An Interview with Ron Gonen
Editor’s note: Ron Gonen is the author of THE WASTE FREE WORLD: How the Circular Economy Will Take Less, Make More, and Save the Planet. The book reveals the history of wasteful consumption, which has cheated us out of taxpayer money, lucrative innovation, and a habitable planet. And it makes a powerful, forward-looking case for a circular economy in which production, distribution, consumption, and reuse of products and materials both heals the planet and creates enormous economic opportunity. Jackson Hole Economics rarely recommends books, but this one is worth reading. You can find it on Amazon.
What is the circular economy?
“After WWII, the US economy formed a linear system of production. In order to manufacture a product you extract a natural resource. Use it once, and then dispose of it in a landfill. This is in the financial best interest of the extractive industries (oil, mining, timber) and the landfill industry. Every time a product is manufactured and used, there is a fee for extraction and disposal – that hits consumers and municipalities.
If you look at marketing and advertising before WWII, there is a focus on quality and durability and recycling was a patriotic virtue. The govt recognized that a good way to expand the economy was to reuse commodities.
For example, milk would be in glass bottles and then re-used. The consumer was never paying for packaging. This is a micro example of what we used to take for granted as the circular economy.”
What moved us towards the consumption economy?
“In 1961 former President Eisenhower gave a famous speech in which he explained that the military industrial complex built for WWII would want to be fed after the war ended. In a similar theme of warning, Rachel Carson – who wrote Silent Spring – warned us in 1962 that the chemicals being used to fuel WWII production were being used to grow crops and make plastics and as additives to different materials. Both essentially warned us that the circular economy was over because powerful corporate interests wanted it to be. this industrial complex was literally killing us.
A good cultural representation of this shift can be found in the TV show Mad Men. During the 1950’s, marketing and advertising changed to basically deliver the message to consumers that you need more and more products to be happy.
You have to remember, before the 1950’s, marketers focused on the quality and durability of a product. In the 1950’s, we saw a shift to a concept of consumption as a status symbol. What became known as a “keeping up with Jones’. There was an entire industry built to convince people of this. And It was built on the idea of ending the circular economy in favor of a linear economy.”
What kinds of economic changes enabled our shift to hyper-consumption?
“The war-time industries were the inflection catalyst that changed the way we thought about consumption. During WWII we figured out how to much more efficiently extract natural resource and move them around the world cost-effectively.
This was mostly in the US, as Europe and Japan were in bad shape financially and also didn’t have the physical space to dispose of things the same way.
Around this time the concept of GDP took hold as the de facto leading indicator of progress. If you think about what GDP measures, it is about how much stuff you make. Importantly, it does not measure the price paid for goods and if people made a living wage making it. It doesn’t measure if the air is clean. A robust GDP number might mean you created so much air pollution that you can barely breathe outside – fundamentally, it is an economic indicator that doesn’t take into account what members of society actually want measured, such as quality of education, safety of a neighborhood, access to quality healthcare, etc.
GDP supposedly tells us if our economy is doing well because of the units we produced, but this can be directly correlated to our overall well-being going down.”
What other forces have enabled the consumption economy?
“After WWII, the extractive industries became the most powerful and largest companies in America, e.g. oil companies, gas, transportation. This has directly translated into ‘policy’ decisions at odds with overall well-being.
Consider car accidents, the leading cause of death in America. Most people would prefer public transportation to sitting in traffic, but the bulk of tax dollars have not flowed into the development of public transportation, but into development of highways for the benefit of auto and extractive industries.
If you look at Amtrak, they carry more people from Boston to NYC and NYC to Washington DC than all the airlines combined. And people are more productive in a train then when flying. But instead of spending resources on Amtrak, we have been spending it on highways and driving and airports – due to political power of oil and gas industries.”
How can this world view change?
“We need a system that is more transparent about where costs exist.
In the 1970’s Milton Friedman created the shareholder primacy doctrine that became the norm. Around the same time America was in the midst of the oil crisis and the oil industry couldn’t mask the fact that a bigger car and more cars had real costs. The long gas lines should have made people realize the more is better story wasn’t working.
And yet, Friedman’s economic thesis enabled certain industries and individuals to make a lot of money and become held up as the paragon of success. In the movie Wall Street, Gordon Gekko’s ‘Greed is Good’ speech personified Milton Friedman’s worldview. Economics, and really the pursuit of money, became culture, which led to a lot of lost shareholder value and economic destruction along the way. The results speak for themselves: real wages of American workers declined 3% between 1981 – 2014, despite a significant increase in productivity during the same period. Conversely, wages for the top 1% increased 176% over that period. In parallel, global greenhouse gas emissions more than doubled between 1975 and 2019.
To change this, we need to make costs more transparent.
For example, waste in the US is not treated as a utility, but as a common expense. Let’s say we treated waste like we treat electricity. If you leave your lights on, your neighbor is not going to pay for that. But when it comes to waste, we hide the cost of disposing of it the general tax budget for most communities.
Consider that NYC pays about $4bn over 10 years to dispose of waste in its landfills.
This is a tragedy of the commons problem and rewards the laziest among us, and is a direct result of the political lobbying of the industrial complex. Attempts to change this, sometimes called ‘Pay as you Throw,’ are usually quashed by the extractive industries.
We live in a system that often promotes itself as the pinnacle of capitalism, but in reality is gamed for the financial benefit of select industries.”
Is a circular economy better in terms of financial returns, for all involved?
“Yes, but short-term thinking is the challenge.
If you take a 5 year snapshot relying solely on virgin plastic vs recycled plastic, it is always cheaper for a company rely recycle material if they can get access to it. The challenge is that during the 5 year period, because of the volatility of oil, there will be periods where it is cheaper not to recycle.
Paul Polman, former CEO Unilever, moved the company to circular production. During his ten years at the helm, Polman made a series of acquisitions of brands making serious commitments to improving environmental and social conditions, including, in addition to Seventh Generation, Ben & Jerry’s, Dove, Lipton, Hellmann’s, and Knorr. In announcing the plan, Polman argued that “sustainability isn’t just the right thing to do, it is essential to drive business growth,” and while he faced considerable pushback from board members and powerful shareholders, he handily made the case.
In 2019, Unilever announced that the twenty-eight total Sustainable Living brands grew 69 percent faster than its other brands and accounted for 75 percent of the company’s growth. The market has most definitely taken note— Unilever delivered a whopping 290 percent return on shareholder investment over the course of Polman’s tenure. The company also reports that it avoided $1billion in costs. Polman stresses that becoming a good environmental steward is vital for attracting the best workers, as so many millennials consider a company’s commitment to environmentalism as a major factor in whether or not to accept a job offer.
The Dutch electronics company Phillips is another good example. When a customer is done with their product, Philips offers to pick it up and give them the next product. They understand that most expensive part of a company’s value chain is finding the customer and keeping him or her. So, how do you keep the customer? Answer: when you are done using my product, call me and I will replace it.
Car industries work similarly – lease a car, bring it back, and get another car.
P&G is starting to do a good job of this by employing reusable models around detergent and deodorant. When they can sell a product without the packaging, their margins go up.
Consumer goods companies are all motivated to sell products with less packaging. They now realize they can improve margins while improving environmental impacts. The fact is, federal and state subsidiaries are what drive use of virgin plastic instead of recycled plastic. Most of what we see as the best priced product on the market are not because of capitalism (e.g. competition producing the best outcome), but because that industry convinced politicians to give them access to our tax dollars, enabling them to underprice their competitors.”
How else is the circular economy a net positive?
“Transitioning to circular methods of production, distribution, consumption, and reuse of products and materials will heal our planet and generate enormous economic opportunities. Innovative entrepreneurs can build transformative and fast-growing businesses with circular solutions. Corporate behemoths can reduce materials acquisition, packaging, and transport costs, while de- lighting customers with their planet-friendly progressivism. We consumers can save considerably by purchasing longer-lived products, getting them repaired and upgraded, and purchasing only the service we want from a product, rather than paying the excessive expense of actually owning the product. A circular economy ensures that consumers, consumer goods companies, and municipalities are owners of an economy that works to their benefit. It does away with the hundreds of billions of dollars in costly extraction and landfill fees that we have been paying for the past seventy- five years. Equally important, it prohibits the theft of our oceans and our land by polluters who claim it’s necessary for the development and growth of our economy. It is not. In a circular economy, scamming is not rewarded, but merit, hard work, transparency, and innovation are.
As we move into the next evolution of product design and manufacturing, the circular economy will provide us the opportunity to benefit from the innovations of past revolutions in manufacturing while also maintaining our personal, family, and societal health. Transparency will be at the core of production, which will lead to the equitable practice of ensuring that manufacturers and brands will profit or lose based on their ability to generate holistic value—that includes their shareholders, customers, and the communities in which they manufacture and sell. Those that profited in the previous era will be consigned to their rightful place: the wastebin of history. Those that build value from circular business practices, aligned with their shareholders, customers, and their communities, will build lasting value in a world in which building a profitable business and preserving our health and environment are synonymous. In doing so, we can repudiate the gospel of waste and instead champion the ethic of circular consumption.”