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November 16, 2015

Disruption Innovation Festival Focuses on a 'Circular' Economy

Posted by Rajesh K. Murthy (View Profile | View All Posts) at 10:52 AM

Navigating the circular economy: A conversation with Dame Ellen MacArthur [Source: https://www.youtube.com/watch?v=fPNIHSima5c]

One of my favorite new conferences is accessible anywhere on earth where there's a wi-fi connection. It's open to everyone. And its aim is to view the global economy through a new lens and not what its curator calls the 'take, make, and dispose' economic model of old. Welcome to the three-week Disruption Innovation Festival, a global meeting of some of the biggest, brightest thinkers on earth who are dedicated to touting the merits of the 'circular economy'.

The circular economy is, according to its disciples, the ultimate disruptive force to the global markets. In the current economy, a vestige of a 19th century model in which a small number of people owned assets that were used to manufacture goods and services that would be bought, used, and discarded, consumers are awakening to the fact that access is the new ownership. Instead of disposing of assets when they've served their purpose, modern stakeholders are learning to regenerate them through the Internet of Things, Design Thinking, and radical advances in materials science.

In a nutshell, we're moving to a circular economic model from a linear one that has been with us not only from the 19th century but well before that. Indeed, the 21st century is on its way to being known as the period in which humans learned to share rather than hoard so that systems cascade and virtually everyone involved can get a piece of the action -- if they're so inclined. Now don't get me wrong: the circular economy is far from doing away with capitalism; rather, it emboldens it so that capital is always regenerated and built with resilience in mind.

A simple example is crowdfunding. Someone takes to the Internet and proposes a project that, if seemingly solid, will gain enough funding through the pennies and dollars of millions of people around the world instead of the traditional method where he shops around his idea to venture capital funds that would take an enormous stake in the project in order for it to get the capital it needs to move forward. Another very simply example is a car-sharing service like Uber. For the better part of a century, the great cities of the world had enormous fleets of empty taxis driving around, burning fuel, and looking for passengers. With the power of the IoT, passengers are matched with available cars nearby so that much less fuel and time and resources are wasted.

One of the biggest misconceptions involving the circular economy is that certain aspects of it, such as reliance on renewable energy and favoring the consumer over the manufacturer, go against the grain when it comes to maintaining free and unfettered markets that encourage entrepreneurship and innovation. The opposite is true. In a study that was jointly sponsored by the Ellen MacArthur Foundation, the Danish Business Authority, and the Danish Environmental Protection Agency, research demonstrates that long-term value creation requires a new economic model that is less dependent on cheap, easily accessible materials and energy, and is also able to restore and regenerate natural capital.

The study models an economy based on some of the circular metrics I've outlined above rather than the traditional, linear model of produce, consume, and destroy. The results were -- using the small Nordic country of Denmark as a test case -- such that a focus on resiliency created between 0.8 to 1.4 percent additional growth in the country's gross domestic product, created between 7,000 to 13,000 new jobs, reduced the nation's carbon footprint to 3 from 7 percent, and reduced virgin resource consumption for certain materials from between 5 to 50 percent. Now that's what I call resilient.

There's a reason for such resiliency. A necessity, in fact. Our generation won't face shortages of easily obtainable, cheap fossil fuels -- nor will the next generation. But one or two centuries from now, how easy will it be to extract oil and gas from deep below the earth? It's little wonder that the small, oil-rich Gulf emirate of Abu Dhabi has an entire campus dedicated to renewable energies. When oil-rich countries begin to advocate finding alternative ways to power our world, it's a sign that fossil fuels are a finite resource.

Indeed, the circular economy that's being scrutinized during the next few weeks around the world during the Disruption Innovation Festival aims to use its structure to weed out waste. It also focuses on the globe's addiction not only to fossil fuels but easy credit. As we all know, credit might come easily at first, but it never ends that way. What could be the ultimate disruption -- the model for a circular economy -- uses IT to obtain 'feedback-rich flows' that can, in time, make more people more prosperous and surrounded by abundance.

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