A hype of economic paradigms!?

In recent years various economic paradigms have come by. Some are more concepts and fit within our current economic model, others aim for a transition to a new status quo. Why are so many paradigms emerging, are they just a hype, are they truly new economic systems or have they become a container concept for everything that should be done to fix the problems of our current economy.

Before answering those question, this blog post is an inventory of the various paradigms, a quick explanation, and if known, their origins. In a previous post on the resource hierarchy I have linked these paradigms to this waste ladder.

Circular Economy

Pearce and Turner were the first to mention the phrase Circular Economy in their book “Economics of Natural Resources and the Environment” published in 1990. By now the definition of the Circular Economy has been largely shaped by the Ellen MacArthur Foundation. However, scientific research is still lacking on what it actually is and what its implications are. Therefore various perspectives exist and are propagated. The most common ground found between various perspectives is that in a circular economy resources are used to last (no planned obsolescence), do not become obsolete (means of reuse and recycling), nor are they destroyed or leaked (incineration and land fill). The circular economy considers both technical and biological resource cycles and therefore the full waste hierarchy.

Bio-based Economy

In 1997 Enriquez and Martinez first mentioned the concept of a bio-based economy in a paper on genomics and the world economy. The bio-based economy is one that is based upon biological materials that can be composted and act as feedstock for the growth of new crops. It is often seen as one side of the circular economy and closely related to the food waste scale (Moerman hierarchy). A common issue with the bio-based economy is the competition of land use for production of food and the production of feedstock for other purposes (ie bio-oil for mixing with gasoline, or production of bioplastics). The way to solve this is to use only those parts of the plant that cannot be used as food for human or animal. A second problem that may occur that if all biological material is used for economic activities (food and chemical processing) all natural fall-off of plants will not be able to enrich the soil, possibly leading to top-soil degradation.

Green Economy

The green economy is one that reduces environmental risks and use of resources thereby supporting environmental recovery and development while growth is still possible. Social equity is also important as the green economy should be inclusive. A very distinctive profile from the circular economy or ecological economy is not present. However, valuation of natural capital and ecological services is a key element. That is also its weakness as valuation of systems that we do not fully understand (ecosystems and even social systems) is very difficult. Valuing it in monetary terms does not do justice to them and allows room for calculating economic trade-offs. That may cause problems as damage done to natural capital cannot be restored or is even irreversible.

Blue Economy

The blue economy emerged as idea from the “Nature’s 100 Best” UNEP project to find ways for a new sustainable economy. Gunter Pauli became its philosophical father of the idea and promoted it. The blue economy is about adding more value beside revenues for business and societies. New business models use all available resources, cluster activities and cascade to higher levels of efficiency. It is based upon 6 main principles: local sourcing, efficiency, systemic (mimic nature), profitable (generate multiple cash flows), abundant (satisfy all basic needs), innovative. These are not very distinctive principles in relation to the other economic paradigms on this page. The focus in many blue economy best practices is on the biological side of the economy and cascaded use of resources.

Ecological Economy

An ecological economy is about the balance between all ecological systems in relation to the economy, it is the linkage between two different academic fields. Next to that it looks at this linkage from other academic perspectives as well: from a psychological, anthropological, archaeological and historical perspective. Because it is the human factor that lets the economy run and interact with the ecological spheres (hydrosphere, biosphere, lithosphere and atmosphere). Each of these spheres have their own historical context far beyond mankind existed. Taking these perspectives into account allows us better value the impacts of current ecological or economical developments. Important within the ecological economy are the interactions between each of the spheres, their regenerative capacity and their sink function.

Performance Economy

The performance economy was introduced by Walter Stahel, who also plays a part in the historic development of the Circular Economy, in his book the Performance Economy. Basically it is about a shift from ownership to usage. Access to services is more important than ownership of products and capital. For example Light-as-a-Service in which you buy light and don’t have to worry about bulbs, electricity bills and other requirements. The producers takes care of that. The idea is that this gives an incentive to the producers to make their products last longer, more energy efficient and suitable for reuse and recycling. Their profit is more security of income over time and the possibility to control their flow of raw materials avoiding price fluctuations.

The performance economy is not a new phenomena. The good old library is a perfect example of a product based service that fits in this theory: offer the performance to read without the ownership. Also sharing, renting and leasing are business models that fit within the idea of a performance economy. That is why the Leasing Economy and Sharing Economy are also economic paradigms that are often mentioned. The Leasing Economy as described by Judith Merkies is rather similar to the performance economy so I won’t get into that. The Sharing economy has some distinctive features that I’ll discuss right below.

Sharing Economy

The sharing economy, is very much similar to the performance economy except that it is a “service contract” between consumers instead of producer-consumer. It therefore also focusses on access and services instead of ownership. However, ownership of a product is still needed to be able to share. However, not every individual needs to own the same product. These goods are shared among the public, often through platforms. This sharing causing products to become services, but unlike the performance economy sharing contracts are often only temporarily. True sharing-economy services are non-profit. Common problems of the sharing economy is liability and risk management. Who is responsible and who pays, that requires new forms of insurance and possibly legislation as well.

Gig Economy

The gig economy is also a performance based paradigm, currently gaining attention in the US. It differs from the performance economy in the way that it is about temporarily performance. It focusses especially short service (contracts) created by independent professionals or short usage of products. Platforms like Uber, HomeAdvisor and Peerby let people access these “gigs”. Obviously not everything can be turned into a gig, and so the entire economy will not become a gig economy, but it could become a large subeconomy or eventually a specific economic sector.

Smart Economy

The concept of a smart economy is an economy in which technology supports economic choices. For example the use of open data and the internet of things to streamline economic activities, innovation and resource flows in combination with new business models. It is seen as one of the elements of a Smart City, just as smart governance, smart environment, smart living and smart environment. Within this economy new technologies are seen as a driver and solution to socio-economic challenges and enablers for new growth. Important within a smart economy is the digital infrastructure for the internet of things and the access of open data.

Next or New Economy

Two similar paradigms are also gaining attention in the last two years. Especially in the Netherlands where Jeremy Rifkin is developing a road map for a Next Economy for the Rotterdam Region and Marga Hoek who wrote a management book on New Economy Business. The idea of the next and new economy is that it is value enriching, low-carbon, is continuous innovative, disruptive, opportunity rich and export-oriented. In this economy new business models and technologies are developed to break away from current practices in all sectors. Similar to the smart economy is is are the necessities of new infrastructures and networks to enable disruptive changes in supply and demand.

A hype or a true future economy?

The above “economic paradigms”are not the only ones that get much attention. Others are the plastic economy, the network economy and so on. In general they seem to be a names for a new way of thinking and organising some or most economic activities. Whether these are true economies on their own can be doubted. For example not the entire economy will become a sharing or performance economy: some people or organisations will still own products. It is likely though that there will be a shift from current economic practices towards these. And most of them overlap or can coexist. The smart economy and the circular economy work very well together, and maybe that is close to what is meant with a new economy. In that perspectives, these “economic paradigms” seem to be more names for trends that are observed within our economy: technology is becoming more important just as sustainability. And to comprehend these trends we tend to contain them in a single phrase. Right now that is an economic paradigm with an adjective.

The question is however whether naming them an economy is a good practice. It seems to reduce these trends to a financial model only while it also has social and environmental impacts. The ecological economy is maybe the one that explicitly tries to link those other fields to each other based on scientific studies. Other paradigms have predecessors such as the Circular Economy had Cradle to Cradle and Industrial Ecology. Those predecessors hyped for a couple of years and so might these current economic paradigms hype as well.

Let’s find out in five or ten years. One certainty: as long as humans will exist there will always be some form of economy, with or without an adjective.