The Circular Economy Model
And cleanliness is next to godliness.
Mottoes aside, I recently attended a seminar hosted by Silliman University under the auspices of the Philippine Institute for Development Studies. The seminar was on something called the ‘circular’ economy.
At first, I thought it was about macroeconomics. This is because there is a circularity in the flow of national product and its counterpart in income and expenditure. What is produced results in national income spent on consumption, investment, public goods, and net exports.
I learned that the circular economy is something else. Its importance revolves around its worthwhile goal: zero-waste from economic activity.
At the seminar, two production and consumption process models were contrasted. One model, called Linear Economy, views commercial activities as a straight progression that any product can follow. It starts with extraction, continues into production and consumption, and there is waste at the end.
The other model views the process as circular. The Circular Economy differs from the linear one because waste doesn’t end where it is; it is ‘recycled’ back to where extraction occurred.
It looks ideal and appealing. It gets explained with all the buzzwords — sustainability, renewables, balanced ecology, degrowth, etc. Only buko pie is missing.
But is it worth the candle of studies, plans, national programs, conferences, etc.? If so, how should we approach the idea of waste as both a ‘bad’ output and a productive ‘input’? Is the current economic system a linear economy?
Interestingly, the issue is not whether there is waste; it is whether there’s too much of it in the wrong places. There is no dispute that waste is unavoidable, sometimes even desirable.
For example, when dealing with a spoiled child, we find patience is ‘wasted’ time but worth it. Though not a child, the Philippines has become a leading source of plastic waste in the oceans. What can we do about it?
Three studies gave evidence of how we perceive the circular economy. The first study looked at small businesses run by women. It highlighted the lack of awareness on the part of business owners of the concepts behind the circular economy.
The second study examined the interaction between tourism ‘vendors’ and the tourists who visited the Philippines. Of course, it focused on reducing waste, such as when tourists leave their room air conditioning on too long, adding to the undesired carbon footprint of the local economy.
The last study looked at our small convenience (sari- sari) stores; it noted that customers of these stores are part of the so-called sachet economy, where products are sold in small amounts (primarily because buying in bulk is beyond the means of the average customer).
Sachets are typically made of plastic, and form a large part of the waste generated in the Philippines. Government regulations on ‘single-use’ plastic have not been very effective in reducing the usage of sachets. (I would venture to guess this is more of an issue of relative poverty. As consumers increase their incomes, they will see that buying in quantity is, in fact, cheaper.)
The authors of these studies were Dr. Eylla Laire Gutierrez and Dr. Enrique Oracion, and Mr. Jovito Katigbak. We commend them for their efforts to promote the idea of zero-waste.
However, I was not convinced. It is idealistic when we celebrate the efforts of reformers to limit climate change, protect the environment, and ‘degrowth’ the economic policies of countries.
We should also be pragmatic, and see that large corporations are complicit in the excessive waste problem. (As a member of the Silliman faculty, my views here are mine alone, and not of the University.)
The Circular Economy is not a novel concept, if viewed through the lens of conventional or mainstream economics.
The status quo already has elements of the Circular Economy in place because we induce households to sort their trash, thereby, enabling the flow of recyclables back into the production process. In other words, the linear economy is a theoretical ‘straw man.’ And we don’t like plastic straws.
The underlying problem is that the total cost of waste disposal (very high for plastic waste but low for organic trash) is not faced by households or businesses that sell goods with a high waste component (in their packaging, their disposal when they become obsolete, etc.).
Instead, waste disposal costs fall on a collective, such as a local government service in charge of trash collection and disposal.
Waste management is a public good paid for by fees or taxes. Economists call this situation one of ‘externality.’ Public goods with externalities are those for which the market mechanism fails.
This failure arises because those enjoying the public good have no incentive to reveal their willingness to pay for such goods.
I teach my students that this is a classic ‘free rider’ problem where those who consume are not accountable for what they consume.
Still, we can do something about public goods. Governments have arrived at solutions on how much, and what kind of public goods to produce or procure. These problems exist whether the economy is linear or circular.
One solution — possibly not far-fetched — is to introduce property rights into the household/firm/government decision-making process.
For example, the local community has a collective right to minimize the use of landfills, and limit plastic waste entry into the waterways.
These rights can be bundled and ‘sold.’ Those with ‘too much’ waste would pay more than those who generated little or no waste.
Firms contributing to waste must pay for the right to use plastic packaging. Households who do not recycle or sort their trash likewise have to pay for the recycling services handled by garbage collectors.
One of my students points out that the city of Bayawan already has a system of ‘tickets’ that promotes recycling, making the City one of the cleanest in the country.
Another student tells me that Germany has a ‘deposit’ scheme for bottles that ensures recycling; we in the Philippines have a similar system that originated when soft drink companies owned the bottles containing their products.
In practice, we have primarily regulatory devices instead of a market for waste rights. We limit the use of plastics.
But what happens when large corporations can ‘greenwash’ their products by claiming they have done their ‘fair’ share in the recycling efforts? Are such corporations effectively exempt from regulation? What happens when households refuse to sort their trash?
I submit that there are no easy answers. Education is not free. There is a cost to including the concept of circular economies in the curricula of schools and universities. If we impose rules and regulations, there is a cost to law enforcement, and even the possibility of ‘regulatory capture’ where those affected can lobby for ‘easy’ regulations.
The ideal solution is to price public waste disposal services at their ‘true’ opportunity cost. Because the service involves an externality, this actual cost is not easily discovered.
The best minds of our teachers and students should look into this, and develop practical solutions. We should study Bayawan. We should study Ronald Coase’s famous piece on The Problem of Social Cost.
Condemning a non-existent linear economy does more intellectual harm than good, and may very well just waste time and resources.
It seems ironic — it is ironic — that those advocating zero- waste create non-zero waste. (Is wasted time a waste?)
Bayawan has shown that it already has a circular economy, even without hearing it as a buzzword. Its residents have done well just the same.
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Author’s email: [email protected]; Twitter: @ORoncesvalles
