The circular economy: theory in search of a balance-sheet

The circular economy is everywhere. Brussels has made it a pillar of its Green Deal. Ministers sprinkle speeches with it. Consultants sell it. Asset managers advertise trillion-dollar “loop” funds. The dream is neat: waste disappears, products live many lives and growth breaks its link with digging more stuff out of the ground.

Yet for an idea called an economy it suffers a revealing absence—economists. Most high-profile champions come from engineering or design, not from economics faculties. The result is an agenda that borrows economic words—capital, value, markets—while ignoring the discipline’s wiring.

Good story, weak numbers

Look past the marketing decks and the data disappoints. Only 7.2 % of the world’s material use now comes from secondary (re-used) sources, down from 9.1 % in 2018 circularity-gap.world. Electronic waste hit 62 m tonnes in 2022, but barely one-fifth was recycled itu.int. If the circular model were winning, those numbers would be moving the other way.

Advocates respond with hefty opportunity estimates. McKinsey says Europe alone could unlock €1.8 trn by 2030 and more than $1 trn by 2050 mckinsey.commckinsey.com. Fine, but where are the income statements? Almost no study lays out margins, payback periods or capital costs for circular plants versus linear ones. A trillion in potential tells investors nothing about return.

Growth: friend or foe?

Mainstream economics assumes growth funds jobs, tax revenues and innovation. Circular thinking often flirts with the opposite: prosperity without growth or even degrowth. That idea is morally tidy—less stuff, cleaner planet—but collides with how every advanced economy pays its bills. Unless circular models deliver similar output with fewer inputs, governments will struggle to keep hospitals running and debts serviced.

The efficiency illusion

Many loop strategies cost more than they save. Repair and remanufacture are labour-heavy; reverse logistics multiplies trips; quality-control on reclaimed materials eats time. A recycled plastic pellet can cost more than virgin resin imported by the shipload. Smartphone refurbishment is telling: labour and testing add 20–30 % to unit cost, erasing much of the value recovered.

Economists call this opportunity cost; circular slogans prefer to ignore it.

Policy tries to tilt the field

Governments have begun adding some missing incentives. In May 2024 the EU adopted a Right-to-Repair Directive obliging firms to make fixes easy and cheap rather than push new sales consilium.europa.eu. Similar rules are creeping into American states. These laws shift profit signals: a seller who once earned only from the first transaction must now weigh an aftermarket of spares and service.

Still, subsidy remains the main tool. Many circular pilots survive on grants or tax credits. That may nurture innovation, but it is not a business model.

What an economist would ask

1. Price the externality
   • Landfill levies and carbon prices remain low. Raising them would narrow the cost gap between virgin and recycled inputs.
2. Tax extraction, not labour
   • Switching part of payroll tax to raw-material tax would make repair more competitive without enlarging the state.
3. Measure correctly
   • National accounts rarely track material flows. Add a “resource intensity” line to GDP and policymakers can see if growth is truly being decoupled.
4. Model the macro impact
   • Input-output tables can trace how circular spending ripples through wages, imports and emissions. So far, few countries bother.

Closing the loop, properly

The circular economy movement has done valuable work. It spotlights ecological overshoot and throw-away habits. It forces designers to think in life-cycles rather than launch dates. It offers firms a story customers like.

But lofty visions will not bend markets on their own. Investors want discounted cash flows, not hashtags. Manufacturers act when prices change, not when brochures urge virtue. Policymakers need to see trade-offs: higher repair jobs may mean higher consumer prices; lower extraction may curb export earnings for resource-rich nations.

Until the circular camp equips itself with the hard tools of economics—prices, incentives, models, and data—it will remain a seductive slogan: part moral compass, part marketing copy, and only the faint outline of an economy.

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