is better and I get better profits. So, where do we get the taxes from? Where there is unearned income, from non-renewables as we don’t want climate change, we don’t want asset bubbles going on as it eats into customers income – our income!
What can we do to tax unearned income? Which proposals are out there and worth considering?
One goes back to Henry George’s ideas from the 19th century. He was very focused on land value tax as an in-between position between rampant capitalism and state Marxism. He rejected Marxism, as you probably would in the US, and he rejected free markets as free for all, as he’d prefer them fair for all. He said that we shouldn’t tax profits from production and consumption and we shouldn’t tax people. He sold 3 million copies of his books in the 19th century in the US, and 150,000 people went to his funeral, for heaven’s sake. He was very influential and yet is almost entirely forgotten today, but his famous book “Progress and Poverty” is worth reading. He argued that a fee on the rise in land value would resolve the paradox that we have now, which is an insufficient circulation of wealth. It is in exchange that wealth is created, not by reserving it.
Even the ancients—they had an amnesty in the ‘debt jubilee’ in Babylonian times— knew that if for a period of time money accumulated through interest in the hands of a few, and was not being re-circulated, then the economy would be in a mess. So, cancel the debts periodically to reset the system. It’s not exactly rocket science, but most would treat is as whatever extremism you might like to label that with, and say ‘you can’t do that!’ Why not? Because your ambition to be a rentier is the most important thing in the world? And what if everyone gets a basic dividend—a share of the revenues from using the commons—which I don’t think is a bad idea, then we are all living as rentiers! That’s where it all gets strangled up with materials and resources: the question of circulation versus accumulation. It’s worth saying that some folks really won’t accept that the circular economy issue is more than the challenges around the circulation of materials but the artificial separation of the money circular flow and resources and energy flows has a very long history.
The future of the labour market looks very uncertain, as is the effect that the circular economy will have upon it. Some proponents are enthusiastic with respect to the job creation potential of a circular economy, while others are more cautious. Do you believe the transition to a circular economy will bring benefits in terms of employment? Where will these benefits come from?
I think things have changed, even in the past seven or eight years. When you read the EMF report Growth Within and look at the graphic demonstrating where most economic benefits come from, you see that they come from a lowered total cost of access (or ownership), which leads to cheaper goods and services to people, which, in turn, leads to economic growth which employs more people. There is some benefit from re-manufacturing, re-furbishing and all of this, but nobody thinks that’s the dominant thing that’s going to happen. The main benefits spin off from efficiency and growth in a very traditional sort of model. However, there is that problem with rebound effects, cause as soon as you can get it cheaper, people might say ‘now I am going to have an holiday here, because I saved so much before’ or people who own the property will put the rents up because they think that now people can afford to pay more. So, you don’t know how the plus side is distributed. The assumption is that consumer surplus stays with the consumers; it might not. If their living standards are falling, they might just say ‘we can hold on for a bit longer’, but it won’t mean they are actually able to spend much more.
I think some people push the angle of more jobs a little bit hard considering in the past 7 to 10 years, the growth in AI, robotics - nobody was talking about autonomous vehicles in 2012, except this big fantasy thing, now we know they are being tested out. I have seen film of robots sorting waste in a plant in the Netherlands; they can distinguish between metal, wood and all of this, so they are going to do the job. If it is a high value, high-productivity job, robots will probably have it, swapping people out. If in Britain you want to have a car wash, there has been a decline in automated car washes because you just pay some central Europeans to do it, because their labour is cheaper and choices fewer. And even though that’s not what I like to see, it makes that point. Low-productivity jobs—plenty of those around—are not going to be robotized, they are going to be left as they are. So, that’s my answer to that one. A circular economy will lead to more jobs, but much of them are low-productivity jobs and if growth comes from efficiency and lowering costs, we don’t know which way we will distribute benefits in the future. And remember economic growth is really low at the moment.
In one of your talks, you mention the word abundance when talking about the circular economy
Yes, how could I possibly say that!
You tell us…What does this talk about abundance tell us about our consumption modes? Does it mean that we do not have to change or slower our consumption patterns, given that we’ll live in an abundant economy?
It’s an idea taken from people like the authors of CradleToCradle, William McDonough and Michael Braungart. It is the notion that a system that is well organized ‘by design’ has plenty of materials and energy in it. Not endless, but way more than we think now, where most stuff ends up being waste. In a year, over 90% of the stuff that comes through the system is wasted one way or the other. That tells me there is lot of headroom to create things and design them to fit the system. That’s the key thing. At the moment, we say ‘we don’t want more consumption’ because anytime there is consumption there is also a bad impact on things. But the idea behind all systems design is that you design things to fit the system, so that it is not a problem, but rather a possibility, an opportunity. If a lot more waste becomes food, it becomes food for a lot of creatures—in this case people—to do greater things with it. I am working with Alysia Gamulewicz from the University of Santiago in Chile on their project start-up, Materiom, which is trying to crowd-source and test recipes for using the very abundant bio-sourced materials, like lignin, cellulose or chitin. She wants to build a database of materials—which anybody can get hold of—and tools like 3d printers to explore structure rather than seek complex chemistry. Palm trees, for example, stay vertical because their structure changes; you need fairly complex forms, perhaps, but you could develop a material database full of abundant polymers.
So, that’s the difference with the story previously always going around scarcity. We have scarcity in rare elements like palladium, but that’s not the way to look at it. It is to say we have 90% waste or more, and designing most of that out would allow a lot more. We don’t want people who are poor to say ‘you mean I can’t join the economic party?’ We gotta say ‘well, the party has changed a bit, it is full of well-designed things that fit the system, and it may well be something that you can use to create your own business’. It’s not a cost on society; it is an addition. Like regenerative agriculture, which improves the carbon level and water retention in the soil and increases bio-diversity. It has multiple benefits, but it means that you are not going to run that piece of soil in a degenerative through-put efficient industrial farming system. You got to reconceive what you are trying to do on that piece of land.
Agriculture is a great place where circular principles and practices work brilliantly, exactly because nature is circular itself. From a systems perspective, what should we do with that piece of land you just mentioned?
You want more bio-output, but it’s going to be multiple cash-flows. Not mono-cultural efficiencies but system effectiveness – the difference is crucial. If you want to grow coffee in the shade—because that’s the place where coffee plants belong—you maybe also have some dairy cattle, because you want to feed the coffee trees with digested animal wastes, and you grow avocados and bananas too. You have multiple cash-flows, you sell fruits, coffee, milk from the cows and so on. This is a way to say ‘I am not just a coffee farmer’. This is systems thinking, saying: what is productive here and how can I get value from it? So, I got 4 or 5 cash-flows instead of one. Now that takes having enough capital, it takes markets, these are all good economic questions that we could help people answer. One recommendation is that we need some form of credit to enable people to convert to this sort of farming and we need markets that facilitate the exchange of by-products.
Gunter Pauli, a Belgian serial entrepreneur and author of The Blue Economy is good in coffee growing. What can we do with the discarded stuff that surrounds the coffee cherry? We can grow mushrooms on it or we can process it for animal feed. We just got so narrow about our conception of what is productive and so locked into an international market where the real prices are not being paid, which means that if you are not a big farmer you are probably going to be poor, and you do it cause you love it, because you have to…unless you are working on a mega-scale. This seems like a kind of madness, because 80% of the food in the world is produced by small farmers, on small plots. Only big value crops have grown large scale, but it’s only about 6-7 items, really important ones, and there are apparently only 30 or so harvest left in the US Mid West, so that’s gonna turn out wild, isn’t it? Degenerative agriculture followed by industrial food grown indoor and artificial protein factories?
It is clear that a circular economy must not be degenerative, rather the opposite! Let me go back to the topic of abundance again. Which role does abundance have in the story emerging about a new economy?
I support the idea that the circular economy should be regenerative—rebuilding natural and social capital—and accessible, which means that you can get the tools, you can get the opportunities, like complementary currencies or credit without interest. When there is so much waste that can be food, it’s only our imagination that is limiting, to a large degree, what is coming out. Peter Childs, from Imperial College London, says that we haven’t really looked at the low projections for world population the UN has, which show that it peaks in 2050 but it doesn’t quite go off a cliff and goes down again. So you may not have a population ‘driver’ for your thinking about why you have to do mass production of food in that way. What you might want is economies of scope, of diversity, not economies of scale. Add value to what we have.
All of this is part of a fertile thinking mix, that’s why I would say it is ‘abundance’ we can head for: it is part of the poetry of the emerging narrative. People think ‘regenerative, accessible and abundant? I want that sort of economy!’ I try to catch the imagination, because now we are told that if you fit the market system, you are a winner and other people will lose, and technology will be the answer whatever problem we get into. It will all be about geo-engineering or artificial protein rather than thinking. Actually small farmers usually do a very good job, how do we help them be more effective and profitable? And yes it is not sexy, almost nobody ever wants to fund or sees much advancement in a degree on how do you make small farmers a bit more profitable in the informal economy. There was a great guy, called George Chan, who did a lot of integrated farming system innovation. He was a Mauritian, and had been working for 30-40 years on this problem. He died few years ago disappointed with the reception to his projects more widely. But in fact he had figured out how to really improve output while reducing input, he took insights from old systems and brought them up to date, like the Pearl river delta in China. It used to be really fertile, in terms of how much bio-output you got per hectare, and used to be based on integrating fish, animals, bio-digesters bushes and other crops. But nobody thought it was very sexy. Recycling shit, on small farms - where is the money in that?
Well, it might not be sexy but it definitely calls for a rethinking of what value is and how to get it out of, literally, everything…
Let me tell you one last story, again about Gunter Pauli. In 2015, in South-Africa, he persuaded a mayor to have a big investment in a diverse range of projects aimed at ‘adding value’. It included using abundant melon seeds as a ground up flour improver, growing mushrooms on coffee waste, making recyclable paper out of stone, and an experiment with bakeries making only what’s ordered by cell phone: no waste at the end of the day. He and the locals set it all up and then there was an election and the mayor got thrown out. A new mayor came and said ‘oh, it’s too complicated, we are going to hire a big firm, they can come and invest, and create the jobs we need’. That shows the difficulties; it’s not that it cannot be done, it’s often in the mind, the frame. People didn’t identify enough with these economies of scope rather than economies of scale of a magic arrival of a large firm which would make the problems go away. Yet we should build up from what is there, that’s how it works in living systems, cells multiply...
After your last story, my last question. This time about us, humans, and our role in the transition towards a circular economy. How should we get together to make this systemic transformation happen?
Let me leave you with this: let’s be tolerant, forgiving of ourselves and others. I see too much concern with the individual, with making a show of recycling plastics, asking each other if we are vegan yet or whether we still own a car. I don’t mind being a bit paradoxical—you see—I am not a green, really taking care and really recycling everything I can. The circular economy for me is about citizens and systems, not individuals and consumerism. It’s more important to me to try to influence the discussion about the system: it is a systemic problem set after all. We can get around to being better humans, but we don’t want to put people off by saying if you are not this better human already, you can’t contribute to this discussion. That would be like saying ‘I am not talking to you as an economist because you are not really neoclassical’; if you are not joining the club, then you are not allowed to speak. The urgency is such that we need to take people more or less as they are and say we can help them make better decisions by designing the situation so that the good decision is much more obvious.
Thank you very much for this frank and inspiring conversation, Ken. The soil is fertile now for further thinking and the rise of new ideas!
(1) In the economics of post-Keynesian school, where credit is active in the system and adds to expenditures, not seeing banks as intermediaries alone. An endogenous theory of money debt and banks.
(2) Full disclosure : Ken Webster is on the supervisory board of the Madaster Foundation
November 2018 - edited