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Commentary

Circular economy and a new model of growth

/ 12:06 AM May 23, 2014

As delegates to this year’s World Economic Forum in Manila know, East Asia has the potential to become a powerful consumer economy. And yet, the emergence of a consumer economy in Asean, and East Asia generally, takes place against a very different backdrop than European, American and Japanese growth over the previous two centuries. This time, resources are scarcer.

Much has been written about consumer society over the decades. But less has been written about the different types of consumer and exactly how they fit into increasingly complex “webs of value.” With resources dwindling and demand rising, we need a more nuanced understanding of consumption (in fact, I’ve never liked the catchall term “consumer”; I’m not sure it helps).

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The circular economy is about decoupling economic growth from the use of finite resources. In a truly circular economy, almost all material inputs are returned to the value chains. I have supported wholeheartedly the activities of Project MainStream (http://www.weforum.org/issues/circular-economy), a two-year initiative launched by the World Economic Forum and Ellen MacArthur Foundation (and supported by McKinsey) to scale up the circular economy. There really is a huge opportunity for businesses here, and Project MainStream has done a great job in modelling that.

But I’m fascinated, too, by the demand side of the equation. Earlier in the year, Jakob Rutgvist and I wrote about five business models that are driving the circular economy (http://www.fastcoexist.com/3025966/how-clever-companies-are-using-circular-thinking-to-get-ahead). At Accenture, we are also looking to isolate technologies that open up these new avenues. These are often advances in bioengineering or precision manufacturing, but it is in communications technology where the consumer really comes in. Learning to notice and engage new consumers can be a real game-changer.

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We can’t simply ask consumers to pay more for sustainable products. The key is to adapt the offer. Sustainability is by no means the only attraction in town, and there can’t be a perceived tradeoff in quality or value. Spotify, the music-streaming business, is a good example of a successful business that has harnessed new consumption opportunities but doesn’t market itself as sustainable. It offers consumers the product they want to buy—music—rather than material items associated with it, such as CDs. Consumers are deeply involved here, helping Spotify to change music-buying into more of a service than a material trade.

Perhaps Spotify is a special case. But the principle holds: to keep resources in the market for as long as possible—maybe indefinitely. The difficult part is “monetizing longevity,” either via sharing and reuse, or by reselling, remanufacturing or leasing. Not just the products but their components, too, can become monetized for reuse.

This is not to play down the importance of concerted municipal action on, for example, waste management. In this respect, the Philippines is making strides toward a zero-waste target, in both cities and, increasingly, villages (http://www.otherworldsarepossible.org/zero-waste-dream-reality-philippines). This is crucial.

Japan, too, has high recycling rates and a developing culture of clever resource stewardship (http://greenallianceblog.org.uk/2013/02 /07/the-circular-economy-big-in-japan/)—one that works for consumers. Then there’s South Korea: Seoul’s use of technology to power the circular economy (seemingly involving all aspects of civil society) is exemplary. The city starts from a good baseline—Wi-Fi coverage is widespread and 60 percent of South Koreans own a smartphone. An initiative launched in 2012 to turn it into the world’s first truly “sharing city” looks encouraging.

How does this work? For a start, the city government is approving certain consumer-facing enterprises as official “sharing organizations.” It also supports cutting-edge companies with funding and helps to incubate others. In addition, it is rolling out car-sharing services and parking solutions, and connecting elderly citizens who have large homes with students who need a room. A huge variety of companies are being supported, from those that enable the lending of consumer goods to meal-sharing platforms.

A dedicated website, sharehub (http://sharehub.kr/english), provides an interesting commentary on the city’s latest sharing trends. The special sauce, though, is how it has transformed the mentality of both consumer and producer. The technology is there, but it takes both sides to converge on how to make the most of it.

One of the fascinating things about the circular economy is that it involves a lot of creativity, from both individuals and organizations. Every new technology that comes along can add to it. Clever government policy can supercharge it. East Asia is on the cusp of a consumer economy. It has the potential to make it a sustainable one as well as a prosperous one.

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Peter Lacy is managing director of Accenture.

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TAGS: Asean, Circular economy, Commentary, economy, Growth, opinion, Peter Lacy, World Economic Forum
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