by Felix Preston

Two great shifts in the way we make things occurred in the 20th century. After the First World War, Ford and General Motors introduced the age of mass production and, in the middle of the century, Japanese companies such as Toyota pioneered the flexible, just-in-time approaches that underpin manufacturing today.

Now, with high and volatile commodity prices, forward-looking companies sense that the economics of production may be about to alter again. But is it possible to go that one step further, and develop business models that deliver more value while using fewer materials?

Thirty years ago, Walter Stahel set out the case for a "closed loop" or "circular" economy. To keep resource use within sustainable levels, he argued, products would need to be more durable and, where possible, repaired rather than replaced.

The result would be a large volume of resources cycling within the economy. Many jobs would be created to help collect and re-work worn-out goods.

Circular economy thinking has been around for years. A century ago the wooden crates used to ship factory parts were turned into the floors of Ford's Model T motor car - an early example of "upcycling," the process of adding value to an existing product before resale.

Dieter Rams, perhaps the most influential designer of the last century, applied similar principles to his work at Braun and Vitsoe. Rams' universal shelving system, a design classic that hit shops in 1960, is modular, adaptable, repairable and built to last a lifetime.

Yet a trip to any high street store is a reminder that today, the vast majority of products on the market are produced so that they can be priced as cheaply as possible. Quality is sacrificed, product life is short and limited attention is given to where discarded products end up. Regulations in some countries force companies to take back old electronic equipment, but this is rarely seen as a way of making money. Until now, planned obsolescence has proved a much more profitable model than sustainable design.

The reality in today's economy is that natural resources are mined and extracted, turned into products and then discarded. Each year the European Union produces half a tonne of waste per person. Germany, the leader in recycling, still sends half of its waste to be incinerated or to landfill. In other countries a much larger share goes to the dump.

So what explains the growing interest in the circular economy in corporate boardrooms? Many will have noted that the concept has been given a substantial boost in China's 12th Five-Year Plan. In developed countries, too, resource efficiency has shifted from an environmental issue to one that is seen as critical to long-term competitiveness.

This has put the spotlight on new business opportunities - analysis by McKinsey suggests that manufacturing companies in the European Union could save $630 billion a year by 2025 by adopting circular economy approaches. It also raises the spectre of tougher regulations. Many of these factors, however, would have also applied in the 1970s, another period of high and volatile resource prices.

Technology is the game changer. For the first time, it is now possible to accurately track the use of resources right along the supply chain. As pioneering companies are demonstrating, these costs can be incorporated into the heart of business systems - and added to profit and loss statements. Better information on resource flows can be used by companies, their suppliers and customers alike, to cut waste and make better use of resources.

Technology is also changing the way that products are made. Breakthroughs in digital design, automated manufacturing and innovations involving the materials used have opened up the landscape of sustainability for designers. Coca-Cola introduced a 30 per cent plant-based, 100 per cent recyclable plastic bottle into some markets in 2011, while B&Q, the DIY specialist, has raised the possibility that it may not sell anything at all in future, focusing on rental instead. Some technologies pose a more fundamental challenge to today's manufac-turing approaches. 3D printing may soon allow mainstream consumers to customise and "print" their own products at relatively low cost - reducing the need for transport and avoiding wasteful manufacturing processes. The internet has allowed whole categories of products to move from the physical to the virtual - although on the flip-side it is driving the growth in electronic products.

The circular economy will remain a niche concept unless companies believe that consumers are ready to play their part. But there are signs that the public is seeking new and more sustainable forms of consumption - as long as it is at the right price. Companies are experimenting with business models that build long-term relationships with the consumer. Like the mobile phone, a range of products from washing machines to music are now being offered on a pay-as-you-go monthly basis rather than for sale. There are now half a million members of car-sharing schemes in North America (up from 2,500 in 2000), and they drive 30 per cent less than when they owned their own car.

The circular economy is an old idea whose time may have arrived. Now the question is: which companies will have the inspiration to become the Fords and the Toyotas of the 21st century?

Road ahead for the car

Modular design: Car parts can be made so that they are easier to replace and repair - not just to their original performance, but up to the latest high-efficiency designs. Customers need an incentive to take advantage of these resource-saving opportunities, however.

Car sharing: Early schemes enabled others to take a ride in your car during rush hour, reducing costs and taking traffic off the road. These have flourished online in the past decade. In recent years, another model has emerged: the pay-as-you-go car, as offered by companies such as Zipcar in the United States and Europe.

Electric vehicles: Electric vehicles can transform the use of fossil fuels in transport. The high up-front cost of batteries and limited mileage have prompted interest in new business models, from the battery-swapping approach of BetterPlace, to rental arrangements that spread the cost to the customer.

Car-free cities: If new cities or residential areas are designed to make the private car unnecessary, people will readily use communal rapid transport. But this has to start with the right urban design.

Felix Preston is a research fellow at the Energy, Environment and Resource Governance programme at Chatham House

 

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