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Abstract:
In recent decades, increasing numbers of scholars and practitioners have rejected the conventional, “linear” view of economic activity (centered on “take, make, and dispose”) in favor of a “circular economy” perspective, which emphasizes the need for humans to live in harmony with Earth’s ecological system. As a consequence, various contemporary business models claim to draw inspiration from this new perspective. However, our critical examination reveals that many of these models say little about—and, on their own, may contribute little to achieving—ecological sustainability. We conclude by stressing the need for public policies that enable society to pursue what institutionalists call “higher efficiency.”
Notes
1 Contributors to the CE literature are not always as precise as many institutionalists when it comes to writing about resources. What the CE literature describes as resources is often the matter around us (such as raw materials) that institutionalists refer to as “neutral stuff,” which gets transformed into resources as capabilities emerge when humans interact with that “stuff” on the basis of our ever-changing knowledge (that is, science and technology) (Gordon Citation1980; De Gregori Citation1987). But even neutral stuff is limited in quantity and composition, and technological change cannot be assumed to always offer timely solutions—especially environmentally benign solutions—to shortages of particular materials.
2 Readers of this journal might be interested to know that the CE notion is often traced to an essay by Kenneth E. Boulding (Citation1966), who contributed occasionally to the Journal of Economic Issues and wrote a book outlining his own conception of evolutionary economics (Boulding Citation1981). For a recent discussion of the compatibility and complementarity of the CE perspective and institutional economics, see Whalen and Whalen (Citation2018).
3 The research methodology underlying our analysis is what many call original institutionalism. For us, it means comparative case research that probes for “strategic similarities” (see Atkinson and Oleson Citation1996, 710, rooted in the work of John R. Commons), draws inspiration from an interest in addressing real-world problems, and recognizes that “market systems are the result of collective action backed by the state” (Dugger Citation2005, 321).
4 The bulk of the literature that forms the basis of this article is described in Katherine Whalen (Citation2018); see also Katherine Whalen (Citation2019).
5 A main aim of this article is to identify and discuss common features and shortcomings of contemporary CE business models. In pursuing that end, it examines the three main types of contemporary CBMs. For a more extensive examination of these models, their forms, the CBM literature, and design strategies that can support development of such models, see Lüdeke-Freund, Gold, and Bocken (Citation2018) as well as the many other references below. In addition, see Short et al. (Citation2014), which offers an explicitly evolutionary approach to a (single enterprise) case study of business model innovation for sustainability.
6 From a consumer’s perspective, paying per use can have a number of advantages over owning a product (or, in the case of television shows, holding a long-term service subscription). For example, pay-per-use gives consumers access to products that are expensive to own or are not needed on a regular basis. To be sure, not owning a product can sometimes be inconvenient, but pay-per-use enables consumers to avoid concerns about maintenance, repair, storage, obsolescence, and disposal.
7 While pay-per-use is a strategy enabling firms to generate income, the aforementioned features of pay-per-use (such as a tendency to encourage maximum use of existing products) are often considered advantages (or positive features) of such models from a societal vantage point. Later, however, we will show that various features of this and other business models also have their downside.
8 Although the reader will soon observe some fluidity among these pay-per-use categories, the distinctions remain useful in surveying the terrain.
9 The CE literature suggests that the Philips and Desso initiatives were inspired in part by Stahel (Citation2006) and McDonough and Braungart (Citation2002), respectively. The former emphasizes the importance of selling services rather than products as part of moving toward a sustainable economy; with the same end in mind, the latter stresses manufacturing with reusable raw materials.
10 For a broader discussion of the leasing model in the CE context, see Merkies and Lowitt (Citation2012).
11 In the literature of CE and industrial ecology, the Kalundborg park is often used to illustrate the notion of “industrial symbiosis”; see, for example, Bocken et al. (Citation2016).
12 Cullen (Citation2017, 483–484) makes a similar observation about the CE perspective and its assumption that pursuit of CE business approaches will automatically benefit the environment. It would require a separate investigation (beyond the scope of the present analysis) to explore how CE evolved in a way that resulted in ecological considerations getting so little attention in CBM discussions, but it is noteworthy that such considerations have often taken a backseat to economic prosperity in the broader CE literature beyond work on business models (see, for example, Kirchherr, Reike, and Hekkert Citation2017).
13 Our friend’s driver could have been right about the number of ride-share vehicles in San Francisco; the region’s public officials offer varying estimates (Said Citation2017; Fernandez Citation2017).
14 Attention to energy efficiency rebound is not new. In the nineteenth century, it was examined by economist William Stanley Jevons and has long been known as the “Jevons Paradox” (DeNeufville Citation2011) For examinations of the ongoing relevance of this paradox, see Polimeni et al. (Citation2009) and Herring and Sorrell (Citation2009).
15 Reusable rockets are among the examples discussed by Zink and Geyer (Citation2017, 597): “Recoverable rocketry, such as that being pioneered by SpaceX and Virgin Galactic, has lower per-launch and per-rocket material and energy requirements [than conventional rocketry], but also makes rocketry cheaper and, therefore, may increase the number of launches.” So far, the global effects of launch emissions have not generated much concern, but that is likely to change with larger rockets and more frequent launches (Ross and Vedda Citation2018).
16 As with energy use, incentives created by cost and profit considerations also do not always lead firms to reduce materials use. According to Julian Allwood (Citation2014, 457), engineers design commercial buildings in London with, on average, twice the amount of material needed to meet safety standards. They do so, he explains, as a way to cut costs: “The cost of a day of engineering design time is roughly equivalent to the cost of a ton of structural steel, so it is not economically sensible to design the building to meet the code, when less time can be used to create a design that definitely exceeds it.”
17 Cullen (Citation2017, 483–484) suggests that the environmental tradeoff associated with recycling (involving resource gains and energy losses) would be eased if we used only renewable energy, but he sees that as unrealistic for the foreseeable future. Moreover, replacing nonrenewable inputs with renewable inputs does not always benefit the environment. For example, according to F. Gregory Hayden (Citation2019), replacing gasoline with ethanol requires heavy use of water (a resource that can often be in short supply) and can result in a net increase in greenhouse gas emissions when the whole production process is considered.
18 Another reason demand for new materials cannot possibly be met by recycled materials anytime soon is that, with today’s technologies, “some wastes cannot be broken down and some liquids cannot be purified” (Allwood Citation2014, 446).
19 To be sure, the CE literature emphasizes the need for redesign; the problem is that this can be difficult and may be overlooked by firms pursuing CBMs (Hollander, Bakker, and Hultink Citation2017; Bokken et al. 2016).
20 For similar views on the importance of public action, see Allwood (Citation2014) and Moreau et al. (Citation2017).
21 For more on the place of higher efficiency in institutionalist conceptions of policymaking, see Waller and Rezende (Citation2013) and C. Whalen (Citation2017); the latter includes suggestions for operationalizing Klein’s concept.
22 For some specific policy suggestions worthy of further study, see Allwood (Citation2014); Blériot (Citation2015); Lacy and Rutqvist (Citation2015, 184–187); Stahel (Citation2017, 91–92); and McDowall et al. (Citation2017).
23 When discussing complementary indictors relevant to the company level, the Ellen MacArthur Foundation (Citation2015c, 6) suggests either building up from product-level indicators or making use of other indicators such as those generated by Global Reporting Initiative (GRI) guidelines. GRI is an international nonprofit that assists organizations seeking to report on how their practices affect economic and environmental sustainability; see Global Reporting Initiative (Citation2015) for a discussion of important trends in sustainability reporting.
24 Saidani et al. (Citation2019) suggest, for example, that indicators can be used to compare business approaches, evaluate decisions, monitor or improve performance, share knowledge, communicate best practices, and encourage innovation.
25 Of course, we are not suggesting that all environmentally oriented policies have been without unintended adverse consequences. Such consequences are a possibility that exists whenever humans act.
Additional information
Notes on contributors
Charles J. Whalen
Charles Whalen is a research fellow at the Baldy Center for Law and Social Policy, SUNY Buffalo School of Law.
Katherine A. Whalen
Katherine Whalen is a researcher at RISE Research Institutes of Sweden AB, and founder and host of the Getting In The Loop sustainability podcast; when this article was written, she was completing doctoral work at the International Institute for Industrial Environmental Economics, Lund University (Sweden). The authors thank Linda Whalen, Daphne Greenwood, and two anonymous referees for comments and suggestions. This research was supported by the MISTRA REES (Resource Efficient and Effective Solutions) Programme, funded by MISTRA (The Swedish Foundation for Strategic Environmental Research).