Functional-Service Economy

One of the main issues that is constantly being discussed in the sustainability realm and more and more in the mainstream economic circles these days, is the idea that our economic growth is running into natural limits.  The most obvious reason for this is that economic growth is completely dependent on our exploitation of raw materials.  It always has been this way up to this point in time.  So, many researchers, policy makers and corporations alike are starting to ask the question, "How can we maintain economic growth while staying within the physical limitations that our natural world presents?"  One answer to this question is the closed-loop economy.


What is a Closed-Loop Economy?

In simple terms, closed-loop means that the economy goes from being a through-put economy (raw materials go in, products are made, wastes go out) to a round-put economy (recycling and reusing are main themes with very few raw materials going in and very few wastes going out).  As many people in the field put it, introducing a closed-loop economy is a way of dematerializing the economy.  It is supposed to de-link economic growth from exploiting and wasting natural resources.  It accomplishes this by means of recycling and reusing most products and materials, which decreases the amount of materials that need to go into the system and decreases the wastes that go out. 

The Functional-Service Economy

Walter Stahel is a main innovator in this realm of ideas and has developed the Functional-Service Economy.  The Functional-Service Economy is a model that dematerializes the economy (de-linking economic growth from raw materials use and waste) in a way that not only incorporates reusing and recycling, but takes it a step further.  Stahel's idea is that the economy should be based on services and the function of products rather than products, themselves.  To illustrate...

As things are today, the economy is mostly based on the selling, trading and consumption of products.  Because selling and trading is based on consumption, we can say that our economy is based on consumption.  People consume because they have various needs and desires.  In most cases, their needs and desires can be fulfilled by the function of the products that they use and there is no rational need for them to own the products, themselves.  Instead, they can pay for the service or function that the products provide.  This entails the replacement of traditional retail centers with renting and loaning systems, also known as product-service systems, in which the products are paid for, used for a time, then returned or re-rented.  This has several pros and cons.

Some major benefits:

• items are not simply discarded whenever people get sick of them; instead they are returned to the company that owns them (goodbye wasteful, throw-away culture!)
• companies are responsible for the waste that their products produce, including packaging
• there is financial incentive for companies to re-use and recycle their products and product parts; therefore there is incentive for them to design higher-quality products that can be re-used and recycled (goodbye planned obsolescence!)

Some disadvantages and challenges:

• people in modern societies seek to express themselves through the products they buy and own, so ownership is entangled with a sense of identity
• recycling and re-manufacturing products can use a lot of energy, sometimes more than sourcing and manufacturing with raw materials
• people often associate renting with a lower socio-economic status

As you can see, the benefits are largely environmental and the disadvantages/challenges are mostly cultural and psychological.  There seems to be a very large gap between our modern cultural mentality and our will to protect the environment.  They are very detached from each other.  At this stage in human development, our need to identify ourselves through ownership and socio-economic status, as consumers, seems to be a far higher priority than protecting our natural environment and heeding its limitations to our outdated model of economic growth.

Some Fundamental Flaws

Stahel's idea is very progressive and excitingly innovative, however we will need a cultural shift before we can use the Functional-Service Economic model.  And, even if we shift to the Functional-Service Economy, it is definitely not the end-all, be-all sustainable solution.  There would still be tons of raw materials needed in order to feed the economic growth.  Additionally, although a closed-loop economy can limit the amount of wastes going out into the natural environment, it cannot eliminate them altogether.  And with a growing economy, the wastes will keep adding up.  That's how we get the plastic islands in the oceans that are killing our eco-systems, just to name one of a plethora of waste issues.   So, the Functional-Service Economy would just be a step in the right direction, not the end-goal.

Through my studies, I have found that there is no existing economic model that can maintain economic growth while adequately addressing environmental limitations.  Therefore, I have major doubts- no, it's more like a major disbelief- that we can keep up economic growth at all.  Which begs the question of "Why should economic growth be kept up?"  To what end are we growing our economies?  What's the point?  I will discuss this in a future blog.  In the meanwhile, if you are interested in learning more about the Functional-Service Economy, see my master's thesis and/or this short description and/or Stahel's website.