The NEXT Industrial Revolution

A guest post by Alastair Sloan, a social entrepreneur and journalist, and writer of the ‘serious and fun’ blog: Alastair Sloan.

At the beginning of this year, Ellen MacArthur set out a vision for a “circular economy” to the world leaders and CEOs assembled at Davos. Her foundation had teamed up with McKinsey to deliver a report challenged our current economic model of “take-make-dispose,” and proposed an alternative manufacturing mindset – “what happens to this when my customer finishes using it?” Her video, well worth a watch before you read further, shows how a “circular economy” takes inspiration from the energy cycles we see in nature.

Reducing waste is a topic I’m particularly passionate about. It’s why I founded The Living Furniture Project, which takes unwanted furniture from around London and upcycles it, employing homeless people to do the work. Last year in the UK, households threw out 670,000 tonnes of furniture. Research by Wrap showed that 45% was re-usable. This social enterprise is a good example of how re-use can not only reduce landfill reliance, but also create jobs by cycling materials back around the economy. It finds inspiration in other re-use schemes, like theLondon Re-use Network and re-use centres in Flanders, Belgium.

The Living Furniture Project will only scratch the surface. The UK landfills more than any other European country, and in 2018 we will completely run out of space for waste. We are so accustomed to dealing with these mountains of rubbish, that we easily forget that we are the only species that has to create landfill. Mother nature is far smarter than us, and as a consequence 100% efficient – every ounce of biomatter lives, dies, decomposes, is eaten and lives again. It’s a continuous cycle that sustainability visionaries William McDonough and Michael Braungart call “waste = food” (watch their film of the same name to understand this more).

The argument for moving to this “circular economy” is compelling – not just because of the obvious impact in areas like climate change, but because it makes commercial sense. Linear consumption (the status quo) is by its nature risky; it puts your business at the mercy of fluctuating commodity prices. And as resources dwindle, competition becomes even fiercer, and weaker companies will flounder.

Now imagine a product that is designed from re-usable materials, and in such a way that it can be easily disassembled. In that business model you can sell a product (for example, a running shoe), collect back all or part of the shoe (perhaps the sole, as Nike are currently exploring), restore it at a fraction of the price and sell it back to the same customer – you’ve made the same sale twice.

The McKinsey report estimated that this kind of innovation could create savings in Europe alone of $630bn. Taking mobile phones as an example, handsets which were easier to disassemble and re-use would be 50% cheaper than current models.

But if you must produce waste, don’t worry. Industrial by-product can be a commercial opportunity too, so long as you adopt circular design principles. A good example is Swiss textile factory Rohner, which before 1991 was creating huge amounts of harmful chemical waste. The chemicals used in the inks and wools meant that waste disposal was an expensive burden to the business. But working with McDonough and Braungart, they radically changed their manufacturing process to only use materials which hadn’t been chemically treated in any way. Once the change was made, the only waste the factory produced was 100% biodegradable. This meant the by-product of the manufacturing process could now be sold to local farmers as a fabric to protect their crops in winter (see picture below). Sales of this fabric represented a third of the $8m revenues generated by the factory over the following three years.

Harvard Business Review has looked at the relationship companies are seeing between waste reduction and profitability, and noted two effects. Companies are consistently more profitable when they reduce waste, and additionally are attracting a much higher calibre of managerial talent, who are particularly interested to address these kind of sustainability challenges. This high-quality talent has a huge knock-on effect across the business, with innovative thinking being applied in other areas and creating yet more profitability.

The argument for “the circular economy” continues if you look at the increasing sophistication of our information technology systems. A shift to globalised production has required digital solutions to managing complex supply chains that can stretch from Taipei to California, and back again.

These systems can be put to use immediately, in preparing the groundwork for a shift to cradle to cradle production. Companies can easily scrutinize every screw, plastic and thread in a product – and work out exactly where it’s from, what it’s made of and where it’s going to. This heightened visibility means that for a company to move to a circular model of production, they should have all the information at their fingertips to create a strong implementation plan.

There has also been a shift in consumer thinking, that strongly favours the case for change. In 2012, popular sentiment tipped in favour of sustainability, with over half of consumers now saying that sustainable production is “very important” or “important” to them (Euromonitor).

Indeed, the “green economy” in the UK grew 4.7% last year (in stark contrast to other sectors suffering in the downturn), and now constitutes 8% of our national GDP.

This kind of consumer support is critical, as the required changes to consumer mindsets are radical. One of the major changes is around expectations of ownership, with more focus on “leasing and returning” and less on permanent ownership of goods.

For example, your washing machine could be “issued” on a 5 year lease and then returned to the manufacturer for “refreshing” and re-sale. McKinsey forecast that high-end washing machines would become accessible for nearly all households if they were leased instead of sold—customers would save roughly a third per wash cycle, and the manufacturer would earn roughly a third more in profits.

This might set alarm bells ringing for many -  what happens if the company wants their product back when you would rather keep it?

But the reality is we already live, to some extent, with these kind of arrangements. The percentage of American cars leased rather than owned has grown from 7% in 1990 to 20% in 2010. At one point, in 1999, nearly one in four American cars were not owned by their driver.

In 2009, Amazon Kindle users discovered that ebooks they thought they owned, were in fact only leased. In a spat with a publisher, Amazon had decided to recall copies of Orwell’s “1984” and “Animal Farm” which disappeared overnight from Kindles all around the world.

It sparked consumer outrage, but Amazon pointed out the small print and showed that they were within their rights as ebooks were, in fact, leased not owned. Outrage aside, when we consider that this leasing arrangement had quietly existed for two years beforehand, before being questioned in an isolated incident, leasing rather than owning property doesn’t seem like such an outlandish idea. And even since the scandal, ebook sales have been soaring, now outstripping paperbacks by 14%.

The circular economy has been tested and intitally seen positive results. Over the past ten years, McDonough and Braungart have implemented their “cradle to cradle” concept with high-profile manufacturers including Nike, Ford and Nestle (see the video below).

However, working with the Chinese government to build a series of much-vaunted “eco-towns,” they failed to get convincing results. But this had more to do with the challenging Chinese business environment, especially for foreigners, rather than subverting the guiding principles of circular economics (for an excellent analysis by Christina Larson, see here).

It would constitute a total dismantling of the modern economic system. It’s been called “the next industrial revolution.” But the circular economy makes sound commercial sense. Companies have systems available now to start quietly exploring their options. Consumers are clearly asking for it. And building on the trials that “cradle to cradle” pioneers have now made, the possibility of a new era of industrial design, inspired by ecology, looks increasingly likely.

 

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Photo by USACEPublicAffairs, via Flickr

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