Exploring the Future of Sustainability through Circular Economy

The Performance Economy

Estimated read time: 1:20

Summary

The Disruptive Innovation Festival dives into the challenges posed by our current industrial economy, which relies heavily on finite resources and results in significant waste. Highlighting the limitations of this linear economy, the festival introduces the concept of a circular economy—a model inspired by nature's waste-free cycles. Through various examples, including car manufacturing and service-oriented business models, the festival suggests how companies, governments, and individuals can benefit from embracing circular practices. The shift towards circularity, driven by human ingenuity and social innovation, promises improved resource utilization, reduced waste, and sustainable economic growth, fostering resilience in societies and corporations.

Highlights

The linear industrial economy overuses finite resources, leading to extensive waste dumps. 🏭
Nature operates in cycles, offering a model for a waste-free circular economy. 🌎
Car manufacturers can thrive in a circular economy by doubling product life and focusing on services.
The performance economy involves selling the utility of goods rather than the goods themselves, opening new revenue streams. 💡
Taxing non-renewable resources instead of labor can accelerate the adoption of circular economies.
Incorporating circular economy principles into education can prepare future leaders for sustainability challenges.

Key Takeaways

The current industrial economy is unsustainable due to its linear nature and wasteful practices.
Circularity, inspired by nature's cycles, offers a sustainable alternative by reducing waste and optimizing resources. 🌿
Businesses can benefit from a circular economy by shifting to service-based models, such as leasing or renting.
Embracing a circular economy requires innovation and changes in business models, like car manufacturers retaining ownership of vehicles. 🚗
Governments and individuals also play crucial roles in fostering a circular economy through policies and consumer choices.
A circular economy not only provides environmental benefits but also enhances social and economic resilience.

Overview

In a world where most industries operate linearly—producing goods, using them, and disposing of them—a shift to a circular economy is increasingly crucial. The Disruptive Innovation Festival addresses this urgent need, advocating for a model that mimics natural systems. Nature works differently, using cycles that naturally eliminate waste and optimize resources. The festival suggests that if businesses adapt these principles, they can significantly reduce their environmental impact while maintaining economic growth.

A circular economy could revolutionize industries like automobile manufacturing, where extending the lifespan of cars and focusing on service rather than ownership could become the new norm. Instead of maximizing production, companies could focus on maximizing utility and sustainability—repairing, reusing, and recycling materials. This could open up innovative service-based revenue streams and provide a win-win for both businesses and the environment.

The transition towards a circular economy requires an evolution in mindset and policy. Governments could incentivize this shift by adjusting tax codes to favor sustainable practices over resource consumption. Education systems can equip future generations with the knowledge needed to implement circular principles effectively. Ultimately, the circular economy promises a resilient, sustainable future, allowing society to thrive without depleting its resources. 📘

Chapters

00:00 - 00:30: Introduction to the Performance Economy The chapter 'Introduction to the Performance Economy' discusses how we are surrounded by a multitude of objects like clothing and electronics that are used for a limited time before being disposed of. It highlights the issue of resource extraction from Earth which is used to create these short-lived products, emphasizing the cycle of use and waste.
00:30 - 01:30: Finite Resources and Waste Dumps This chapter discusses the finite nature of Earth's resources, highlighting that except for variables like rainfall, sunlight, biomass, animals, and people, most resources are non-renewable. It also emphasizes how global common areas have been turned into waste dumps, particularly focusing on how, within 60 years, the oceans have been contaminated with millions of low-tech plastic objects.
01:30 - 02:00: Circularity and Nature's Cycles The chapter titled "Circularity and Nature's Cycles" discusses the incompatibility of the current industrial economy with Earth's natural resources and waste management capabilities. It highlights the unsustainable nature of continuing with current practices and emphasizes the need for creating higher standards of living through smarter and more efficient use of resources.
02:00 - 03:00: Impact of the Industrial Revolution This chapter discusses the principles of circularity, inspired by the natural cycles such as water cycle, biomass, and seasonal changes, as a way to maximize resources and minimize waste during the Industrial Revolution. The emphasis is on achieving more with less, aligning industrial practices with ecological systems.
03:00 - 04:30: Abundance and Waste in Industrial Economies The chapter discusses the contrasting cycles of nature and the industrial society's approach to resources. It highlights how nature operates in waste-free cycles, contrasting with industrial economies which often result in abundance and waste, affecting natural resources such as water and land. It discusses sea-level rise and erosion which reduce land surfaces and lead to increased frequency of natural disasters like droughts and wildfires due to climate change and deforestation. For thousands of years, humans lived in harmony with nature, operating in closed loops of resource use characterized by the motto: 'Use it up, wear it out, make it do, and do without.'
04:30 - 06:30: Transition to a Circular Industrial Economy The chapter titled 'Transition to a Circular Industrial Economy' discusses the historical context and impact of the Industrial Revolution on society. It highlights the shift from a circular economy characterized by poverty and scarcity to one fueled by industrial advancements. The narrative illustrates how human ingenuity utilized coal and iron to develop steam engines, leading to significant changes such as replacing horses for labor, increasing food and shelter availability, and enhancing mobility on land and water. This marked a fundamental transition, uncoupling people from nature and altering traditional economies.
06:30 - 10:00: Car Industry Example: Doubling Product Life The chapter discusses the evolution of the car industry, highlighting the significant advancements over the past century. It begins by acknowledging the role of electricity in transforming city life and the importance of oil as a complementary energy source to coal. The narrative continues by describing how chemistry, engineering, and finance have collectively facilitated mass production, ultimately leading to the establishment of societies characterized by abundance in industrialized nations.
10:00 - 12:00: Selling Utilization of Cars The chapter "Selling Utilization of Cars" highlights the achievements of industrial development over the past 70 years, including a significant increase in global population, health improvements, elevated quality of life, and enhanced democratic conditions. However, these advancements have also resulted in oversupply and market saturation, leading to widespread waste and loss of control over waste management.
12:00 - 15:00: The Performance Economy Concept The chapter discusses the linear nature of the industrial economy, likening it to a river that must keep flowing to avoid disaster. This flow is maintained by the constant production and sale of goods, which sustain income and GDP growth for nations.
15:00 - 19:00: Benefits for Government and Private Sector The chapter "Benefits for Government and Private Sector" discusses the differences in economic growth between the industrial and circular economies. In an industrial economy, growth focuses on throughput and production, characterized by a linear approach with inherent loss and liability control. In contrast, the circular economy emphasizes the increase in both quantity and quality of stocks, promoting a regenerative, sustainable model.
19:00 - 24:00: Importance of Labor over Energy This chapter discusses the transfer of liability from manufacturers to consumers at the point of sale. The responsibility for the use and disposal of products becomes a societal burden, often covered by taxpayers. The chapter also introduces the concept of a circular industrial economy, where circularity is applied to manufactured goods.
24:00 - 30:00: Encouraging Value Preservation and Circularity Education The chapter emphasizes the concept of a circular economy characterized by abundance rather than scarcity. It is propelled by human creativity and societal innovation, illustrated by concepts like repair cafés and community assistance. The focus is on understanding how circular industrial economies function, using the example of car manufacturers potentially doubling the lifespan or utility of cars.
30:00 - 31:00: Environmental and Social Benefits The chapter titled 'Environmental and Social Benefits' discusses the potential positive impact of extending the product life of cars. By doing so, the number of cars that need to be produced in a saturated market could be halved, thereby reducing resource consumption and the amount of waste generated from scrapped cars by half as well. However, this change would also result in halving the revenue of car manufacturers.
31:00 - 31:40: Conclusion: Resources of Tomorrow The chapter 'Conclusion: Resources of Tomorrow' discusses the evolving strategies of car manufacturers to optimize their revenue streams. Traditionally focused on manufacturing, companies are now exploring two key phases: the use phase and the end-of-life phase. In the use phase, the emphasis is on generating income through operation and maintenance services. Meanwhile, the end-of-life phase offers opportunities by reclaiming parts and components, thus enhancing value extraction from vehicles at every stage of their lifecycle. This dual-phase approach reflects the industry's shift towards more sustainable and economically diverse practices.

The Performance Economy Transcription

00:00 - 00:30 ♪ (solemn music) ♪ Whether clothing, furniture, electronics, vehicles, or buildings, we surround ourselves with objects that we use only for a limited time. The resources which are extracted from planet Earth to make these objects are used once or twice and then dumped.
00:30 - 01:00 Yet, the resources on our planet are non-renewable and finite, except for rainfalls, sunlight, biomass, animals, and people. And our global commons have become waste dumps. Within 60 years, we have filled the oceans with millions of low-tech plastic objects
01:00 - 01:30 and space with thousands of high-tech objects. So, the present industrial economy is not compatible with the natural resources and waste dumps available on planet Earth. More of the same is no business model for success. We need to create higher standards of living from a more intelligent resource use.
01:30 - 02:00 More from less. ♪ (flourishing end to music) ♪ I have an idea how to do it. Circularity. ♪ (dramatic music) ♪ It's great, you'll love it. ♪ (pleasant music) ♪ Circularity. That is how nature works. Water, biomass, CO2, seasons.
02:00 - 02:30 Nature works in cycles, waste free. Water and land are special cases. Sea-level rise and erosion permanently reduce the land surface. And deforestation with diminished rainfall-- as a result, drought, wildfires may become more frequent and vicious. (crackling fire) For thousands of years, mankind was part of nature, functioning in loops. "Use it up, wear it out, make it do and do without" was the motto.
02:30 - 03:00 But this was a circular economy of poverty and scarcity. ♪ (upbeat string music) ♪ Two hundred years ago, the Industrial Revolution uncoupled people from nature. Human ingenuity turned coal and iron into steam engines to replace horses, enabling men to produce enough food and shelter for all and provide faster mobility on land and water.
03:00 - 03:30 (steam whistle) A hundred years ago, human ingenuity developed electricity, opening up the vertical dimension in cities and turning night into day. And oil complimented coal as an abundant energy supply. ♪ (upbeat string music) ♪ Then chemistry, engineering, and finance opened the floodgates of mass production and turned industrialized countries into societies of abundance,
03:30 - 04:00 allowing the world population to triple, billions of people to increase their health and quality of life, and democracy to flourish within the last 70 years. This is industrial man's success story. (firework explosions) But the abundance also led to oversupplying, saturated markets, and omnipresent waste. We lost control of our waste dumps
04:00 - 04:30 because the industrial economy is linear. The industrial economy is like a river-- you cannot stop it or you'll cause a flood. So, the goods that are produced have to be sold and the goods have to be produced to maintain the income and GDP wealth for the nations.
04:30 - 05:00 Growth in the industrial economy means throughput. It means producing more, whereas in the circular economy growth can be measured as an increase in quantity and quality of stocks. In other words, the industrial economy is about flows and throughput in a one-way street that ends in a cul-de-sac. It is also about loss liability control.
05:00 - 05:30 At the point of sale, liability for the use of objects and their end-of-life waste passes from manufacturers to buyers, consumers, to you and me, to society at large. Nobody's liability. The cost will be borne by the taxpayer. Now, the circular industrial economy is applying circularity to the stocks of manufactured objects,
05:30 - 06:00 cultural and human capital. But this is a circular economy of abundance, not of scarcity. And it is driven by human ingenuity and social innovation such as repair cafés and neighborhood help, not by sheer necessity. ♪ (uplifting music) ♪ To understand how circular industrial economy works, let us have a look at cars. Imagine that car manufacturers find a way to double
06:00 - 06:30 the product life of cars. That would reduce by half the number of cars that need to be produced in the saturated market. It would reduce, therefore, resource consumption by half, it would reduce the waste of cars scrapped by half. But it would also reduce the revenue of manufacturers by half. You know, I'd like to try that.
06:30 - 07:00 Car manufacturers now have two options. They can increase their revenue in the use phase, and they can increase their revenue in the end-of-life phase. In the use phase, it means investing in operation and maintenance, whereas before they wholly invested in manufacturing plants. And in the end-of-life phase, it means getting parts components back
07:00 - 07:30 for remanufacturing and reuse in new cars. So closing the loop. But as they are not the owners of the cars, there may be other people who take other options. So, therefore, the car manufacturer if he really wants to exploit the full product life of cars, he has to change his business model from selling cars to selling the utilization of cars.
07:30 - 08:00 That means he has to retain the ownership of the cars and also internalize the liability for risks and waste. And his interest is now to produce cars that use little maintenance, that are easy to operate, and can be dismantled and components reused easily at the end of a life. It also means that the technology choice is open
08:00 - 08:30 because electric cars, for example, have a much longer life and need no maintenance. Electric engines last for 100 years; combustion engines, 30 years. So it opens completely new opportunities to make bigger profits with less effort. But it means assuming a much higher responsibility for cars as a system, and assuming all the liability for free operating a car fleet.
08:30 - 09:00 ♪ (upbeat electronic music) ♪ Now let us look at the customers, customers that want mobility instead of vehicles. Let us call it self-drive taxis. Customers become users with the duty of stewardship and they profit from flexible access to vehicles and a fixed price per use unit. We have recently seen a proliferation of such on-demand services
09:00 - 09:30 for cars and bicycles, facilitated by smartphones and the Internet of Things. Thanks to big data, the rent for such services drops towards zero, and completely autonomous vehicles may be just around the corner. I call this a "Performance Economy." By selling goods as a service, business says, "Sell the performance,
09:30 - 10:00 retain the ownership of goods and their embodied resources over the full lifetime of that product, and increase profits from the use and the end-of-life phases." ♪ (electronic music) ♪ That implies internalizing all costs of liability, of risks and waste which provides strong financial incentives to prevent losses and waste.
10:00 - 10:30 In exchange, companies gain a future, resource security and price guarantee for future resources, and safe compliance and transaction costs over competing manufacturers, building virtuous circles. ♪ (electronic music) ♪ Selling performance is not something revolutionary. Inns and hotels, taxis, railways, airlines, shipping lines,
10:30 - 11:00 public toilets, public concert halls, have sold utilization for a long time at a fixed price. Performance economy makes sense for governments, companies, and individuals. For governments, because they buy goods as a service which is a smart way of public procurement policy.
11:00 - 11:30 Buying services instead of hardware has become the preferred procurement option for instance, of NASA, the US Armed Forces, Pentagon, and has sparked a number of innovative start-up companies, notably, SpaceX and its reusable Falcon 9 rocket. ♪ (electronic music) ♪ Similarly, private finance initiatives enable nation states
11:30 - 12:00 to build infrastructure without increasing public debt. The Eurotunnel under the channel and numerous whole bridges, tunnels, and roads worldwide are telling examples. Liability remains entirely with the PFI owner. ♪ (relaxing electronic music) ♪ Manufacturers sell performance instead of goods because it enables them to broaden the profit bases
12:00 - 12:30 because they can now exploit system solutions. Examples are textile leasing of hotel linen, hospital textiles, but also chemical leasing services, rent-a-molecule, agricultural services, engineering management systems. These examples are just the tip of the iceberg
12:30 - 13:00 of selling performance and utilization optimization. ♪ (guitar and clapping music) ♪ For individuals, purchasing objects, such as IT, cars, and bicycles, even textiles and furniture which rapidly decrease in value, does not make economic sense. Renting them is a stress-free option. However, buying objects that do increase in value make sense,
13:00 - 13:30 such as houses and apartments. How do we get them naturally? Governments normally have a preference for stability. Framework conditions, therefore, tend to favor the status quo, which is the linear throughput economy. Witness the annual trillion-dollar subsidies for fossil fuel extraction and consumption to ease global supply chains.
13:30 - 14:00 ♪ (slow electronic music) ♪ One single shift would make a big difference in favor of the circular economy, which is labor intensive, but uses little resources. Do not tax renewable resources and human labor; human work is a renewable resource. Tax things, instead, that you don't want,
14:00 - 14:30 such as the consumption of non-renewable resources or waste or emissions. This will bring about the rapid expansion, not only of the circular economy for manufactured capital, but equally for all other activities based on stock optimization. Caring services, such as health and education, will benefit from this shift, as much as services to look after our natural and cultural heritage.
14:30 - 15:00 A second reason to favor labor of energy is that labor is the most versatile and deductible of all the resources, with a strong but perishable qualitative edge. It is the only resource capable of creativity and with the capacity to produce innovative solutions.
15:00 - 15:30 But human skills deteriorate rapidly if unused. A person who has been unemployed for a few years risks becoming unemployable, and that comes with a cost to the state. ♪ (ominous music) ♪ A circular economy has a greater need for labor than the linear industrial economy for structural reasons.
15:30 - 16:00 Roughly three quarters of all industrial energy consumption is associated with the extraction or production of basic materials, like steel and cement; while only about one quarter is used in the transformation of raw materials into finished goods, such as machines or buildings. The converse is true of labor. About three times as much is used in the conversion of materials to finished products as is required in the production of material.
16:00 - 16:30 ♪ (string music) ♪ The circular economy reduces the centralized, highly mechanized extraction and production of raw materials and multiplies the local service activities for objects in use, such as repair, remanufacturing, dismantling, cleaning, quality control-- which are labor and skill intensive and which have to be done where the clients are.
16:30 - 17:00 Other intelligent moves are to stop charging VAT-- value added tax-- on value preservation activities, such as reuse, repair and remanufacturing, and to give carbon credits for the prevention of in-house gas emissions, not only for their reduction. Finally, to make this happen, we need to spread the knowledge of the circular economy,
17:00 - 17:30 from fleet managers and SMEs today to schools and universities. Every student leaving these institutions needs to know about the circular economy and the performance economy, so when they start businesses, they can put this strategy immediately and profitably into practice. ♪ (upbeat string music) ♪ Circularity is one way to create resilient societies and corporations,
17:30 - 18:00 and it is based on people, human capital, and people's motivation, caring to achieve this aim. A circular industrial economy is driven by human ingenuity and determination to optimize existing strokes and preserve existing value. It is directed by economics.
18:00 - 18:30 The environmental and social benefits are consequences of a circular economy. By selling goods as services, selling performance, economic actors retain their ownership of goods and their embodied resources. They maintain value and have to internalize liability. In exchange, companies gain resource security and increase corporate and national resource security.
18:30 - 19:00 Or, to put it differently, the goods of today are the resources of tomorrow at yesterday's resource price. ♪ (ending music) ♪