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THE CIRCULAR ECONOMY AND VALUE SYSTEMS

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By special guest Michiel Doorn

The Circular Economy is the latest framework that has emerged in the area of “sustainability.” The framework took off about ten years ago, buoyed by the efforts of the Ellen MacArthur Foundation and others and builds on Cradle to Cradle, Industrial ecology, Biomimicry and a few other concepts. Several European countries have adopted circular economy goals, as has the European Union, and even some American cities. Recently, it was embraced by the US Chamber of Commerce. This means it is either a true revolutionary breakthrough or yet another greenish bandwagon that organizations can jump on. The quick answer is, of course, both, depending on the perspective one is coming from. So let’s dig a little deeper and see if we can analyze it from a value systems perspective.

What is the Circular Economy? As one might expect, there are now numerous definitions, but sticking with aforementioned Foundation, The Circular Economy aims to redefine growth, focusing on positive society-wide benefits (Looking beyond the current take-make-waste extractive industrial model). It entails gradually decoupling economic activity from the consumption of finite resources, and designing waste out of the system. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural, and social capital. It is based on three principles: 1) Design out waste and pollution, 2) Keep products and materials in use, 3) Regenerate natural systems.[1]

This is a mouthful and a lot to unpack. What is key is that the Circular Economy is based on ecological principles. In nature there is no waste as all waste becomes food for other organisms. The only source of energy for this process is sunlight. Hence, the inclusion of renewable energy in the definition. Nature is a self-regulating system and the Circular Economy tries to be like nature. This is an excellent concept; first, because we know from observation that nature has been doing really well for eons, as long as stray asteroids or humans don’t mess with it too much. And secondly, many of today’s social, economical, ecological, and other, problems are now so complex that solutions will haveto be crafted  from a systems perspective, as Donella Meadows, Peter Senge and others have been saying for years.

So, what is the opposite of and the precursor to systems thinking? Of course, linear thinking, as well as analytical thinking. the original meaning of the word analysis is to cut problems up into categories that can be dealt with separately. At this point it is helpful to take a look at how our thinking has evolved when it comes to “sustainability,” indicated in Figure 1.[2]

Figure 1 shows that sustainability thinking has evolved over time, and can be correlated to the evolution of our ability to take more complex perspectives as shown on the left.
The figure does not show how outside drivers have also grown in complexity, starting with sewage running down the streets in large cities, all the way up to today’s climate crisis and ecosystem collapse. What the figure does include is a description of potentially matching leadership styles on the right. It is important to note that we can make strategic choices (the double-sided arrow), where we may choose to apply more linear or simple solutions to particular problems, as long as we do so consciously.

Spiral Dynamics buffs will have no problem recognizing hints of the common value systems in the diagram. However, the leap in thinking from linear/categories to systems should not be mistaken for the notorious Leap to Second Tier or Yellow. The Circular Economy is not there yet and seems to be firmly embedded in Orange-Green. This explains why the Chamber of Commerce and many large companies are excited by it. There are several reasons why the Circular Economy, while being complicated to implement, is not as advanced and potent as it may seem.

First, the Circular Economy does not remotely change the eternal economical and financialgrowth model, and we can basically continue what we’ve been doing all along. Second, for large companies that make their money with extractive models that take from nature and return unusable waste to our air, water or soil, there is too much at stake to change. When we look through an ecological lens they are not so hard to spot. Third, on top of the challenges from the current economical-financial-politcal steam roller, less advanced leaders will see the Circular Economy as something that may simply help them save costs or bring new revenue. After all we make meaning from where we are at. However, as Bill McDonough says “less bad is not the same as good,” let alone regenerative.

This is probably why there are still few truly circular success stories. Using our rational minds to design out waste, close the material loops and switch to solar is not enough. We will need to develop new business models that value sharing and leasing as opposed to owning. As the butterfly diagram shows, repair, reuse, refurbish and recycle are all business models that are quite different from what manufacturers are used to today. Advanced leaders (right side of Figure 1) know this but they will still need help. A significant switch to a Circular Economy begs for multistakeholder efforts and a strong support from regulators that get it and are not beholden to the existing powers. Especially important are innovative, tailored financial models for operations and investments.

On a final note, the Circular Economy offers no methods or models to handle our massive environmental problems that already exist (plastic in oceans, fish and our drinking water, omnipresent persistent pollutants, loss of biodiversity, etc.). Yet, the Circular Economy might be the stepping stone toward a value system where context, ie. environment, is becoming fully integrated into our reality and associated leadership. The upper layers in Figure 1 offer some thoughts. There is that one little phrase tagged on at the end, of the definition: “regenerate our natural systems.” I believe we can figure out most of what’s circular, if we really decide to commit and collaborate. But for a regenerative, mutually enhancing relationship with our planet we will have to go further, and deeper. We will have to learn what it means to work with nature, listen to her, and enter into relationship with her. When we are in a relationship, we care. If we don’t care, we risk losing everything.

Michiel Doorn is a sustainability thinker who lives alternately in North Carolina and the Netherlands. He is a founding partner of Circularity Edge (www.circularityedge.com) and has worked with Spiral Dynamics for many years. He is passionate about evolving awareness and associated action through coaching and experiential learning in support of all Life. He can be reached by email: michiel.doorn@circularityedge.com 

 

 

 

 

[1]For a visual, look up Butterfly diagram: https://www.ellenmacarthurfoundation.org/circular-economy/infographic

[2]Codeveloped with Edwin Janssen, Sustainable Growth Associates.

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On The Edge Of Disaster, The Tail That Killed The Dog

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In my 2013 book MEMEnomics, I dedicate an entire chapter to the analysis of the 2008 financial bailout, its shortcomings and the toxic effects it had and will continue to have on the global economy. To get a better understanding of how dangerous and toxic things have gotten today, it’s important to understand the simple, but delicate relationship money must maintain to economic activity. A layman’s statement of this correlation appears in the book and, to my surprise, has been quoted by several financial planners in their newsletters to clients. It also came close to having me thrown out of a conference in Chicago that was organized by the friends of Milton Friedman, the father of Monetarism who popularized the term “Only Money Matters.” These 3 words became the title of another chapter in which I describe the dangers of having a financial sector in an advanced economy decouple from that economy’s measure of productive output. The quote is this:

“Money is to an economy as nutrition is to the human body. When central bankers ignore that relationship by providing more capital that functionally needed, they debase everything capitalism stands for.”

In the fall of 2008, the financial sector was addicted to a gambling problem originated by something called notional assets, which was made worse by the absence of regulation. The growth of this toxic form of finance had thrown the historically delicate relationship between money and productivity way out of balance. This became a phenomenon that threatened to collapse the global economic order. The entire organism called the global economy, was suffering from  metabolic syndrome and its major organs were shutting down. As this ravenous beast ran out of money, it came home begging for a bailout from a government whose regulatory institutions had become impotent and its representatives had no capacity to understand what a responsible regulator should do.

A prudent course of action would have been to rebalance the system by forcing the financial sector to go on a diet. In other words, what was needed in 2008 was a downward revision of the value of the banking industry’s assets, what was historically referred to as price discovery after a market crash. This also needed to be coupled with the decision to allow insolvent banks to collapse or be taken into receivership. This would have allowed the economy to organically regenerate, as the detoxification process would have realigned the financial sector back with productive output. The problem was that instead of our government being the good doctor who saw the long term benefit of these painful and necessary choices, it chose the easy way out and granted the addicts everything they asked for.

One might think this was the end of the story that averted disaster, but the bailout was just the tip of the iceberg on the road to the complete debauchery of global financial systems. Enter Ben Bernanke, Chairman of the Federal Reserve during the financial crisis. Bernanke was considered a god sent to the demigods of global finance as he built his entire career on the argument that the Great Depression would have been averted if it weren’t for Fed policies that tightened the money supply. Desperate for a miracle from the most powerful banker in the world,  leaders and CEOs alike,  embraced this philosophy as their savior. A decade into these unproven grounds of finance and the move seems to be nothing but a long desperate gasp for air.  This linear fallacy from the very top became the catalyst that is now destroying monetary policy and the very virtues that money  historically stood for.

In the years since the financial crisis, the Fed started printing money out of thin air. Sure, they gave these financial instruments fancy names like Quantitative Easing, asset buybacks, and special credit facilities. The list of clever names was endless, but the truth remained the same. A central bank only has two boring tools at its disposal and they must remain boring due to the critical function they perform, and here they are: 1. Regulating the money supply and 2. Controlling interest rates. But this was Bernanke’s Fed, and he had completely exhausted these tools and backed himself into a corner from which there will be no escape. Interest rates were effectively at zero, and the money supply had long lost any relationship to economic output. Additionally, the hope that the toxic assets the Fed purchased, will become investment grade at some point has greatly faded. But, instead of writing down these assets, the Fed extended their buyback programs into 2014.

Here we are, a decade into these policies and a gigantic tragedy is beginning to unfold in front of our eyes. In addition to keeping a steady, fat-rich diet of low interest, and an unimpeded money supply, global markets and the Fed’s balance sheet are full of over-inflated and non-performing assets. This phenomenon has become common among many advanced economies it matters not who is in charge of their central banks.

As of April 2019 the central banks of the top 4 economies in the world, the US, EU, England and Japan have a hugely bloated balance sheet that represents an astounding 36% of their countries’ combined annual GDP. This is unprecedented. It is more than 12 times the post WWII historic average. What this essentially means is that the global economy has been living on borrowed time and that the Fed has been in crisis mode since 2008 and must remain in crisis mode for years or maybe decades to come. It has acknowledged defeat and cannot take its foot off the gas pedal. It is a corner from which the only escape is to keep doing the same. It cannot raise interest rates for the fear of crashing stock markets, and it’s unable to sell the toxic assets it has on its books. These holdings are called  Mortgage Backed Securities that were at the heart of the 2008 collapse. Today they have grown faster than all the other segments of the Fed’s balance sheet and represent 40% of its holdings, or $1.6 Trillion.

The economies that these 4 central banks represent account for over 55% of the total global output and the bigger these numbers get, the higher equity markets rise on a completely deceptive premise that has little to do with real economic output. It is one big bubble that’s making the global economy increasingly more vulnerable to several contagions. One of these contagions could be an economic slowdown that confirms the systemic failure of this end-stage monetary policy where investors  in a panic dump their equity holdings and resort to the safety of cash. The other and more likely catastrophic scenario is if the economy heats up and the Fed decides to raise interest rates to stem the threat of inflation. We witnessed a glimpse of this in 2018 when the Fed raised rates twice and the market lost 5000 points in a few short months.

Whatever wildcards appear, we know one thing for sure, and that is the world’s central bankers have abused every possible tool available to them. Add to that the overvalued toxic assets that caused the 2008 financial crisis which have systemically been legitimized by the world’s central bankers who sanctioned them under different names and repackaged them as legitimate holdings on their books . All these actions  have completed the debauchery of  money. Today there’s a palpable fear about the precarious state of the global economy and central bankers  are quietly beginning to acknowledge their role  in getting us there.  It’s just a matter of time before the whole house of cards begins to collapse.

Sven Henrich, a leading market strategists and an expert on macroeconomic issues describes the central bankers’ ill advised journey of the last decade and the predicament they’re in today  in these terms:

“The capitulation is as complete as it is global and 10 years after the financial crisis there is not a single central bank that has an exit plan. So great is the fear of falling markets and a slowing economy that the grand central bank experiment has ended in utter failure.”  

This destiny wasn’t written in 2008. It was born when the Monetarists rose to power along with Reaganomics in the early 1980s. This is when central bankers drank the Kool Aid that sought to make finance an economy on its own. They fully bought into the idea that financial innovation can take money far beyond  its historically  boring function and made themselves much richer in the process. When the experiment failed in 2008, instead of reversing course, they decided to become even more creative. They manipulated the world’s resources and debauched its financial architecture.  They made the poor ten times poorer and the rich 20 times richer and  didn’t care about the deep damage they were causing  in the long term.

Today, the debasing of a capitalist system based on finance has reached its end state. The tail that has been wagging on a fat-rich diet for the last 4 decades has finally killed the dog. It’s just a matter of when the death certificate will be signed, and who will be brave enough to sign it.

 

 

 

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Graves and the Anthropocene

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The World Economic Forum published its 2019 Annual Global Risk Report this week, and for the third consecutive year, it points to Climate Change as the most ominous threat to the global economy. Sadly the paradigm this powerful group holds on this issue only has the effect of re-arranging some of the chairs on the sinking Titanic as it seeks solutions for our greatest threat through the narrow scope of economic activity.  What is needed is for these world business leaders to shift their focus from “economics” to “everything that underlies planetary life.” This is quickly becoming the essential Quantum Leap in our values that we must make to ensure planetary survival.

This is a monumental task that’s being undertaken by people and institutions from many different disciplines,  but what hasn’t been considered seriously is the psychosocial approach to the challenge. Specifically, the Gravesian approach. In a recent piece I wrote for Kosmos Quarterly‘s Special Edition on Climate Change, I introduce the possibility of what’s missing from the current calculus on this matter.  Below is a small section of that piece describing the nature of the problem.

In the Gravesian development model, we believe that evolution of human consciousness is an endless quest. It is a psychosocial model that relies on two essential cornerstones that determine how adequately we resolve life’s challenges. The first lies in the problems of existence. It is in how well we identify the depth and breadth of these problems that the necessary Adaptive Intelligence within us (individually and collectively) is triggered and an adequate solution is pursued as our conscious recalibrates at higher levels.

The problem we face today is that human existence so far has been limited to what we call the values of subsistence where we choose to either compete or cooperate, but with little awareness of planetary values. We are not fully conscious of the fact that we are an inseparable part of earth’s ecology. We rarely think in terms of the world being a single organism with its own collective mind and that we are all part of a compassionate, dynamic whole, inseparable from nature.

On our journey so far, we’ve identified our problems of existence to be primarily of social, political, or technological nature. As we exhausted the values of each system we successfully sought solutions from a higher-level system throughout the Holocene with little regard to problems of existence that lay outside our subsistent worldview and therein lays humanity’s biggest challenge.

In his research, Clare W. Graves showed this particular issue to be of utmost concern. His greatest fear was that our species will become complacent as it indulged in the spoils of the lower value systems ignoring existential threats that lay outside it’s conscious awareness thus derailing our emergence back to hunter-gatherer values. He made these predictions in the early 1970s a few decades before climate change became a major concern. Graves also offered an optimistic scenario where we embark on taking a momentous leap in values requiring completely different mindsets capable of responding to problems of existence that ail all forms of life, not just our own.

This is precisely what the Anthropocene calls for since our problems of existence are no longer just sociopolitical or technological in nature. We need to adequately represent the defenseless planet and all her ecosystems. In order to do that we first and foremost must embark on a comprehensive worldwide campaign to become the mouthpiece for the planet. It is in doing so that we gain a fuller picture of our new problems of existence in order to trigger the needed Adaptive Intelligence capable of addressing the degradation of planetary ecosystems.

In order to have more knowledge about this half of the Gravesian model at the level that addresses planetary survival, we must embody earth’s problems of existence as our own. Today, initiatives such as the empowerment of the values of the commons, the green revolution, sustainability practices, and regenerative economics, as noble as they are, they’re operating on partial data, and therefore, much of our Adaptive Intelligence on this issue has remained dormant.

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