Governments Should Subsidize Loop-Based Business Models
March 18th, 2011 by Piotr Jędrzejuk
Carbon may speed up the growth of trees (in the short-term) but certainly not our economy. For many decades, businesses were only functioning in one direction. This will have to change in the coming years, since such a one-way business focus, known as the river economy, is only focused on production of goods and leaving them in the hands of consumers, who throw them away after their product-life has ended. This will become less profitable in the coming years as the cost of natural resources will increase, resulting in higher development costs. The future belongs to closed-looped practices, which requires that manufacturers collect their used products and rebuild them using the processed resources instead of collecting raw resources and endlessly destroying our environment. Closed-looped business practices will help businesses to minimize their waste and resource consumption, create jobs, and yet save the environments they rely on.
In the mid-1980s, Swiss visionary Walter R. Stahel proposed a new industrial model called the “service economy.” The service economy was based on selling a service rather than having a client obtain the full ownership of a product. The client would now simply lease/rent the product, paying only for its usage, and have the manufacture maintain it at no additional cost. The product, during its lifetime, would be constantly repaired, reused, and re-manufactured by the manufacture. Stahel called this process “cradle-to-cradle,” now also known as the “circular economy.”
The idea is to minimize resource usage and maximize the product’s durability. In the end, the customer has a high-quality product which will serve its purpose and last a long time. At the same time, this will create jobs, due to the required maintenance of the product, and conserve the environment, since the usage of virgin materials will greatly diminish. The reuse of materials will significantly reduce energy consumption as “three times as much energy is used to extract virgin or primary materials as is used to manufacture products from those materials.”
The loop economy will have a positive contribution to the economy as a whole. It will create jobs and long-term demand for useful services. This will have a positive impact on the GDP of a country where this is practiced due to the circular flow of income. Governments should give subsides and tax incentives for organizations that are insisting on converting their business models from the open-based ones to the loop-based ones. Many examples of such companies are presented in Stahel’s book “The Performance Economy,” which I may expound on in future articles. Numerous case studies are also available on the Product-Life Institute website, as well as on the Sustainable Business Performance (SBP) website.
Follow Piotr Jędrzejuk on twitter @sustainbusper
Image via Werner Kunz (werkunz1)
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About the Author
Piotr Jędrzejuk is founder and webmaster of the Sustainable Business Performance online community. He is a passionate and experienced IT specialist with a multicultural background. Piotr's focus is web development, graphic design and search engine marketing. He's also into green living, and sustainability. You can follow him on Twitter @sustainbusper
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