Forbes, Andrew Cave
Should economies be “sharing” or “circular?” The first term describes how the distributive power of the internet is helping people to rent and sell assets and abilities that that were previously virtually unmarketable.
The second, meanwhile, is the end goal of what used to be called closed loop recycling – genuinely enabling the renewal of existing resources, rather than continuing to need to mine for new ones.
Are these passing trends or new, sustainable ways of operating? And which has the earliest chance of becoming reality?
The sharing economy has the most momentum. Led by taxi company Uber and lettings provider Airbnb, the sector is already said to be a $15 billion-a-year industry, mainly in the US, while British business minister Matthew Hancock sees Leeds and Manchester becoming “leading international lights” in an exciting new sector that he believes could be worth up to £9 billion to the UK by 2025”.
“The Business of Sharing: Making It In The New Sharing Economy,” a new book by Alex Stephany, chief executive of shared parking website JustPark, lists 68 sharing economy companies in sectors ranging from home, car and ride-sharing to clothes, books dogs, food and from London to Singapore, Sydney, Barcelona, Paris, Switzerland, The Netherlands and Germany.
Fighting against the tide
There are thousands more globally. In Britain, car-sharing network Liftshare was set up by student Ali Clabburn in Britain back in 1998 – two weeks before Google was founded. The company is now Britain’s largest sharing economy website with 560,000 individual members who use the service for free and more than 650 corporate customers including Tesco, Glaxo SmithKline and Heathrow Airport, who pay fees to organise ride-sharing networks for their staff.
“We’re fighting against this tide of 50 years of marketing for individualism and the need to own things,” says Clabburn. “There were certain things that you needed to own but now it’s pretty much just your mobile phone. Everything else you can share or borrow or rent.”
Many sharing economy firms have a more capitalist motivation. Take Trucker Path, a Californian start-up company aiming to be “Uber for truckers”. Connecting via a smartphone app truck drivers looking for work and companies seeking to ship freight, it cuts out logistics brokers and other middlemen. The firm also attracts truckers by offering crowdsourced data on the nearest weighing and gas stations, rest stops and truck parking spaces.
Founder Ivan Tsybaev sees huge opportunity, claiming to have 150,000 active users on the platform and to be experiencing monthly growth of more than 20 per cent. The company is still making losses but has ambitious plans to attract revenues of $80m in its first year of operating, rising to $900m by year five. And trucking is a $650bn-a-year industry in the US alone.
“There are so many middlemen, including brokers, and truckers can’t deal with shippers directly,” states Tsybaev. “We are working to reduce the number of middlemen, and optimise the process so truckers don’t have to go through them. That will save them money. The American trucking industry definitely needs changes. It’s back in the 1990s or early 2000s in terms of the technology, and this multiplies middlemen in the industry who increase the transportation costs to shippers and decrease the truckers’ profits. Our mission is to solve not only economic, but also social problems in the industry. Truckers deserve to earn more and America needs to make trucking more appealing for the younger generation.”
Is it sustainable?
How sustainable is all this? Stephany injects some caution, pointing to sharing economy disadvantages including a “threat to the commons”, monetisation of neighbourhoods and erosion of labour rights.
“It’s easy to say that sharing is good for efficient markets,” he writes. “It’s not so easy to say that sharing is good for a growing economy that depends on new shoppers. Pessimists would say that the sharing economy is a smaller economy. In reality, however, capital is reallocated. Decreased spend on homes, cars and clothes finds its way into banks, where it is reborn as capital for new businesses that create jobs and keep the wheels of growth turning. Finally, popular consumer technologies create new wealth by growing the size of their markets. Far more people now take taxis because apps like Lyft have made them cheap and available within a few taps.”
Stephany does believe that there are benefits behind the hype, however. “Much is promised of the sharing economy, often too much,” he writes. “In fact, so much has been promised that it could prove to be mostly hot air but still of enormous economic, social and environment consequence. We are used to dystopian visions of the future in science fiction. However, the sharing economy is a trend that posits that the 21st Century could actually see more prosperity and social harmony and less alienation, needless pollution and consumption than the previous one. For now, the sharing economy promises to be 80 per cent good and 20 per cent bad. That is as much as any moralist, consumer, politician or executive could ever hope for.”
What then of the prospects for the circular economy? Defined by lobbying group Circle Economy as “an economic system that operates within our planetary boundaries,” it aims to “decouple growth and prosperity from the use of natural resources and ecosystems”.
By “feeding products, components, untapped resources and materials back into the appropriate value chains,” Circle Economy states that a “healthy economy that is inspired by and in balance with nature” can be created.
Phil Martens, chief executive of Novelis, the Indian-owned, Atlanta-based company which is the world’s largest producer of rolled aluminium, believes this is not over-idealistic talk. The group has set a target to increase the recycled content of its aluminium to 80 per cent by 2020, from just 32 per cent back in 2011, backed by a $500m investment in new plant. It claims this is a first in its industry, whose high recyclable content makes it one of the early contenders to reach circular status.
“We have just crossed the 50 per cent barrier and we have installed capacity that will get us above 70 per cent,” says Martens. “Going to totally recycled aluminium is absolutely a possibility. When we said in 2011 that we were going to move our business away from a miner of aluminium that’s produced for us to be effectively an urban miner of scrap, that was a radical step for this industry. We’re changing the whole basis of the industry by doing this. It gives us the opportunity to halve our greenhouse gas emissions.”
Martens believes that three themes are driving Novelis’s leadership in embracing a circular economy. He argues that sustainable business and a sustainable environment are going to have to co-exist, given the demographic and materials constraints that the world faces. Secondly, he expects consumers to come to appreciate goods made from recycled material, provided that it has the same performance specifications as its new counterpart. Finally, regulatory changes are forcing manufacturers and packagers to switch to lower energy materials, such as aluminium.
It also makes sense for business strategy reasons, argues Martens. “If you don’t control your own supply agenda and your own costs, and others control those things for you, you can never be the low cost producer,” he says.
Novelis has just opened what it believes is the largest closed loop recycling system in the world for car-maker Ford. “Getting to 80 per cent used to be seen as a never-ending goal that nobody has ever achieved,” says Martens. “But not only are we are on our way to doing it, we are bringing forward recycled products that are equal to or better than those that our competitors are producing from prime. And we’re finding that more and more of our customers have a similar thesis to ours. It has provided us with a powerful platform on which to move the business forward. It started out not as a generator of profits but of a better business environment. But ultimately it is succeeding because it’s doing both.”