By now, it’s no secret that gross domestic product (GDP) isn’t the best measure of human development. Yet many economists and government officials still treat GDP as the ultimate signifier of a nation’s prosperity. While economic growth has raised standards of living worldwide, focusing solely on GDP to measure well-being ignores the negative impacts of economic growth on society and nature, such as income inequality and pollution. What’s more, GDP growth is linked to a distinctly linear economic model—one that tightly couples the expansion of economic activity with the extraction and consumption of finite resources, leading to the exploitation of humanity and nature.

The circular economy—one that aims to separate human well-being from material consumption—offers an alternative. Last year, the Circularity Gap Report 2023, authored by Amsterdam-based impact organisation Circle Economy Foundation, found that we can deliver on societal needs such as housing, nutrition, mobility and consumer goods with 30% less of the materials we use now, reversing the overshoot of five planetary boundaries. This year’s global Circularity Gap Report shifts focus from the ‘what’ to the ‘how’ with enabling recommendations for policy, finance and labour, highlighting that it’s time to expand our measure of development to include quality of life for all human beings and the planet we inhabit. 

Shaping the economy for the common good

The transition to a circular economy has the potential to deliver economic and social benefits within the planet’s ecological limits—the question remains: how? I sat down with Álvaro Conde, Senior Researcher and Lead Author of the Circularity Gap Report (CGR) 2024, to answer this question. CGR 2024 makes bold recommendations for decision-makers. Namely, it argues that societies must break free of flawed development patterns that continue to fuel human and planetary exploitation. In general, Conde says, ‘We need to shift our mindset from looking at the economy and the goal of the economy as growing and maximising economic output year on year to how do we provide well-being for everyone within the limits of the planet?’ 

The Report argues that achieving such a shift requires collective backing from governments, finance, businesses and citizens to connect the policies, capital and people crucial for realising a circular economy. Importantly, Conde argues that when it comes to policy, governments must move from a market-fixing to market-shaping approach to economics: ‘Policymakers are forever reacting to market failures when we should pursue proactive strategies to shape the economy for the common good. In this sense, it is policymakers and legal frameworks that set the rules of the game. So, we need to redefine the rules of that game. I always make this analogy: if you want to change how someone dances, you have to change the music.’

Policy and finance must work in tandem to promote circularity

While public policy has the power to shift priorities and redefine the ‘rules of the game’ to facilitate systemic change, the growing role of the financial sector limits the government's ability to enact change, particularly in low- and middle-income countries. This means that, in the current linear system, countries’ GDP and national income can rise while environmental health and human well-being fall. With this in mind, governments must actively support mission-driven innovation, redesign markets to maximise public value creation, align on purpose-driven strategies and reduce inequality to maximise the environmental, social and economic potential of the circular economy. 

The question remains, however: what does this look like in practice? When it comes to realising the circular economy, the importance of fiscal reform cannot be understated. Conde reiterates this point, noting that ‘Policy reform should change the sets of carrots and sticks that influence how other actors in the economy behave—and a very important actor in the economy is financial institutions. Of course, we want to shape markets in a way that incentivises capital allocation towards circular economy activities such as infrastructure or scaling certain activities such as regenerative agriculture, research and innovation for the social good, etcetera.’

A just circular transition must include decent jobs

Ultimately, financial flows determine which ideas are realised and which activities and businesses are funded and scaled. Financing is necessary for circular solutions to replace linear practices and should particularly be directed at activities that bring about positive impact, such as cuts to virgin material use and the provision of decent work. This is where people come into the picture. Conde points out that ‘We need to ensure that the measures put in place bring everybody on board and that we embed this kind of just transition lens and social angle to everything that is done… Because if not, we run the risk of also just pursuing circularity for the sake of it while not fully capitalising on all of those social elements that are not only necessary but are fundamental.’

Finally, the Report looks at the labour market as a pivotal lever for driving the circular transition. To bring circular interventions to life around the world, it will be key to uncover the people, skills and roles pivotal for success, keeping in mind atypical forms of work—temporary, flexible or informal work—and considering the interplay of social equity and gender dynamics. If the circular transition is managed equitably and effectively, it can positively impact the labour market by providing new job opportunities, raising job standards and reducing inequalities.

Solutions must be tailored to specific country contexts

Realising systemic change requires enablers that can overcome challenges specific to different countries. To this end, the CGR 2024 categorises countries as Build, Shift and Grow—representing low-, middle- and high-Human Development Index nations, respectively. It is important to recognise that the three enablers of policy, finance and people are not isolated from each other—they are deeply intertwined. Each faces its own barriers in its own country profile.

Conde emphasises the importance of understanding each country's specific context: ‘Of course, each country is very different. It has its own set of challenges, its own level of development, its own economic structure, natural endowments and political economy. So, a range of options exist to reduce resource use and cut emissions within each country. What is clear is that we need strong, deliberate policy action to motivate the take-up of these options that exist.’

Nothing is possible without international collaboration

In the end, it is clear that to make widespread systemic change possible, certain organisations must realign themselves with the realities of the 21st century. International institutions like the UN, World Trade Organisation, World Bank and International Monetary Fund still operate within frameworks established in the 1950s rather than the current landscape of 2024. ‘And these are definitely the international institutions we need, and we need them to do a better job’, notes Conde. ‘They need to better reflect the world of today in order to fully enable a more collaborative and inclusive international system.’

Transforming these international institutions will not only make it easier for countries to work together but can contribute to a more just world for all. If we aspire to alter our course, we must first alter the guiding principles. In other words, to quote Conde, if we want to change how we dance, we must first change the music. 

Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.