The World Economy is currently at a standstill as the craving for growth is now being made to appreciate the need for sustainability. “Take-make-dispose” led the traditional economic systems to the unsustainable way, that is the use of resources, environmental degradation, and waste production.
The World Economy is currently at a standstill as the craving for growth is now being made to appreciate the need for sustainability. “Take-make-dispose” led the traditional economic systems to the unsustainable way, that is the use of resources, environmental degradation, and waste production. Consequently, the concept of the circular economy (CE) was born as a strategy of decoupling economic growth from environmental depletion and damage. The circular economy which drives the use of materials through the principles of reuse, recycling, resource recovery, and eco-design is an avenue to ensure that resources and products are always in play for a more extended period of time.
Switching to a circular economy is not just about the environment; it is as well an avenue to make money. It is well known that by being more resourceful, innovative, and creating new business models the circular economy is a way of attaining growth while at the same time it will be less harmful to the environment. Nevertheless, transformation from a linear to a circular approach has a number of issues for example short-term disruptions in the industries and a huge investment required in infrastructure and technology. The influence of a circular economy on the Gross Domestic Product (GDP) may be a complex matter and it has different effects on different sectors. The following are among the most common ways the economy can boost GDP.
One of the major goals of the economy is to improve the resource efficiency leading to the productivity and cost reduction for the businesses alike. Through minimized material use and prolonged product lifecycles, companies can cut production costs significantly. Savings from these activities can be reinvested in other high-yield industries giving extra potential for GDP growth. Studies show that the switch to resource efficient methods can create benefits and even increase the world's GDP by trillions of dollars estimated by 2030 (EMF 2015).
The circular economy can also be considered as the main actor that generates jobs, be it in the recycling sector, remanufacturing, or repair services. The Ellen MacArthur Foundation states that the transition from the old school economy to the green economy can create millions of jobs in different sectors in society. For example, jobs like logistics, material recovery and rapid recycling would experience growth due to this because which would lead to the rise in employment and consequently a growth in consumer spending which drives GDP growth. Furthermore, such novel business forms as leasing and sharing platforms can appear a new perspective of economic activities, which help the companies to gain revenues and increase their GDPs (University of URBAN).
The circular economy (CE) plays a role in progress in designing products, material usage, and waste recovery. This could result in innovations and economic development. As companies strive to improve the sustainability of their products, they also enhance their advantage in the international market which makes them an important player in exports and GDP growth. Besides, CE also enables investments in infrastructure, renewable energy, waste management, etc, all of which could further boost economic activity. For the countries that are extensively involved in importing materials, CE can considerably shift away from relying on overseas goods by means of local material reuse and recycling. This has the effect of improving trade balances which would possibly lead to GDP even of resource-limited countries. While the future monetary gain of CE on GDP approbation is assured, the adjustment might malfunction in the market. Importantly, resource-based industries, such as mining and manufacturing, which are driven largely by non-renewable resources, might experience a lower demand as the economy moves towards the circular model of production and consumption. This will then lead to a decline in those sectors. A shift to the new model can also require investments in technologies and infrastructure that might be temporarily stopped by GDP growth.
In a circular economy, the environment becomes a source of savings, which in turn can lead to economic advantages for the long term. The lowering of costs due to environmental problems like pollution, illnesses and resources' exhaustion can contribute to economic stability. Indeed, by preventing the economic damages caused by climate change and resource shortages the circular economy can sustain the growth of GDP.
The circular economy is a source of a lot of money; for example, the world GDP could increase by several trillions of dollars by 2030 due to increased resource efficiency. In addition, shifting to circular models could be beneficial in generating jobs in recycling, remanufacturing, and product service systems which will in turn raise economic output. Yet, this shift may also provoke disruptions in the industrial sector and the slowdown of the GDP at its initial stages. Thus, the practices of cost-cutting, as well as the development of sustainability, could all insulate the economy from risks.
The circular economy practices can boost GDP through efficient resource use, new jobs, innovation, and long-lasting environmental sustainability. Nevertheless, moving to this new model may result in some problems that will be temporary, and the GDP growth will be directly associated with the industries’, authorities’, and consumers’ willingness to adopt this economic paradigm.
Reference
Ellen MacArthur Foundation (EMF). (2015). Towards the Circular Economy: Economic and business rationale for an accelerated transition . Ellen MacArthur Foundation.
Organisation for Economic Co-operation and Development (OECD). (2019). Towards a more circular economy: Promoting resource efficiency and sustainable growth . OECD Publishing. https://doi.org/10.1787/5jrs2f1m8d8p-en
Stahel, W. R. (2016). The circular economy: A new narrative for Europe . In The circular economy: A new business model for Europe (pp. 1-10). Routledge.
