Can existing market economies ever become fully circular? 

The structural incentives inherent within market economies are preventing true ecosystem circularity. No matter how much money we invest in circular interventions – such as recycling techniques or sustainable energy – the current underlying economic model, guided and constrained by market logic, simply does not allow a transition to full circularity. 

This means that we cannot presume that our circular ambitions will be fulfilled unless the structures and economic dynamics that created a firmly linear economy are fundamentally addressed, not merely tinkered with. Building wind-turbines or creating circularity in the lifespan of some materials will be insufficient if the overall system is still based on scarcity and replete with planned obsolescence, externalities, rebound effects, and an infinite thirst for growth.

While it might be tempting therefore to dismiss the concept of circular economics as another marketing trick for big business or an ideological hobby for the greens, doing so would be to misunderstand the root problem. So, given international efforts to move towards a “fully circular economy” by 2050 (as is the official ambition of multiple EU governments), it seems worthwhile to zoom in on this root problem. 

To unpack this, we need to address both the foundations of market logic and its resulting structural incentives, and what we understand as true circularity.

Let’s start with the latter.

True circularity

To arrive at an understanding of true circularity, we need just to observe nature. Healthy ecosystems do not produce any waste: for example, the “excessive” (or abundant) leaf production of trees nourishes the soil, as does biological excrement or remains. Nature does not produce what Braun and McDonough call “monstrous hybrids” (combined materials that cannot be separated or recycled). Nor does nature need a corrective, end-of-pipe waste management system to manage material flows. 

Accordingly, for example, natural wilderness systems are sustainable and self-correcting, with balancing feedback loops and competition as a quality driver, ensuring biodiversity and resilience. A healthy ecosystem naturally produces a sustainable abundance. Fenced wildlife reserves, on the other hand, are often unstable and require constant management and population control, veterinary intervention, and monitoring. Clearly, it’s not the natural ecosystem that causes the instability – it’s the fence. 

The fence constrains the natural dynamics by imposing artificial borders, changes the “incentives,” and precludes the natural maintenance of a sustainable abundance. In this example, the fence represents market logic imposed upon an otherwise healthy natural system. The foundations of market logic – private property or ownership, competition, commoditized labor and money, and prices determined by supply and demand – shape the context for an incentive structure irreconcilable with nature’s inherently circular dynamics. So, if we aspire to escape the linear economy, this foundational logic needs to be addressed.

As I and my colleague Trevor Zink put it in our 2022 paper, Markets and the Future of the Circular Economy:

“The ‘arena’ of interaction in the circular economy is not a single metaphorical industrial park where wastes endlessly become inputs, but rather a globally interconnected system of markets.”

The linear consequences of market logic

An increasingly popularized yet still widely misunderstood example of this irreconcilability concerns the imperative for infinite growth. This tendency is often explained as a result of human or corporate greed – and the result rather than the cause of the economic structures we inhabit. 

The commoditization of money itself places the cradle of money creation largely in the hands of private commercial banks, who compete in financial markets. Money is only created if there is sufficient confidence for a return on investment and if the debt can be paid back with interest – as opposed to harnessing the ability to create new money strategically, if and when it benefits society. 

This dynamic (money creation out of interest-bearing debt) solidifies a situation where there is always more outstanding debt than actual money in circulation, entrenching the growth imperative and procyclical lending behavior (lending increasing as the economy expands, and vice-versa). This leads, inevitably, to boom-and-bust cycles and the accompanying exacerbation of inequality.

We can further observe the folly of prevailing market incentives by assessing the character of the realized large-scale endeavors supposedly advancing the transition toward a circular (or more sustainable) economy. Energy saving measures, carbon capture technology, creating closed recycling loops within integrated or branded supply chains, product-as-a-service (PaaS) business models – all of these ensure sustained profits while making only incremental improvements in terms of sustainability or circularity (or none at all, in the case of carbon capture).

Table 1: segmented versus ecosystem circularity, from Kate Raworth (Siderius and Zink, 2022)

While most PaaS models do somewhat alleviate the incentive for planned obsolescence (designing a product to break) and align producer incentives with more sustainable design, they are only profitable at a large scale (for example, in home appliances used by vast numbers of consumers). Even if this scale is reached, cost-efficiency considerations and an expansive drive for increasing returns on investment will again detract from delivering the most value to people and the environment. Technically, monopoly power is required for truly efficient and strategic standardization and circular design – yet within the current structural incentives, a monopoly inexorably leads to excessive exploitation, as opposed to a truly efficient organization for sustainable production and distribution.

The market´s fumbling attempt to advance the necessary energy transition is, given both the state of current technology and how long we have known of this necessity, laughable. The fundamentally competitive nature of markets here again precludes a globally integrated scientific approach that would lead to an abundant supply of sustainable energy, as markets remain unable to assign value to the creation and maintenance of any form of abundance. Markets distort value because they limit the value of a good or service to its ability to achieve a price based on supply and demand (that is, how scarce it is), as opposed to what communities truly value (such as an abundant supply of water, food, and energy). This contradiction is what lies at the very foundation of our economic system failures. 

Win-wins and market realism

The dominant context of markets thus subtly misguides our methods and approaches to solving contemporary socio-ecological problems. In many practitioner environments, governments, businesses, and researchers replace the question, “How do we solve this problem?” with: “What is the business case for solving this problem?” 

While this can be viewed as the only “realistic” way to go about solving problems, it also excludes any possible solutions that exist outside the scarcity-based market paradigm. Circular initiatives are therefore restrained to “win-wins”: how can we do better for the environment while also maintaining profitability? And so, many of the crucial aspects of a truly circular economy will not be achieved, as they lie outside the reach of these win-wins (see Figure 1). 

Figure 1: the current circular economy is limited to “win-win” actions (Siderius and Zink, 2022)

To be clear, this is not an indictment of business executives or entrepreneurs who are just “doing their job,” or of those self-proclaimed realists that have seen many worthy yet unprofitable ideas fail. The problem is precisely that these realists are right: if an idea cannot generate a profit and become “economically viable,” it is likely doomed if not supported by (and therefore dependent on) significant subsidies. 

The indictment should instead be directed at market structures and those who guard them. And, perhaps, it should also be aimed at those with ample education and insight who should (by now) know better than to willfully continue pushing marginal and ineffective policy reforms that, at best, enact mere incremental improvements, and at worst, actively harm true transitional reform.

Radical change or market hegemony?

The attempt to transition toward a fully circular economy hence remains the same old battle between radical change (a progressive movement toward sustainable abundance, mimicking natural systems, and their self-correcting mechanisms) and neoliberal market hegemony (a lateral and receding movement exploiting win-wins within the same, faltering superstructure). How, then, can we move beyond the suffocating constraints of “market realism” and into the realm of structural solutions?

The road toward solutions outside of modern markets is paved with new foundational logics. This includes rethinking ownership models and collaborative structures to be more integrated and democratic, de-commodifying land and money, and creating incentive structures that value and reward contributing to the creation of a sustainable abundance. A panoply of practical solutions in these realms is already emerging, ranging from commons, and democratic or steward-owned enterprises, to interest-free (local) currency systems. 

Simply put: for the transition toward a circular economy to start to contribute to meaningful systemic change, it must escape the bounds of market and scarcity logic.