No circular economy without the human factor

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The circular economy is often seen as a tool for making society sustainable. In the debate about this subject, the three aspects of sustainability are usually referred to: social, ecological and economic. But in actual fact the debate about the circular economy only focuses on making material flows more sustainable. The social aspect of the circular economy is, at the most, only considered in terms of its potential impact on employment.

And that is strange, really. Because the principles of the circular economy can also be applied directly to human capital. ‘People flows’ can be made circular instead of linear, based on exactly the same argument that applies to material flows: to prevent waste and shortages. Given the tightness of labour markets in many countries, this is more relevant than ever before. In this column I will take a circular look at people. Because ultimately, without the human aspect, there cannot be a sustainable, circular system.

Circular economy

In literature about the circular economy, material flows are the central issue. We are trying to make these flows circular instead of linear. We do this by making the best possible use of the value of all resources that are used, by extending the useful life of products, by re-using materials, by using renewable alternatives for fossil materials and by using everything that we consume as efficiently as possible. The main reasons for wanting to do this are the depletion of resources due to their unbridled consumption and the mountain of waste that is created in the process. In this respect, circularity is therefore an instrument for making the economy sustainable focusing only on the ecological element. And when it comes to the social side, the point that is made is that the circular economy creates extra jobs. But that is not what I mean here.

The importance of channelling people flows

In addition to materials, human labour is, of course, also an input for the production of goods and services. In a sustainable economy we also want to make the best possible use of this production factor. Actually, the same applies here as for the careful use of materials: we want to prevent that there are not enough people to be able to work productively (scarcity) and we do not want to create (social) waste: people who drop out for a long period of time. In other words: we want to employ every person in a job that makes the most of what they have to offer and for as long as possible.

For a number of reasons that is more important now than ever before. First, the rising average age of the population is causing labour to become increasingly scarce. Whereas a number of years ago there were four persons at work for every pensioner, that ratio will be two to one in fifteen years’ time. This means that people will have to continue working for longer and that everyone who is able to contribute should preferably do so to the best of their ability.

Hans Stegeman, Head of Research and Investment Strategy at Triodos Investment Management, works on a PhD in circular economy.

Second, automation is causing the nature of jobs to change rapidly. And the same therefore applies to what businesses require from their employees. Further training and retraining of employees during their careers is thus becoming more important than ever. For many years, much has been written about both automation and the shortage that will arise on the labour market. This has, however, not yet resulted in big changes on the labour market.

Third, the transition to a circular or sustainable economy will accelerate the shifts in the skills that are required from employees. For instance, as the useful life of products becomes longer, the number of jobs in the manufacturing sector will decline. But there will be all the more jobs in the repair and logistics sectors.

Finally, we want people who need to continue working for longer to reach their pension age in an agreeable manner. As careers are becoming longer and the required skill sets are subject to constant change, we need to focus increasingly on preventing wastage of human talent.

Linearity dominates

The labour market is really still completely linear. The existing situation is that once we have completed our high school or university education, we expect our careers to take a linear course: increasing responsibilities, an increasingly higher salary, etc. And then retirement. This is an inappropriate perspective and the perfect example of the linear ‘take-make-dispose’ model. In this linear model, persons who no longer fit in or are no longer able to keep up, become human waste that is reliant on social security. This system is being kept alive to some extent by means of stopgaps: a little retraining here, an extra course there, etc. But the dominant pattern is still that people are mainly seen as production units, whose productivity must be used as efficiently as possible. And once their productivity no longer fits the bill, people become ‘stranded assets’.

A circular approach to the labour market can make employees more productive over their working life and enhance their happiness at work.
Hans Stegeman

What would a circular labour market look like?

People, however, are not materials. Making the labour market circular and sustainable may therefore be a much more complex endeavour. Because we are dealing with people who have feelings, needs and wishes. Also, people cannot simply be ‘transformed’, like we do with commodities. But what we do know, for instance based on everything that has been written on the subject of happiness, is that having a job has a positive effect on a person's happiness. That is why getting people to work as best and for as long as possible is not only important from an economic point of view, but also from the perspective of their sense of well-being. But it is possible to apply a number of elements that are derived from the discourse on the circular economy?

Let’s start with the idea of circularity. There is no reason why a career cannot consist of several cycles. Having completed your education you start a job, in which you reach the top of your productivity, the maximum level of job satisfaction and the maximum salary level. But these levels may fall again over time. For instance, because the nature of your job changes or because you become bored with the job. It is then time to embark on the next cycle: an extensive or shorter training course, a different job, etc. Taking a cyclical approach to the labour market can make employees more productive and enhance their happiness at work. However, this also means that steadily rising wages are a thing of the past. In the cyclical model, wages can and may fluctuate increasingly during the course of someone's working life.

When applying this cyclical approach, it can help to think in terms of the cycles that are often propagated with respect to the circular economy: reduce, re-use and recycle.

Reduce, in this case is about preventing inefficient use of labour. People who stay in a job for too long may well become less productive. But this also applies to people who cannot keep up due to technological progress or job dissatisfaction. Preventing or reducing such productivity declines requires timely action and ongoing retraining and refresher training.

The idea of re-use mainly consists of the notion that people with certain skills could potentially work in a totally different type of job. This could mean that their knowledge and skills are perhaps used in a slightly different manner.

Recycling, finally, is mainly about reactivating people who have dropped out of the labour process as quickly as possible. We have for years been referring to this process as ‘activating labour market policy’. There are limits to this, though, as is also the case for commodities. In the case of people, what a person can do is limited by his or her education, experience and talents: a window cleaner is unlikely to become a brain surgeon. But a schoolteacher could perhaps become an artist. Consequently, ‘upcycling’, i.e. becoming even more productive, becomes increasingly difficult for people who have progressed further in their career cycle. But finding a totally different job that provides job satisfaction instead of staying at home to watch the grass grow is still better than nothing.

Without the human factor there will be no circular economy

How can we get there?

Policymakers are already putting a lot of thought into cyclical approaches to career planning and the labour market. But we are not yet seeing this in practice. We still see that substantial investments are made in education at the start of a career, after which working life is expected to get under way. Careers are still being planned mainly in a linear fashion. Employees too, all too often base their spending patterns on a linear notion, which leaves them with few options if their salaries drop and they are unable to make ends meet at the end of the month.

Several things need to be done in order to bring about a drastic change in this respect. For instance, employees should be enabled to take control over their own careers. One way of doing this might be to provide them with training vouchers, which they could use as and when necessary at a particular point during their careers. What would also help is more individual pension entitlements. Wanting to avoid a pension gap should not be the reason for staying with an employer.

This may require a new balance between employment security and flexibility. I do not advocate more uncertainty here, for instance by giving everyone 5-year contracts, as some people would like, but one option might be flexible employment, in which case someone with a particular skill set might be transferred to a different employer on (virtually) the same employment terms. So flexible employers but permanent contracts. Temporary employment agencies also manage that. What also helps is transparency (for instance by using an electronic register, like blockchain).

Different way of thinking

Perhaps the most difficult to achieve, is that this will require a change in mindset from many people. They would have to learn to not simply count on an ever-increasing income and save more to become less reliant on a high salary.

A circular people flow will not be easy to develop. Maybe that is the reason why there is not much literature on this subject yet. But a circular economy with people who think exclusively in terms of linear career paths is not going to work either.

Read more about the circular economy

The ethic of growth and overabundance in our economic system is not sustainable, as natural resources are not unlimited, and the waste produced by the linear model seriously harms our ecosystem. We therefore need to transform our current economic system into a circular system that is regenerative by design.

As an impact investor, Triodos Investment Management selects companies that develop solutions to the world's most critical sustainability challenges. The circular economy is one of seven transition themes we have defined that will be instrumental in securing a sustainable future. These themes, which have been derived from global mega-trends that we believe will shape the future, guide the portfolio construction of our listed equity and bond funds, making sure we only invest in sustainable frontrunners.

Also read Hans' column True pricing is not enough to make an economy circular, in which he addresses some of the fundamental changes that are required to reach "something resembling a circular economy."

 

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