I had the honour and privilege of meeting a dozen young women interested in business with purpose at the QUT Foundry last week. Organised by HerHub, the event was billed as “Beyond the circular economy” and promised to navigate the Circular Economy, the Performance Economy, the Sharing Economy and other terms that confront and confuse people who want to do more than make a quick buck.
One of the reasons for this particular framing is that the Circular Economy is getting a bit of press recently. State Governments, including Queensland and Victoria have announced plans to transition to a circular economy, the Queensland Chief Entrepreneur has been travelling the state promoting it and presented the state’s emerging Circular Economy Lab at the recent Circular Economy Conference in Finland.
With the emphasis in most circular economy discussions clearly on waste reduction and resource efficiency, significant concern has been raised by serious thinkers about the “wicked problems” of climate chaos, economic growth, population growth, global equity and social justice. None of these problems are necessarily addressed, let alone solved, by the more efficient use of finite resources.
To unpack this knotty field of enquiry and explain the various Economies, post-growth, de-growth, social enterprise, profit for purpose, philanthropy, charity and BCorp I set out to build a map of the landscape by creating some broad divisions starting with the difference between the profit and the non-profit sector.
Identifying antecedents
Traditionally, business has been for profit and government and chanty have not. The government provides schools, hospitals, the police and utility services such as water while charities did good work of supporting people who were left behind by the business of business. The way that industry coding systems such as the Australian Tax Office Business Industry Codes (ATO BIC) and the Australia and New Zealand Standard Industrial Classification (ANZIC) work reflects this, with very high level codes for activities such as Charity and Government that put them on a par with Manufacturing, Agriculture or Mining.
The inherent assumption here is important: the accumulation of wealth is different to the provision of services for the public good. This contrast is consistent with the traditional left, right divide of politics: you are either focused on doing good or on making money.
The economic and political history of the last fifty years has blurred this simple separation. That blurring comes from many sources.
Dispossessed groups, such as First Nation people, have long analysed charity as enshrining a power imbalance in which the powerful assist the powerless to a limited extent on the understanding that they do not attempt to tackle the underlying power structure. This can be summarised in the phrase “a hand up, not a hand out”.
That battle to create independent funding and so escape the tyranny of the purse strings has become important in a range of sectors that have suffered funding cuts as governments have begun to withhold funding from groups that tackle their agenda. At a global level this is evident in the US government’s refusal to fund any international aid agency that supports abortion. John Howard tied school funding to the flying of the Australian flag and throughout the noughties and teens conservative governments have closed funding of environmental groups, and those fighting for the rights of women, queers and refugees.
When the Australian Climate Council was defunded by the Abbott Government in 2013 it turned to crowdfunding to keep the door open, forcing both the government and the activist sector to become more sophisticated in funding and regulation campaigns and activism designed to achieve social and environmental outcomes.
This is an extension of the much longer term project to measure all social activity in dollar terms. The public accounting of welfare agencies and support services played into the hands of large charity providers who could afford the administration staff to meet the reporting requirements and thus had the infrastructure to support small delivery services. This consolidation of the community service sector led to the acceptance that there was a relationship between funding and outcomes, that outcomes cost money and created a measurable value.
The reason for identifying these different historical reasons for relating the impact of outcomes to the cost of achieving them is to understand the different threads that have informed the growth of what we now call social enterprise and impact investment. There is a blend of the desire for independence, recognition of value, justification of activity and alignment of value.
Australia’s National Disability Insurance Scheme is a world-leading experiment that was initiated by a 2011 Productivity Commission inquiry that determined it was more productive for the entire economy to harness the energy and creativity of the disabled by integrating them into the workforce than it is to exclude them by providing them with welfare. As a result, we have launched a scheme in which the disabled are treated as clients that select the services they need to achieve the outcomes they want in a transactional relationship with service providers. The logic is that this will empower those clients to be agents of their own destiny and thereby contribute more to society at lower cost than if they are simply supported to survive.
One outcome of this is that services providers have had to evolve the administrative and customer service activities to support those transactions instead of simply applying for large chunks of block funding. Discussing this on ABC Radio Vision Australia’s manager for government relations, Chris Edwards, said that the service has gone from managing seven block funding grants to over 30,000 individual subscribers and had major teething problems in establishing commercial communications with its vision impaired audience.
And so, to terms
Given the landscape, then, it is a little easier to place the various terms upon it.
Social enterprise has gone through a number of iterations, commencing in the mid-nineties as a response to the economic rationalist agenda that community services should be able to justify the expense of operating the services they provided. Some parts of the sector began to explore entrepreneurial alternatives to grants as a form of funding their activities. By adding elements of enterprise to their service they could explore alternative means of accounting for that value.
It now contains a mix of community services who seek funding from transactions with their clients, enterprises that are fundamentally created to support a community or create a social, environmental or cultural impact and enterprises that can claim to achieve some impact even if that is as simple as a foundation created to support a small number of disabled people, or an enterprise created to provide employment for a marginalised group in one location.
The key point about social enterprise is that its proponents attempt to merge a social benefit with some form of enterprise. The general rule of thumb is that at least 50% of the total turnover of the organisation should come from enterprise. It is much harder to measure the impact of that activity but it is generally held that the impact should be the primary purpose and that the organistion should be able to point to its theory of change and demonstrate how its actual activities work toward achieving that change.
Complementing social enterprise are impact investors, who are prepared to invest in activities that have a positive social, cultural or environmental impact even if it means a somewhat smaller return on investment. Impact investors are not specifically concerned with investing in social enterprise, they may support research into a product designed to solve an issue on a totally philanthropic basis. Generally, they are led by wealthy people who know how to build wealth and so there is often a net growth in the value of their investment despite the fact that its primary purpose may not be financial. Globally, that model is led by philanthropic organisations such as the Bill and Melinda Gates foundation. A range of groups who suggest that putting money into traditional charities is an ineffective way to address global problems use the term impact investment to explain their strategy.
The Australian Federal Government is currently putting together an Impact Investment Working Group, charged with developing a policy for supporting impact investors and freeing them from some traditional restrictions imposed by the corporations law.
Impact investors are generally patient investors. That term is applied to anyone who is prepared to forgo a short term return on investment for some reason. That reason may or may not be related to the impact of the investment, for example it might be for higher long term gains. It is generally true, however, that the primary reason for patience in an investor will include some non-financial outcome, which is probably aligned with the values of the investor.
Social trade is a term used to describe social enterprise which explicitly infers a transactional basis that is arguably implicit in the term social enterprise. Social traders Australia is a body designed to promote social trade that has very specific entry criteria. These are a rigorous expression of the criteria described under the social enterprise heading and social traders may generally be described as social enterprises.
Profit for purpose organisations are very similar with the notable absence of any restrictions on the purpose. The term is largely used to impress investors who, on the whole, are more comfortable with organisations focused on profit, than on organisations focused on creating an impact. The lines between profit for purpose companies and social enterprises are somewhat blurry as a result but tend to be more commercially oriented and seek a higher profile through marketing and participation in government funded programs.
The sharing economy can be used as a term to describe activities that tend not to be commercial, but allow its participants to benefit by trading unwanted or spare goods with others and so reduce their expenditure and consumption. Such activities might be driven by either outcome (impact), and might also involve a financial transaction despite being driven by the desire to build community, reduce consumption or waste rather than to raise a profit. Peer to peer organisations like AirBnB and Uber are often described as being in the sharing economy, the notable difference is that the enabling platform is owned by a corporation that is building wealth for its shareholders not the members of the community.
The gifting economy is a different term, often used to describe transactions in situations where money does not exist, but which overlaps significantly with the sharing economy and which excludes corporate ownership of the platform that facilitates the service.
The circular economy is not a subset of this landscape, it is a different way to approach the problem.
The simplest way to describe the circular economy is to contrast it with the linear economy of extraction, manufacturing, consumption and waste. One example of the linear economy is that we catch rainfall in the mountains using a dam, we pipe it into a city, and then pump our sewage out into the ocean. Another is that we dig up a resource, like coal, we burn it to produce heat or energy in the form of electricity and release the carbon dioxide, pollutants and waste products into the environment. One does not have to think terribly hard about the consequences of the linear economy with a growing population on a finite planet to realise the value in considering ways to make it more circular in nature.
The classic metaphor for a circular economy is the ecosystem of something like a rainforest, in which all resources are re-used, there is no waste, and one organism’s output is another organism’s food. Commercial examples are mining the waste stream through re-use of products, or full corporate responsibility for a product from manufacture to remanufacture. Many white goods companies in Germany, for example, re-use the bodies of their appliances to deliver new models, rather than allowing the customer to throw them out.
A close examination of the circular economy reveals that some activities are more efficient than others. Re-use of a manufactured part is orders of magnitude more efficient than recycling, ofr example, and so many models of the circular economy involve concentric loops with the “inner circle” being the most efficient. The so-called performance economy promotes the ongoing ownership of the product by the manufacturer, leading to the re-definition of the product as a service. Powerful as the resulting Functional Service Economy is, one only has to consider the price of software, or photocopying to see that corporate handling of products of services have not always worked in favour of the customer.
The circular economy and its variants are attractive to industry and government because the concept has a significant and positive impact on waste, resource consumption and pollution without undermining the basic tenet of capitalism that we must maintain infinite economic growth. It is essentially a resource efficiency model of industry, despite the possibility of applying the definition to community, environmental and cultural outcomes.
On the other side of the line sharply differentiating those approaches supporting capital growth from those attempting to ensure long term sustainability are post-Growth, de-Growth and Natural Capitalism.
The fundamental principle in this field of enquiry is that we cannot grow infinitely on a finite planet and, since capitalism requires continuous economic growth to survive, we must move beyond growth to build a sustainable economy.
De-growth is the movement defining the ways in which we might uncouple our personal activity or or social organisation from the requirements of continuous growth. It examines how we might live without money, what business means if money is not the primary objective. Post Growth defines forms of social organisation that might emerge and allow us to exist in a world that does not rely on growth. So degrowth is the pathway and post growth could be seen as the destination. Natural capitalism is one of the many forms of economic organisation described as a solution to the problem of infinite growth and the outcome of degrowth.
A Post Carbon economy is a subset of these broad philosophical views of the future that is specifically focused on mitigating Climate Chaos and coping with Peak Oil. It is essential that we move to a post-carbon economy to survive on a planet with billions of humans but it is a necessary, not a sufficient condition. Further, it is increasingly apparent that some of our ruling elites have already made the same assessment and prefer to dispense with billions of humans than with the convenience of burning fossil fuels. Jem Blendell’s Deep Adaptation explores the stark reality of our options and challenges us all to change our practice in the face of those choices.
Navigating the future
A map is only useful if there is the will and skill to use it to guide us to a particular destination. Every budding entrepreneur or socially concerned citizen will have their own priorities in selecting points on the map, and pathways between them. Those priorities will be driven in part by logical reasoning and in part by innate resonance and desire.
What is apparent to this author, though, is that the emerging generation is better informed, connected and equipped to deal with these challenges than those of us who have blundered into it. One of the few skill sets I would suggest is better held by the generation born in the middle of last century is the practical skills of surviving in the physical world. If the elders can humbly offer the wisdom of their years and that practical experience to the clear sighted, engaged and connected humans taking the reins of society now, we have some hope of salvaging enough skerricks of civilisation to pass onto future generations despite the inevitable depletion in our numbers and standard of living.