You can see a short videocast from the podcast where charts are referred to here
The Doughnut
Kate Raworth’s excellent book ‘Doughnut Economics’ sets out a clear path to achieving a circular economy. It demonstrates why the take, make, use and lose approach of the industrial age is no longer relevant if we want to preserve the planet for future generations. We need to think differently about how we set about the task to achieve the objective. It is argued that economic thinking that appeared relevant for the industrial age is now simply wrong-headed. We have to redefine the purpose and the goals we need to achieve to lower the impact of pollution, resource depletion and degradation of soil and water from those industrial activities. We appreciate industry is important but it is clear that we need to think differently about how we do it.
Energy, water and food are the fundamentals for human existence, as well as plant and animal life which are central to the food chain. The social foundation of Raworth’s Doughnut lays down the expectations for people to live fulfilled lives. Beyond this there is a safe and just space for humanity and beyond that there is an ecological ceiling which if we exceed it will have a detrimental impact on the planet, resources, people, animals and plant life.
Beyond Market Economics
Ronald Coase was a Nobel Prize Winning Economist and his work examined political, legal and social institutions. Coase was born in Willesden and after attending the London School of Economics he spent most of his working life in Chicago. A main focus for his work looked at transaction costs and inparticular social cost of transactions. His theorem proposed that the market was good at resolving issues when transaction costs were low but not so good when they were high. one consequence of this is that social costs are incurred by others not involved in the direct transaction. This was explained more thoroughly by Coase in his seminal work “The Nature of the Firm” published in 1937. You can see the crossover point here between economics, the law and social justice. Coase’s Theorem as it became known was used by economists to understand transaction costs and by lawyers to understand rights and responsibilities in market transactions that had a social cost. In essence the argument is that the market is not good under certain conditions in achieving just outcomes and intervention is needed under rule of law. So for example, if a firm is situated on a river where it uses water to drive machinery or to clean produce and after use it is discharged back into that same river with chemicals and pollutants the market has no way to deal with the social cost it might cause to human life, animal life, plant life or the ecosystem. Legal redress is necessary to achieve social justice. Coase proposed that those causing the problem should be taxed and the funds from the taxes used to pay for any clean up. Taxation policies to deal with similar problems can be identified in most modern economies. Indeed, carbon taxes are but one example. So that was the economist solution to the problem but is it enough?
Today many would argue that this may be necessary but not sufficient to deal with the climate change crisis and the many other problems identified in the Circular Economy diagram above. To deal with the realities rather than simply transactions it requires a rethink. This rethink is a philosphical rethink about the purpose of life which is not to get rich or simply achieve profit for capital investment. It is rather to live life and engage in industry to support life. Put simply, work to live not live to work might be one way to think about it. This said we then need to find ways to preserve or conserve resources for future generations rather than simply plunder the planet’s resources. In 1800 when there were just under one billion people on Earth that approach may not have been quite as bad as it now appears because the damage would not be on the same scale. Today with approaching 8 billion and soon to be 9 billion it isn’t going to work. We need better solutions to a much bigger set of problems.
The circular economy sets out to understand an interconnected world which is a complex dynamic system. Systems thinking helps us understand those interconnections. It might be argued that nothing is random. There is always cause and effect in a system but we do not always see the connections. They are not immediately visible. Once we have better tools to see those patterns – to make them visible we begin to understand the fractals, the patterns and we can begin to define the problem more clearly. Today we have been able to identify the problems more clearly and now it is time to set about solutions to resolve them by developing tools to achieve the circular economy.
Full Circle to Supply Chain Advantage
Supply chains are central to the ways in which consumers and businesses interact and trade globally. Supply chain processes from extraction, procurement, manufacture, transport, distribution and consumption cycles all require choices about how we organize them. These choices configure resource patterns, supply networks, processes and systems all of which have different cost structures and with different impact on the planet, people, profit as well as the long-term viability of all life and ultimately existence.
You can find out more about the circular economy, sustainability and supply chains by listening to the Chain Reaction Podcast – Special Edition on this topic.
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