Key Skills Session 1

Key Skills for Corporate Transitions

• Circular economy, sustainability, trade, and income inequality are key skills for corporate transitions.
• Dr. Ioannis Bournakis, Associate Professor in Economics, presented this topic on October 2, 2024.

Circular Economy Definition

• Environmentalists and economists increasingly argue about the interdependence between the environment and the economic system.

• The transition to a circular economy system borrows the concept from thermodynamics in physics, where in a closed system the total energy is constant.

• This implies a zero balance between consumed resources and released waste.

• This model enables integrated closed-loops, ensuring continuous recycling, and avoiding virgin resources. Instead, it uses secondary raw materials.

• It's a sustainable development model for urban management.

• A circular economy (CE) is an economic model for sustainability, relying on continuous resource use, waste minimization, and regenerating natural systems.

• This contrasts with a traditional linear economic model ("take-make-dispose") of production and consumption.

• The key difference lies in resource use.

• Linear economies use raw materials once, while circular economies emphasize reuse, stressing a more sustainable consumption model.

• The six Rs (Rethink, Refuse, Reduce, Reuse, Repair, Recycle) are key principles.

Principles of Circular Economy (CE)

• Design Out Waste and Pollution:
  • Products must be durable, repairable, and recyclable.
  • Minimize packaging and harmful by-products.
• Reuse of products and materials:
  • Recycle at end-of-life products.
  • Maintain and repair products.
• Promote natural ecosystems:
  • Use renewable energy sources.
• Promote innovation and resilience:
  • Develop new technologies and business models.
  • Enhance supply chain resilience.

Benefits of Circular Economy (CE)

• Environment:
  • Promotes resource conservation and biodiversity.
  • Contributes to lower CO2 emissions and a greener environment.
  • Reduces waste and resource consumption, thereby improving environmental conditions.
• Economics:
  • Creates new market niches, increasing employment opportunities in various sectors.
  • Stimulates innovation in the recycling, manufacturing, and design sectors.
  • Generate welfare gains for firms, leading to lower costs and prices for consumers.
• Businesses:
  • Reduces raw material costs.
  • Enhances brand reputation and customer loyalty.
  • Strengthens customer and stakeholder relationships.
  • Offers a competitive advantage to early adopters.
• Social:
  • Encourages community engagement and collaboration.
  • Stimulates innovation in recycling, manufacturing, and design.

Impact of CE in Figures

• Offers a 4.5 trillion USD economic opportunity by decreasing waste, boosting innovation, and providing employment in the circular economy.
• Shows potential European household income increases of €3,000 by 2030.
• Projects 210 billion USD in present value GDP in Australia by 2047-48 resulting from circular economy transitions.
• Forecasts 6 million new jobs globally by 2030 from circular economy transitions

Sector-Specific Impacts

• Agriculture - 80% reduction in artificial fertilizer use.
• Automotive – 20-30% reduction in material costs, highlighting better vehicle design, modularity, disassembly, and reuse of recycled resources.
• Manufacturing – 30-50% savings in material costs.
• Construction – 10-15% cost reduction through circular practices like recycling building materials and designing adaptable, modular structures.

CE and International Trade

• CE's increasing importance leads to a focus on "within growth" rather than international exchange.
• Cooperation among countries is possible within CE principles.
• Reduced trade in raw materials is anticipated, with an increase in secondary raw materials trade.
• Increased demand for waste management services and CE-compliant products is predicted

International Trade in CE: Some Evidence

• Worldwide second-hand textile exports increased 12% in weight and 26% in value between 1988 and 2018.
• OECD countries account for 77% of total second-hand textile exports in 2018.
• Second-hand car exports valued at 79%.
• Majority of these exports are within the EU (1265 thousand units in 2018).
• Average second-hand vehicle export values differ between intra-EU (higher) and extra-EU exports.
• The share of the re-manufacturing industry is low in both the USA (under 2%) and the EU (under 1.9%).

Food for thought

• Question: Why is this case?
• Answer: Regulatory barriers across different jurisdictions are relevant factors.

Trade-offs from International Trade in CE

• Trade in second-hand goods can fix economies on old, inefficient technologies.
• Imports of second-hand vehicles may cause environmental problems due to high emissions.
• Potential for illegal, hazardous, and contaminated waste trade.
• Possible issues with the right-to-repair and Intellectual Property Rights in trade agreements.

Trade Restrictions and CE

• Promotion of CE raises new trade barriers.
• 2013 WTO disputes regarding EU and Japan tariffs imposed by Russia, aiming to support domestic car manufacturers.
• China implemented a "Green fence" in 2013, raising concerns about raw material quality.
• Brazil and India restricting non-new products to encourage re-manufacturing.

Global Inequalities- Some Stylized Facts

• Income inequality within numerous countries has risen since the 1980s.
• Between-country inequality has fallen, due to growth in emerging economies like China and India.
• The income share of the top 1% and 0.1% rose significantly, especially in the US, as detailed in "Capital in the Twenty-First Century".
• Top 1% income share in the US has risen from about 10% in 1980 to over 20% in recent years.

Some Stylized Facts-Continued

• Low- and middle-income groups have lost income share.
• The gap between the top 10% and bottom 50% has almost doubled over the past two decades (from 8.5 to 15).
• US inequality rose more sharply than most European countries.
• France and Germany experienced more modest increases.

Causes on Income Inequality

• Increasing returns on capital (r) relative to economic growth (g) is a significant driver, according to "Capital in the Twenty-First Century."
• Technological progress and the resulting rise in skill premiums significantly widened the income gap globally, particularly in developed and developing countries.
• Globalization played a role in rising inequality.
• Decline in labor market institutions is another factor.

Globalization and the Evolution of Income Inequality

• Global inequality presents a new approach to the age of globalization.
• Winners: middle classes in emerging economies (especially Asia), global super-rich
• Losers: middle classes in developed countries.
• Globalization reduces between-country inequalities, while within-country inequalities may intensify.
• Improved income equality needs pre-distribution through more equal capital ownership, educational opportunities.

Explore the essential skills needed for corporate transitions, focusing on circular economy, sustainability, and trade. Dr. Ioannis Bournakis highlights the importance of these skills in addressing income inequality and promoting a sustainable future. Join this quiz to test your understanding of these key concepts.