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Dhaka Tribune

Waste not, want not?

What is the point of a circular economy?

Update : 31 Dec 2023, 12:30 PM

The circular economy is one of those obviousnesses of modern political discussion. Yes, of course everything should be reused and worked over again -- this reduces the expenditure of resources, after all.

Like all ideas that just become obvious, too little thought goes into it all. The most important things ignored are, to me, the definition of a resource that is to be saved. Plus, importantly, at what scale must everything be reused? At some point, perhaps a very large scale one, everything really does get reused. The continental plates move about, one slides under the other, and absolutely everything gets reduced to the component atoms and is made into rock again.

Now, true, we might not want to wait hundreds of millions of years for this, but the Earth really is an entirely circular economy at that scale. At the other end of silliness is this idea that every household must reuse -- or even recycle -- everything that comes into it. Now, there are large economies of scale in the processing of materials. Therefore any recycling, or “circular economy-ing,” has to be done at the level and scale which makes economic sense in that context. 

This not only might, but really does, mean entirely different pathways for different products. 

There's no point in doing community recycling of car bodies, we want to dump them into a steel mill. Food scraps might well be best recycled at the compost heap at the bottom of the garden. And yes, this can mean that circularity is optimized by simply not trying to do anything yet. Used electronics, for example, probably are best dealt with by a hole in the ground. There to wait decades or even centuries until we decide we want to mine them for their metals. All of those can be, if we can be flexible over time, considered to be circular economies.

The other issue, the definition of a resource, is something that aggravates a certain kind of economist. For the current demand seems to be only that physical resources are things that must be preserved. It is cotton, water, wool, fuel, that we must be economical with our use of. This is not simply wrong, it is objectionable. For the very base observation of economics is that we live in a universe of scarce resources. All resources are scarce -- including human labour, capital, and so on. So, if we are to be economical with resources -- a good idea -- then we want to be economical with all of them. 

The reason we want to be that much economical should be obvious. The fewer resources of all kinds that we use to make some good or service then the more goods and services we can have from our limited supply of resources. Being economical makes us richer that is. Which is good, it's rather the point of having an economy.

But if we are only economical and sparing in our use of physical resources then we might find that we are being profligate in our expenditure of others -- labour and capital, let’s say. It's possible to imagine that the reuse of cotton waste -- just to pick something or other -- can be done but only by employing a lot of labour to do so. Our reuse of cotton might rise, but our total output falls given what else we cannot use that labour to do. 

The logic here is obvious. But how do we try to calculate our way through this? One method is simply to listen to the activists. That might not be optimal. Another would be to use prices: If something is more expensive then it is, by definition, using more resources. For that's what the expense is, the resources that went into the making.

Nearly all of the domestic waste recycling schemes in Europe lose money. The value of what is recycled is less than the cost of doing so, therefore subsidy must be granted. Or, another way to put this, we're using more total resources to reuse some number of physical resources -- total resource use is rising that is. That's not sensible -- increasing resource use to reduce resource use.

The correct answer is that we should have a circular economy, reduce physical resource use, only then it becomes profitable. When we end up using fewer total resources by doing so. 

But then that's not really very exciting, is it? Telling business “be profitable” is nothing very new.


Tim Worstall is a senior fellow at the Adam Smith Institute in London.

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