- COVID-19 puts constraints on the current economic model.
- We are likely to see a new operating model emerging for our economies.
- The new trends are in line with the fundamentals of a circular economy.
COVID-19 has several similarities to the climate crisis. We are limited by the capacity of a system, be it nature’s capacity to rejuvenate, or the healthcare system’s capacity to treat the sick. We are forced to look for alternatives in order to do the things that are not viable anymore.
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COVID-19 is seen as the first crisis of the Anthropocene where economic activity has come in direct opposition to public health. When we are forced to think of new ways to make things work, it is likely that we will have new trends in the way we produce, distribute, purchase and consume things. Those trends, influenced by our new limitations, seem to favour a circular economy – the only economic philosophy that can sustainably cater to people’s needs in the long run.
A circular economy is an alternative economic model, where products and services are designed with the end in mind. Production encourages regeneration and repurposing, allowing the materials to be diverted back to industrial or biological nutrient cycles. Consumption and markets are designed to optimize the use of existing products, and access to products is encouraged over ownership.
So, how will a post-pandemic world look with a circular economy?
1. Pay for service
Consumer behaviour has been dramatic during the pandemic. Hoarding, panic buying and even hi-jacking at a government level. What one person considers essential and how they plan to face a crisis can be very different to somebody else. People may take a “collector” approach with a focus on owning goods, or a “collective-sharer” approach focused on sharing the service of goods.
Sharing models developed to exchange products may not be perceived well in this pandemic due to hygiene concerns. However, had the “pay for performance” or “access over ownership” service models been in place, they could have been a great solution to provide flexibility.
Faced with a drop in income, consumers will be less burdened with paying fixed costs, to own and operate a washing machine, for example. Having the option to pay for a service rather than own a good provides alternatives to manage consumption, either by reducing expenditure, or opting for the basic alternative (in this case, to hand wash). Product service systems designed to avoid contact, offer excellent flexibility for consumers to “lighten the load” in the new world of uncertainty.
2. Self-containment and local consumption
Maintaining food security and continuous operation of supply lines is crucial for any economy during a crisis. Those countries that rely on imports have continued to find it challenging. Supply chain disruption curtailed the movement of goods to their destination markets causing shortages, and the pandemic is expected to send 265 million people in 2020 to hunger.
There is hardly any way that we can envisage a future operating under long-term restrictions without encouraging local alternative supplies and opening up local markets. This is what a circular economy encourages – local supply chains to allow local circulation of nutrient flows. When countries ease lockdown, many are likely to attempt to operate with restricted activity across borders for some time, further encouraging economic activities to be more or less self-contained.
3. Short supply chains and decreased dependency beyond borders
De-globalization is a clear trend we see post COVID-19. World trade is expected to contract between 13% and 32% in 2020, which not only indicates finished goods but also materials and components used in industrial production.
The reliance on international supply chains may start to be seen as riskier than sourcing products and components locally. As borders become barriers for the free flow of material, the bird in the hand could be worth more than two in the bush. Achieving security in the supply of components for production will not be easy to achieve without anticipating inventory build-up or shortages, so local production chains may be considered more favourably than before. The repair economy and local micro industries may also be valued for providing a reliable supply of products within reach, compared to a long supply chain delivering a cheaper good.
4. Capping consumption, based on capacity limitations and priority
Our needs for survival, community and engagement and even entertainment were previously all bundled into a single lifestyle package. If we have limited availability of resources, we need to make it easier to prioritize those needs. We can expect consumption to be grouped and classified, to allow governments to respond quickly to crises in a post-pandemic world. COVID-19 is likely to prepare governments to have a hierarchy of activities it deems crucial for survival, continuity and anything above.
What is the World Economic Forum doing to manage emerging risks from COVID-19?
The first global pandemic in more than 100 years, COVID-19 has spread throughout the world at an unprecedented speed. At the time of writing, 4.5 million cases have been confirmed and more than 300,000 people have died due to the virus.
As countries seek to recover, some of the more long-term economic, business, environmental, societal and technological challenges and opportunities are just beginning to become visible.
To help all stakeholders – communities, governments, businesses and individuals understand the emerging risks and follow-on effects generated by the impact of the coronavirus pandemic, the World Economic Forum, in collaboration with Marsh and McLennan and Zurich Insurance Group, has launched its COVID-19 Risks Outlook: A Preliminary Mapping and its Implications - a companion for decision-makers, building on the Forum’s annual Global Risks Report.
Companies are invited to join the Forum’s work to help manage the identified emerging risks of COVID-19 across industries to shape a better future. Read the full COVID-19 Risks Outlook: A Preliminary Mapping and its Implications report here, and our impact story with further information.
The pandemic has paused mass consumption to some extent. It is too early to say whether the new world after the pandemic will get “back to normal” and return to previous levels of consumption. In terms of services, some will be lost, while other interconnected and dependent ones, such as travel and leisure, may take a longer time to recover.
The involuntary digital transformation is likely to let organizations continue to encourage remote working more than before, even after social distancing is eased. Caution and time taken to build confidence to socialize may also play a role. The balance between productivity and cost savings it seems to present does not suggest a likely reversal of the trend.
We are yet to know what the “new normal” will be. Going through the pandemic will change the way we think and our attitude towards risk. Circular economy strategists need to rise above the crisis with the next level of thinking to reshape the formulation of the new economy, so that it is more environmentally conscious and responsible than the previous.