“Ecological degradation is not a luxury concern for countries to leave on one side until they are rich enough to give it their attention”, says Kate Raworth. What would be the steps toward an economy that is regenerative by design?
|This post is part of a reading series of Doughnut Economics by Kate Raworth. For quick access to all chapters, click here.|
As in any book club, you are kindly invited to let the rest of us know what you think!
Disclaimer: Being the result of personal work, this chapter summary cannot and does not pretend to offer a detailed and accurate transcription of all the author’s ideas.
Facing up to the Degenerative Linear Economy
As the story goes among mainstream economists, GDP growth is the main leverage countries have to mitigate environmental degradation. “First, as countries grow, they argued, their citizens can afford to start caring about the environment and so begin to demand higher standards; second, the nation’s industries can afford to start using cleaner technologies; and third, those industries will shift from manufacturing to services, swapping smoke stacks for call centres.” (Raworth, Kate. Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist. Chelsea Green Publishing. Kindle Edition p. 176) But why would citizens have to wait for sufficient GDP growth to enjoy their basic right to clean air and clean water? Secondly, “It’s people power, not economic growth per se, that protects local air and water quality.”1 (Id.) Generally speaking, both governments and industries remain passive until they are forced to do the right thing. Lastly, shifting from manufacturing to services is an obvious non-answer since pollution is simply displaced.
This is why “From 1990 to 2007 as GDP grew in high-income countries, so did their global material footprints. And not just by a little bit: the United States, the UK, New Zealand and Australia all saw their footprints grow by more than 30 percent over that period; in Spain, Portugal and the Netherlands, they grew by over 50 percent. Japan’s footprint, meanwhile, grew by 14 percent and Germany’s by 9 percent: impressively lower than the rest, but still growing.”2 (Id. p. 179) Even though calculating global material footprints is a complex task, one thing is certain: at these kinds of rate, the Anthropocene geological era started with the industrial revolution will be short-lived.
What could be the answer? To address what it calls “negative externalities” economic theory has its favored market-based tools: quotas and taxes. “To internalise those externalities, the theory advises, put a cap on total pollution, assign property rights with quotas, and allow market trading to put a price on the right to pollute. Or impose a tax equivalent to the ‘social cost’ of pollution, and then let the market decide how much pollution it is worth emitting.” (Id. p. 181) Unfortunately, taxes, quotas, and tiered pricing are rarely set to the level required: “(…) corporations lobby hard to delay their introduction, to lower the tax rate, to increase the quota and to get permits given for free, not auctioned. Governments, in return, too often concede, fearing that their nation will lose competitiveness—and that their political parties will lose corporate backing.” (Id. p. 182)
These policies fall short because “quotas and taxes to limit the stock and reduce the flow of pollution are indeed leverage points for changing a system’s behaviour—but they are low points of leverage.” (Id.) Far greater leverage can be obtained by changing the economic paradigm of dealing with pollution3.
Aiming for net-zero impact is a truly impressive departure from the business-as-usual of degenerative industrial design, and even more so if the aim is net zero not just in energy or water but in all resource-related aspects of a company’s operation. This, however, is still only doing less bad, not doing good. The change of paradigm should be to continually replenish rather than more slowly deplete the living world. “More than an action on a to-do checklist, it is a way of being in the world that embraces biosphere stewardship and recognises that we have a responsibility to leave the living world in a better state than we found it. (…) because only generous design can bring us back below the Doughnut’s ecological ceiling.” (Id. p. 185)
For Jeanine Benyus, a leading thinker and doer in the field of biomimicry, we must take nature as our model, measure, and mentor. “With nature as model, we can study and mimic life’s cyclical processes of take and give, death and renewal, in which one creature’s waste becomes another’s food. As measure, nature sets the ecological standard by which to judge the sustainability of our own innovations: do they measure up and fit in by participating in natural cycles? And with nature as mentor, we ask not what we can extract, but what we can learn from its 3.8 billion years of experimentation.”4 (Id. pp. 186-187)
The Circular Economy Takes Flight
Rather than doing less or no harm, industrial processes can transform—like a caterpillar into a butterfly—into a generous design. This is epitomized by what has come to be known as the “circular economy”5. “The key to making this work is to think of all materials as belonging to one of two nutrient cycles: biological nutrients such as soil, plants and animals, and technical nutrients such as plastics, synthetics and metals. The two cycles become the butterfly’s two wings, in which materials are never ‘used up’ and thrown away but are used again and again and again through cycles of reuse and renewal.” (pp. 187-188)
The idea of working through cycles in not a far-fetched engineer’s lunacy. Virtually all physical elements can be reused or recycled; we just need to look at them differently than in the cradle-to-grave manufacturing supply chain of take, make, use, lose imposed on the planet since the dawn of the industrial age. The two paragraphs below explain this butterfly metaphor through specific examples.
“On the biological wing, all nutrients are eventually consumed and regenerated through the living earth. The key to using them endlessly is to: ensure that they are harvested no faster than nature regenerates them, harness their many sources of value as they cascade through the cycles of life, and design production in ways that gift back to nature. Take coffee beans as a simple example: less than 1 percent of every bean ends up in a cup of coffee, and the leftover coffee grounds are rich in cellulose, lignin, nitrogen, and sugars. It would be foolish to throw such organic treasure straight on to a compost heap or, far worse, into a rubbish bin, but this happens in homes, offices and coffee shops worldwide. Coffee grounds, it turns out, make an ideal medium for growing mushrooms, and then can be used as feed for cattle, chickens and pigs, and so are returned to the soil as manure. From the humble coffee bean, imagine scaling that principle up to all food, crops and timber, and scaling it out to every home, farm, firm and institution: it would start to transform our last-century forestry and food industries into regenerative ones that reap value from and then regenerate the living systems on which they depend.” (Id. p. 188)
“On the butterfly’s other wing, in contrast, products made using technical nutrients, such as metals and synthetic fibres, do not naturally decompose so they must be designed to be restored—through repair, reuse, refurbishment, and (as a last resort) recycling. Take mobile phones, for example, which are chock-full of gold, silver, cobalt and rare earth metals, but are typically used for just two years. In the European Union, over 160 million mobile phones are sold annually, but in 2010, only 6 percent of used phones were being reused, and 9 percent disassembled for recycling: the remaining 85 percent ended up in landfills or lay defunct in the back of some drawer.6 In a circular economy, they would be designed for easy collection and disassembly, leading to their refurbishment and resale, or the reuse of all their parts. Scale those principles across all industries and you start to turn twentieth-century industrial waste into twenty-first-century manufacturing food.” (Id. p. 189)
In a degenerative industrial economy, by contrast, value is monetary and is created by searching for ever-lower costs and ever-greater product sales, thus resulting in intense material throughflow. This total misconception about the concept of value is at the crux of the environmental problem the world has today. “Economic value lies not in the throughflow of products and services but in the wealth that is their recurring source. [Underlined by OHP] That includes the wealth embodied in human-made assets (from tractors to houses) but also the wealth embodied in people (from their individual skills to community trust), in a thriving biosphere (from the forest floor to the ocean floor) and in knowledge (from Wikipedia to the human genome). Yet even these forms of wealth eventually dissipate: tractors rust, trees decompose, people die, ideas are forgotten. Only one form of wealth persists through time and that is the regenerative power of life, powered by the sun.” (Id. pp. 189-190)
In Search of the Generous Economist
“Regenerative industrial design can only be fully realised if it is underpinned by regenerative economic design… and that is currently sorely missing. Making it happen calls for rebalancing the roles of the market, the commons and the state. It calls for redefining the purpose of business and the functions of finance. And it calls for metrics that recognise and reward regenerative success.” (Id.)
Let’s start with the commons. “Sam Muirhead, one of the instigators of the Open Source Circular Economy movement7, believes that circular manufacturing must ultimately be open source because the principles behind open-source design are the strongest fit for the circular economy’s needs. These principles include: modularity (making products with parts that are easy to assemble, disassemble and rearrange); open standards (designing components to a common shape and size); open source (full information on the composition of materials and how to use them); and open data (documenting the location and availability of materials). In all this, transparency is key. (…) These principles give rise to a set of circular business models that work not despite being open source but because they are open source.’ (…) ‘Once you put something in the commons, you can’t take it away,’ he explained, ‘so every single day the knowledge commons grows and becomes more useful. Once people get the idea—and see its circular economy potential—they really want to create solutions for it.’” (Id. pp. 195-197)
What about the purpose of business and finance? “The business of business is business” famously quipped Milton Freidman. Yet, not all entrepreneurs agree. Such is the example of Anita Roddick, founder of The Body Shop in 1976. “I want to work for a company that contributes to and is part of the community,” she later explained. “If I can’t do something for the public good, what the hell am I doing?”8 This is what could be called the “living purpose” of a company, and today the most innovative ones are inspired by the same idea that the business of business is to contribute to a thriving world.
Next, regenerative enterprises need the support of financial partners seeking to invest long-term for generating multiple kinds of value—human, social, ecological, cultural, and physical—along with a fair financial return. But current finance culture is still narrowly focused on short-term financial value, which inspires Anita Roddick the following: “I think there’s a fascism attached to financial institutions, which only look at a very unimaginative bottom line. Profit is the law of business: that has to be considered, but not at the expense of human rights, environmental standards and community.”
This implies that finance should no longer drive the economy but rather support it by turning savings and credit into productive investments that deliver long-term social and environmental value. This is possible if the global financial system as we know it shrinks, simplifies, diversifies, and deleverages—becoming more resilient in the process rather than ever-prone to speculative bubbles and crashes. According to John Fullerton, a former managing director at JP Morgan, policies for heading in that direction include “separating customers’ deposit accounts from the speculative activities of securities firms; introducing taxes and regulation that make it unprofitable to be too big, too leveraged and too complex; and a global financial transactions tax to rein in high-frequency trading.”9 (Id. pp.199-200)
But even though reining in speculative finance is indispensable, this is just a start. Equally important is to replace it with long-term financial investments. What type of investors could be interested? “State-led development banks have an obvious role here in offering ‘patient capital’ for long-horizon investments such as renewable energy technologies and public transport systems. But there is a role, too, for private investors, ranging from the personal saver to institutional investors such as pension funds and endowment funds. Community banks, credit unions, and ethical banks may sound like small players, but they have taken the lead in this space.” (Id. p. 200)
Aside from long-term investments, local currencies can be regenerative in the living world the same way they can be redistributive within a community (see ch. 5). “Just as blood flowing throughout the human body keeps all of its organs healthy, so complementary currencies could be designed to harness the flow of human activity in ways that keep the city’s infrastructure thriving. They could reward residents and enterprises for a wide range of regenerative behaviour—from collecting, sorting and recycling waste to maintaining the living walls of the city’s buildings—all the while encouraging the community to shop locally and travel publicly. Complementary currencies could, in effect, help a city’s inhabitants become full participants in nature’s cycles, just as Benyus envisages.” (Id. p. 201)
What about the state? It has “many ways to actively promote a regenerative alternative, including restructuring taxes and regulations, stepping up as a transformative investor and empowering the dynamism of the commons.” (Id.) Switching from taxing labor to taxing non-renewable resources, for example, could be a game-changer. To ensure its feasibility, that switch could be “boosted by subsidies for renewable energy and resource-efficient investments. Such measures would refocus industry’s attention away from raising labour productivity and towards raising resource productivity, dramatically reducing the use of new materials and creating jobs at the same time.” (Id. p. 202). Another example is to back the transition from degenerative to regenerative industrial design by proper regulations: “At its most simple, it means phasing out the use of ‘red list’ chemicals and polluting production processes, while phasing in the use of life-friendly chemistry only, along with net-zero and net-positive industrial standards.” (Id.)
Last but not least, the metrics. “The shift to regenerative economic design can be monitored only if it is backed up by metrics that reflect its mission. Monetary metrics alone will inevitably fall far short of reflecting the value created in a regenerative economy: financial income is just one narrow slice of what an economy generates when its aim is to promote human prosperity in a flourishing web of life. The monopoly of monetary metrics is over: it’s time for a panoply of living metrics. And instead of focusing on the throughflow of monetary value, as GDP was designed to do, the new metrics will monitor the many sources of wealth—human, social, ecological, cultural and physical—from which all value flows.” (pp. 203-204)
New business metrics can be elaborated in that frame too. “Several leading initiatives—such as the Economy for the Common Good, B Corp’s Impact Reports, and the MultiCapital Scorecard—all offer businesses a matrix against which to score their sustainability.10 And since the matrices are openly and independently scored, the results can empower consumers and enable governments to proactively support regenerative enterprises by rewarding high scores with, say, lower taxes and preferential public procurement.” ( Id. p. 204)
A time may come when companies will ask themselves not simply “‘how we can do no harm’ but ‘how can our enterprise be as generative as a giant redwood forest?’” (Id. pp. 204-205)
|Book Club Discussion: According to you, could nature be the model, measure, and mentor of a new industrial age, as Jeanine Benyus suggests? How difficult do you think it is, on the other hand, to involve commons, business, finance, and state in a regenerative economic design?|
Share your thoughts and build on what others say in the comment section below.
- Torras, M. and Boyce, J.K. (1998) Income, inequality, and pollution: a reassessment of the environmental Kuznets curve, Ecological Economics 25, pp. 147–160.
- UNEP (2016) Global Material Flows and Resource Productivity: a report of the International Resource Panel
- Meadows, D. (1997) Leverage Points: places to intervene in a system. The Donella Meadows Institute, available at http://donellameadows.org/archives/leverage-points-places-to-intervene-in-a-system/
- Biomimicry 3.8 (2014), Conversation with Janine
- Ellen McArthur Foundation (2012) Towards the Circular Economy, Isle of Wight: Ellen McArthur Foundation, available at http://www.ellenmacarthurfoundation.org/assets/downloads/publications/Ellen-MacArthur-Foundation-Towards-the-Circular-Economy-vol.1.pdf
- Ellen MacArthur Foundation (2012) In-depth: mobile phones. http://www.ellenmacarthurfoundation.org/circular-economy/interactive-diagram/in-depth-mobile-phones
- See Structure, Decentralization, Community & Consulting – a discussion with Enspiral, as well as Janine Benyus’ website asknature.org
- A dame of big ideas: the Satya interview with Anita Roddick
- For more about John Fullerton’s work, go on this website to Why Regenerative Economics is the Future
- Economy for the Common Good. https://old.ecogood.org/en, B Corps. https://www.bcorporation.net/ and the MultiCapital Scorecard. http://www.multicapitalscorecard.com/