Although often dismissed by proponents of the dismal science, the fact remains that the global economy has hitherto been based on an exploitative model of natural resource consumption. Post industrialisation, a fundamental concept has pervaded all conventional economic models viz. the take-make-dispose paradigm. This ‘linear system’ of resource use involves the extraction of resources, manufacturing of products which are sold to consumers, and eventually disposal of those products. The continued practice of this system is coming up against increasing constraints arising from resource scarcity and alternatives incorporating reuse, refurbishment and recycling of materials are fast replacing the viability of sourcing virgin materials. The world’s growing and increasingly affluent population has caused an overuse of resources, higher price levels and increasing market volatility. McKinsey & Co. estimate that this trend is likely to continue with three billion new consumers expected to enter the market by 2030.
A circular economy is a system that decouples growth and prosperity from resource consumption. Already in practice in several countries, the concept itself emerged in the 1970s ( Renault became the first car manufacturer to lease batteries for electric cars, H&M retrieves clothing for reuse and recycling, Phillips has a stake in 22 collection and service organisations that collect 40% of all mercury-containing lamps put on the EU market). It focuses on regeneration and restoration as opposed to the end-of-life concept of traditional economics. Greater emphasis is placed on reintroducing products into the value chain as opposed to their disposal. At the core of this system is the designing out of waste; design innovation is used to create better products that can endure more cycles. In addition to this toxic chemicals are eliminated from the manufacturing process as far as possible, and even the burden on energy consumption is reduced through the use of renewable energy.
The circular system employs different concepts such as ‘upcycling’ and ‘cascaded usage’. Upcycling refers to innovative use of a product at the end of its primary usage cycle without compromising on quality of the material, as opposed to recycling where the material is subject to a degree of processing to render it reusable as a raw material, usually resulting in some loss in quality and therefore requiring reinforcement with other materials (e.g. using glass bottles, cans etc to create design prototypes). Cascaded usage is a recycling concept wherein at the end of each life cycle of a product, it is used as a component in another product (e.g. cotton clothing is reused first as second-hand apparel, then crosses to the furniture industry as fibre-fill in upholstery, and the fibre-fill is later reused in stone wool insulation for construction)
The circular economy can be divided into two ‘nutrient’ components viz. Biological nutrients and technical nutrients. Biological nutrients are organic, non-toxic naturally occurring substances which can be returned to the biosphere, for example food waste which can be converted into compost, and agricultural waste which can be re-fed into the agricultural system as soil organic content. Technical nutrients comprise machinery, engineering components, computers etc. which are made of plastics, metals and other non-biodegradable substances and cannot be returned to the biosphere. They are designed from the start for reuse and products subject to rapid technological advance are designed for upgrade.
Another fundamental principle of the circular economy with regards to technical nutrients is the replacement of the concept of ‘consumer’ with that of ‘user’ meaning that goods will be leased, rented or shared as opposed to purchased, with the intent that the importance of ownership be phased out. This would redefine contractual agreements between businesses and users, with mechanisms in place to ensure the return of an item after its initial period of use. The reintroduction of products into the value chain would have a natural cascading quality and corresponding price implication, increasing the options for consumers from different income groups.
Based on its type and life cycle stage, a product undergoes one of four processes – maintenance, reuse, refurbishment and recycling – and is re-fed into the manufacturing circuit. This can be visualised by the following diagram, illustrated by McKinsey and Co. for the Ellen MacArthur Foundation.
The Developing world and transitioning to a circular economy – The Informal sector and plugging leakages
One glaring oversight in the circular economy concept is its applicability in the developing world. The entire theory is framed around assumptions from a first world perspective, and much of the discourse on it is EU centric. The future of a circular economy for a transitioning economy like India involves incorporating the informal sector in discussions and assigning them a recognisable place in the value chain. The key parallel to be drawn in developing countries like India for example is that the waste chain is analogous to the value chain as envisioned in a circular economy. Reuse, refurbishment and recycling are all activities undertaken at different levels of the waste hierarchy which is a multilevel system, the intricacies of which have still not been studied in detail.
The circular economy establishes a closed loop system wherein products are repeatedly introduced into the value chain thereby reducing the need to source virgin materials. Problems in the circular economy arise when leakages in the closed loop occur. For technical nutrients, ‘leakage’ refers to the loss of materials, energy, and labour as products, components, and materials are not or cannot be reused, refurbished/remanufactured, and recycled, respectively. A phenomenon known as ‘geographic dispersion’ - geographically dispersed manufacturing and supply sites - besets current supply and manufacturing chains. The informal sector (waste pickers, kabadiwallas) currently plays a crucial role in plugging these leakages by recovering materials from dumps, transfer stations, bins and households and selling them either to wholesalers or directly to recyclers, where they may undergo reuse, refurbishment or recycling. They mitigate the effect of geographic dispersion by bridging the gap between manufacturer and access points for end of life cycle products to be reused.
The Indian E-waste sector is a prime example of the role of the informal sector in circular economic function. Out of the 6% of E-waste that is recycled in the country, 95% is recycled by the informal sector. E-waste recycling in the informal sector essentially involves collection, segregation and dismantling. Collection directly feeds into reuse and recycling, and dismantling feeds into refurbishment and recycling. The IT boom in recent years has resulted in an increase in e-waste generated. Extensive repair and refurbishment activities have resulted in a blooming second hand market for IT products, effectively creating a closed loop system. This works in contrast to current EU centric circular economic theory which assumes an entirely formalised circle of players, an approach which may lead to the same policy malaise as other first world originating ‘model’ approaches that have been applied in developing world contexts. Even though there has been an increase in formal sector involvement in the e-waste sector in recent years, it still faces many constraints. Actors incur significantly more costs as they are largely mechanized while the informal sector remains labour intensive. Furthermore, collection issues are an impediment to sourcing volume as informal sector workers have already tapped household and smaller enterprise channels. Although the informal sector is also fraught with problems such as meagre wages, lack of access to health services, and occupational hazards arising from unscientific precious metal extraction, the benefits still outweigh the costs as the sector comprises a large body of available labour, with intricate access and trade networks.
Looking at a future circular economic scenario, a greater degree of circularity may be possible through the integration of both sectors, rather than aiming at complete formalization at the cost of informal sector livelihoods. With their established collection routines and networks, it would be more feasible for the informal sector to handle collection and segregation while the highly mechanized formal sector may handle dismantling and recycling.
Circularity has already started to make inroads into the linear economy, with innovative products and contracts already available in a variety of forms. Today a number of businesses are thriving on it. The challenge is for developing economies in transition, negotiating trade-offs between meeting the overall wellbeing of their populations through economic prosperity, and preserving natural capital/ mitigating environmental damage. If the transition is to be seamless, it is imperative to acknowledge the informal sector as an essential cog in the circular machine.
- Written by Farhaad Khazvini
McKinsey and Company (2013) Towards the circular economy Vol.1 – Economic and business rationale for an accelerated transition.
World Economic Forum, McKinsey and Company(2014) Towards the circular economy
McKinsey and Co (2014) Towards the circular economy Vol. 3 – Accelerating the global scale up.
Raghupathy L., Kruger C., Chaturvedi A., Arora R., Henzler M., E-Waste Recycling In India – Bridging The Gap Between The Informal And Formal Sector
Preston F (2012). A Global Redesign? Shaping the Ciruclar Economy. Energy, Environment and Resource Governance.