A Flow of Wealth or a Wealth of Flows?

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The circular economy has come
from nowhere in the last seven years.

You have an EU package
on the circular economy,

you've got the World Economic Forum
working hard on that,

you've got great expectations
from cities and governments.

At the recent Helsinki meeting,
there were 90 countries

and nearly 1700 delegates in one hall

looking at the circular economy
over a number of days.

This is very exciting.

♪ (music) ♪

In academia, there are now
hundreds of papers

and many more expected.

And it's entering into the teaching,
particularly in business and engineering.

I think the question has to be

what is it about the circular economy
which is so appealing?

♪ (music) ♪

I think we have to go back to the basics
of what an economy is.

It asks three questions, really.

It asks: What to produce?
How to produce it?

And who gets the benefit?

It's not only got three questions,
it's got three main components.

Every economy has flows
of materials, flows of energy,

and flows of information--
particularly money.

If you look at the textbook,
they have an image, almost,

of a central heating system.

(bubbling)

You got two sectors to it:

households and firms,
capital and labor.

Money flows between the two.

Wages are paid, goods are produced,
income comes back into the firm.

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That's fairly simple.

Add to that, the government
takes taxes and pays money out.

Add in banks as well--
they're intermediaries

to make sure that savings

are productively put back
into the economy as investment.

It's very much a pipework,
and that's how many people understand it.

On top of that, there's a sense of it

going to be in an equilibrium
in the long term.

Everything is going to be the best
in all possible worlds

if the economy runs efficiently.

And that's almost
the story of the economy:

Make it efficient, let it run,
it'll sort itself out

as long as you don't get in the way.

♪ (dramatic music) ♪

De Rosnay is an early system thinker.

And de Rosnay wanted to characterize

an existing economy
and the problems with it.

And the main problem he identified
was there was no context.

This economy was running
as a sort of machine

sitting on top of stocks
and flows of resources and energy.

It only touched it where it had to.

But what I mean by that
is that it wasn't factored in.

There was no costing
of the resource in a true sense.

There was no costing
of the waste in a true sense.

It was artificially priced.

Everything had a price,

but they didn't understand the value
is what he was saying.

So he needed to contextualize the economy
and look at resources and material flows.

Let's pause for a moment and think.

Joël de Rosnay came up
with The Macroscope,

which is the idea of dropping detail.

We have a microscope
to look at the detail,

we have a telescope to look at distance.

His idea was if we took a macroscope,
if we took a big picture view,

we could get a sense
of the patterns in the economy

without worrying about the detail.

That's really very, very helpful,
because if the problem with the economy

was that it hasn't got a context,
a macroscope allows you to say,

"Where does an economy sit?"

Oh, it sits within society, obviously,

it sits within an environment.

And all of these things
are intimately interconnected.

Because the part of the system
which isn't mechanical,

it's actually dynamic, interdependent...

it reflects what we now understand
about how the real world works.

The real world works through the notion
of complex adaptive systems,

which just means a very dynamic system
where you can't predict the outcome,

but you have lots of patterns
that show up.

And you can use the patterns
to tell you what you might like to do.

But it doesn't offer you an answer

in the way having an economy
as a machine with levers

would give you an answer.

There's no long-run equilibrium
in a complex adaptive economy.

It might be here, it might be there,

it might be doing very well,
it might be poor.

But there's no assumption
that it's going to all work out

if only you're efficient.

That to de Rosnay
would be an incredibly naive view.

And that's been the really big challenge
for a lot of people in economics.

For some, it's been a journey
from a mechanistic view

to a more enlightened complexity
economics view.

But the general view of the economy
is still of a machine

that processes resources,
creates economic growth.

And it's a shame we've got
these problems at the other end,

and it's a shame that we might be running
into resource scarcity.

Whereas if you see it
as one complex adaptive system,

you can then work
within these patterns, these flows.

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The existing economy
talks about just throughput.

It degrades capital
and runs the system through it.

How much can you get through?
You're a winner.

Whereas a complex
adaptive system would say,

"There's a stock, there's a flow,
there's feedback."

If it's going to work long-term,
all of these three components have to work

in an interdependent way
and continue working.

And that's a very different question
about how you do something

with an economy like that.

You participate in it, you influence it,

but you don't control it in that sense.

And equally, though,
you can't promise people

that it will all turn out fine
if only they behave in a certain way.

It just doesn't--
that's not how the real world works.

Now a lot of people
are uncomfortable with that

because they want
to be able to promise the people,

the politicians want to promise
an outcome that's great.

Everything has to be better in the future

because we control
the machine and it will be.

(announcer) No wonder everybody
is acting so nervous.

♪ (hypnotic music) ♪

But if it's not a machine,
it's more like a forest, if you like.

You're not going to predict
what the forest does,

it's full of so many actors,
so many players with so many influences.

(drumming)

It's a bit like a gardener
coming along and saying,

"I want this plant to grow quicker"

and pulling on the top of it
to see if it would grow faster.

You can't do that.

You have to set the conditions
for the forest, for the garden.

You can choose where you plant it,
you might do a bit of editing,

but you can't say,

"This will be the output,
this will be the result."

You've got to see how it goes.

If that isn't working, adjust it a bit.

And that requires a bit of humility.

And for some people,
they absolutely hate the idea

that we might not be
totally in control of this.

They just don't want to admit it,

because they feel
that they lose their power

if they can't promise
an X amount of growth

in a number of years, or this much output.

So there's a real tension between
seeing us being in charge of the economy

and us being an actor
or a participant in the economy.

And that difference of perspective
is really, really central,

and it spreads through right into
the notion of the circular economy.

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For some people,
the circular economy is saying,

"Okay, we've got this circular
flow of income and expenditure.

How do we add in materials to this?

Let's add the material flows into there

because we'd like it
to cycle continuously.

But that's more about the pipework.

It's saying, "We don't want the leaks,
we don't want waste.

We want to design out waste,

but we want to make sure
there isn't any waste

that we can keep control of the flow."

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And if we say, "Move from people
owning things to accessing them,"

we can keep control of these big durables,

like cars or houses or whatever,

and just say,
"If you want access, you pay."

And that means we can use resources
much more economically,

much more effectively.

And this is sort of selling products
as a service or selling access.

This really might help with the economic
question about resources

because you're slowing
the flow of resources through the system

and you're looping it back.

So you could slow the flow,
complete the loop.

♪ (music) ♪

But the question then is,

"Oh, you've added materials
into the pipework...

Who benefits from that?"

Now, if this adding material
into the pipework

means we could lower prices to people,

if we could make things
more available at a lower cost,

people would then
have more money to spend.

And then that would cause
economic growth and jobs would increase.

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Many people in the modern world
are not experiencing increases in income.

So this would be a great idea;
it helps save resources and lowers cost.

But if their income is falling as well,

this means that they're only
just hanging on a bit longer.

So that's how a great idea
like the circular economy--

if it's seen as a pipework--

can actually have only a partial effect,

one that people would rather was better,

because some of the other
system conditions haven't been changed.

Will you stop honking, Matt!
We ain't going nowhere!

The other view of a circular economy
is it's more like a forest, if you like.

There are lots of leaky loops.

Now what I mean by leaky loops

is anything that comes into a firm
and goes out is food.

It's useful, it's not contaminated,
it's not problematical,

people know what it is.

And if people know what material is--

and it's clean in that sense,
it's not going to harm them--

they come and find a way of using it

as a way of increasing
their economic activity.

It's very much like the forest floor.

All sorts of material
falls on the forest floor,

and billions of creatures
come and treat that as food.

The only rule, it seems, in the forest,
is that what falls to the forest floor

is pretty much okay
to be eaten by something.

♪ (hypnotic music) ♪

And this means that the circular economy

is one way you can build prosperity
from the base up

because you've got much more material,
it's much more accessible,

you're not determining
exactly how it's used,

but you're just keeping
to some fairly simple rules.

Everything should be food for the system,
whether that's the biosphere

or the technical side of things
where we make products.

So that it comes back.

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When you think about
the difference in perception,

there's a very big difference between
trying to eliminate waste in a pipework

to stop it leaking,
and then maintain control.

And the other one with Janine Benyus--

she's a writer
in what's called biomimicry.

She says be generous

because that's what happens
in living systems.

It's a lesson from living systems.

Be generous. Why?

Because to feed the trees,
you feed the forest.

♪ (music) ♪

Michael Braungart said many years ago--
he's a designer and chemist

who worked on the idea
of Cradle to Cradle,

the design philosophy which underlies

a lot of circular economy thinking.

He used to tell a story--
and I think he still does--

of the cherry tree.

Why all this blossom in spring?

You don't need that many cherries
to reproduce that tree over 25 years.

So why be so wasteful?

But that's not a question--

even if the tree could answer,
that it would answer.

The tree produces blossom
because it needs to reproduce itself.

But whatever is chucked on the floor
and is blown by the wind

is food for the system.

And so that tree doesn't get fed
by its own falling blossom.

No, that's nonsense,
that's absolutely really dumb thinking.

How could you imagine
it would work that way?

Why should it work that way
with businesses?

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If you're in a business ecosystem,

everybody should be able to feed
from each other

because it lifts
the overall level of prosperity.

This is really effective systems 101.

To have an effective system,
things must circulate.

If it doesn't circulate, it doesn't work.

Adam Smith was talking about that
hundreds of years ago,

the great circulation.

He was insisting that the biggest problem
that we had in the economy then

that there wasn't a free market.

And he meant that it wasn't free
from people who did nothing but got money.

It's the landlords in those days.

We needed a free market
to enable more exchange,

more circulation of wealth.

So that's really modern science

updating aspects
of what Adam Smith was saying;

in other words,
you need the right system conditions

to make sure you can maximize exchange,

and the right system conditions
to make sure

that anybody interfering
in the market has limited power.

Because if they have too much power,
they extract rather than circulate.

Doug Rushkoff's very good on this.

He says the question before us

is whether we extract value
or circulate it.

An effective system is built
on the idea of circulation,

whereas an efficient one

might be very good
at stopping leaks from the pipe,

but it's not really saying,

"Is everybody getting
a fair shake of this?"

It's a bit like the tree
puts a little boundary around itself,

and it says, "Those are my leaves!

I'm keeping all of the nutrients
in those leaves."

But then forgets that they need
more than those nutrients.

If it was a firm, they need customers.

And that's a big argument:

Where does the income
from a firm come from?

It comes from customers.

Customers need to be well-off.

You need a middle class
to buy the products.

And yes, we hope that the products
are designed in the right way.

But if you don't have customers
with money, you're in trouble.

So you might fix the resources
question all you like,

but if the customers don't have the money
to buy goods and services,

what have you achieved, actually?

And this is back
to that systems perspective.

A systems perspective says
we need to optimize the system

so those actors in the system
have every opportunity

to improve their own prosperity,

and by doing so,

improve the prosperity of everybody else.

Now, that might sound so obvious
as to why on earth do we say it?

But it's actually not the way
the world is working at the moment.

It tends to be very extractive.

♪ (music) ♪

The potential to allow
businesses and people

to create their own prosperity
is sometimes rather limited

because they don't have
access to resources.

There isn't necessarily
an abundance of resources.

Because one of the great ways
of making additional earnings

is to make things scarce.

Make it scarce and people
then have to pay a high price--

or a higher price than they should do.

Nothing wrong with price per se.

But paying a higher price
might mean that there's scarcity,

and some people
can't afford to buy into it.

♪ (music) ♪

So the big question and the different
views of circular economy

is that it's a great idea--
we need to circulate materials

and we need to have moved
towards renewable energies.

But we also have to think

what sort of circulation
is it that we're building.

Is it more like Janine Benyus
is talking about?--

create an effective ecosystem,
which is based on circulation?

Or is it more like the pipework,

which is drawing in the materials cycle
to the existing economy.

And this is quite a nice teaser,
in a way, for many people.

Is it about the economy
and fixing up the resources bit?

Or does it point towards
transforming the economy

into a really different sort of economy,

based much more
on insights from living systems?

Is it about optimizing the whole system?

Or is it about making sure you've got
really good resource efficiency

alongside labor productivity?

But nothing much else is changing.

♪ (music) ♪

If you optimize the whole system,
it's the analogy I've already mentioned

on the notion of "If you want to have
big trees in the forest,

you need to feed the forest,
you don't just directly feed the tree."

A vibrant system helps
all of the participants in that system.

You need a healthy soil,
you need lots of detritivores--

things that degrade things.

You need fungi, insects.

For every human in the world,

there's something like
1.2 billion insects.

If we have a real idea
of the pyramid of living systems,

we would be amazed.

♪ (triumphant music) ♪

I think we ignore that
in our peril with the economy.

Because it is those people,

all of those billions of people
that we've got,

they're all productive,

they're all potential
consumers and producers.

But they need a way
of participating in the economy.

That's the different perspective.

How do you enable people
to be productive in a system

which is regenerative,
accessible, and abundant.

♪ (triumphant music) ♪

At the moment, we're more focused
on the pipework analogy,

but significant numbers
of people are saying,

"Actually, this other perspective
has got lots of richness to it,

has got lots of potential."

If the question is in the end,
what is an economy?

We have to answer the three questions,

[inaudible] not us,
economists is to answer that question

which I started with,
which is what do we produce?

How do we produce it?

And who gets the benefit?

You can't answer that economic question

by just saying, "How do you produce it?"

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