A Flow of Wealth or a Wealth of Flows?

KEN WEBSTER,
A Flow of Wealth or a Wealth of Flows?

The circular economy has come from nowhere
in the last 7 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.

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In Academia there are now
hundreds of papers

and many more [inaudible]

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

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I think the question has to be,

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

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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 get the benefit?

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

Every economy has flows of material,
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.

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.

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 pipe work
and that's how many people understand it.

On top of that, there's a sense of it --
going to be in an equilibrium 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 old music)

De Rosnay is an early system thinker.

[Joël de Rosnay]
And de Rosnay wanted to characterize

[Le macroscope Vers une vision globale]
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 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 out with a microscope,
which is the idea of dropping detail.

We have a microscope
to look at the detail,

we have telescope to look at distance.

His idea was if we took a microscope --
if we took a big picture view,

we can 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 microscope allows you to say,

"Where does an economy sit?"

[] 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.

The process's resources create
economic growth.

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

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

Where as if you see it as one complex
adaptive system,

you can then work within these patterns,
these flows.

(music)

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.

Where as 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 there's a lot of people
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.

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 noise)

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

"I want this plant to grow quicker."
and pulling on 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 --

and 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 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 circular economy.

(music)

For some people the circular economy
is saying,

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

How do we add in materials to this?

Let's add in the material flows
into there,

because we'd like it to cycle
continuously.

But that's more about pipe work.

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 off the flow."

(music)

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

We can keep control of these
big durables 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'll slow the flow --
complete the loop.

(music)

But the question then is,
"Oh, you've added materials

into the pipe work...
Who benefits from that?"

Now if this adding materials
into the pipework

means we could lower prices
to people,

if we could make things more available
at lower cost,

people then would have more money
to spend.

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

(music)

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 pipe work --

can actually have
only a partially 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 in to 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;
what falls to the forest floor,

is pretty much okay to eat by something.

(music)

And this means that the circular economy

is one way you can build prosperity
from the base out,

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 it comes back.

(music)

When you think about
the difference in perception,

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

to stop it leaking
and then maintain control.

And on 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 Brown Gough 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 of this blossoms 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 tree
could answer it, they would answer.

The tree produces blossom because, yeah,
it needs to reproduce itself.

But whatever is chucked on the floor,
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?

If you're in a business ecosystem,

everybody should be able to feed
from each other.

(music)

Because it lifts
the overall level of prosperity!

This is a 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,

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 [inaudible] on this --
He said,

"The question before is
whether we extract value or circulate it."

An effective system is built
on the idea of circulation.

Where is 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 forget 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 customer.

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 system
perspective.

A system 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 earning

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 the scarcity

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 and effective ecosystem,
which is based on circulation?

Or is it more like like the pipe work,
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 [around]
1.2 billion insects.

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

we would be amazed.

(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.

(music)

How do you enable people
to be productive in a system

which is regenerative,
accessible and abundant.

(music)

At the moment, we're more focused
on pipe work analogy,

but significant numbers
of people are saying,

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

has got lots of potential."

RAW MATERIALS, ENERGY, PLANTS.
(music)

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

We have to answer the three questions
[inaudible] economics

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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ELLEN MACARTHUR FOUNDATION

www.ellenmacarthurfoundation.org

Film by Louis Hudson
www.louiswilliamhudson.com