Though improving recyclability is commendable and necessary, the circular economy is being promoted as incremental change rather than the systemic overhaul it actually is. And if closing the loop isn’t yet possible, argues Sara Arnold in a Business of Fashion article, “shouldn’t we be reaching for the brakes instead of the accelerator?”

The performance economy (aka the functional service economy), though a component of the circular economy, is often side-lined for being apparently disruptive. Its pioneer, Walter Stahel, explains that companies that sell the performance of a good, rather than the goods themselves, can motivate a shift from linear to circular business models.

In a performance economy, consumers pay for the value they extract from a good (its performance) as and when they use it, motivating companies to focus on what benefits from the good the customer truly wants. Arnold gives an example from The Ellen MacArthur Foundation: a project in which Philips sold lighting as a service and increased profits by providing long-term performance using fewer resources, while the client paid less over time for the light it wanted. Another example is marketing a ‘pay-per-wash’ laundry service instead of selling washing machines.

Some of the many challenges in creating a performance economy that Arnold outlines in her article include:

  • In a performance economy, businesses need to invest in creating not physical durability but lasting desirability. For a true performance economy, creators should retain their creations and earn when they are in use so that they gain the monetary reward for longevity.
  • Design for post-ownership needs to be developed. This could involve high performance recyclable materials, pre-empting damage, design-led methods of repair, and a design processes involving continuous modification. It could also involve technologies to track goods, and measurement and feedback systems to continuously improve performance.
  • The performance economy requires a shift to labour-intensive localised processing, upgrading and mending, a problem where labour is expensive. Stahel points to sustainable taxation to accelerate the change to a performance economy and create jobs. Renewable resources could tax-free while non-renewables are taxed; labour, which is increasingly plentiful due to population growth, should be treated as a non-renewable.
  • In a performance economy, at the end of their consumer life goods are recycled and made into new items. However, if virgin resource extraction is not restrained, resources will become increasingly scarce, resulting in price surges and volatility.

On the demand side, Arnold points out that the post-ownership movement is growing strongly. For millennials with far less spending power than their parents, ownership may soon be an unnecessary luxury their parents wasted; the joys of having experiences will win out over the burdens of ownership. And a product doesn’t have to be owned for life by a single owner. ‘Static ownership’ leads to products sitting unused in our cupboards. However good our recycling processes, the problem of exclusive ownership and extensive storage space could remain unsolved.

But why, asks Arnold, is the performance economy better than selling goods with a more circular approach? It works because the efficiencies gained throughout the lifespan of the goods motivate creators to be responsible. Through retaining ownership, creators remain accountable for the goods they create, rather than leaving it to the unreliable general public. Electrical appliances are now, by European law, subject to a free take-back service. This type of legislation could be applied to other products but we, the public, are incredibly inefficient at closing the loop. According to Fashion Revolution, consumers wear items an average of just four times before discarding them. A study by Sainsbury’s found that 75% of UK consumers discard clothes as domestic waste even though 95% of these items can be reused or recycled. And even with the best will in the world, businesses cannot achieve full recycling – perhaps because of technological problems. For example, H&M is a leader in textile recycling but currently only 0.1% of clothing that is returned by consumers as part of its collection scheme is actually recycled.

We need a drastic overhaul of the system, says Arnold, and improved recycling isn’t enough. Nor is the exhortation to “buy less and cherish forever”. In the end, we need to believe that consumerism is not the only way to sustain an economy and that alternatives are not just necessary but can be better for all.


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