Almost every aspect of life has changed in some way over the last two years, and the motivation for circular economy (CE) is no exception. Just two years ago, the nascent interest in circular economy was primarily motivated by pressure to reduce natural resource overuse and threats to the Earth’s ecosystems. Today, global supply chains keep deteriorating in the aftermath of the Covid19 pandemic and Russia’s invasion of Ukraine, putting the supply of critical raw materials and energy at high risk. Circular economy may turn out to be a saviour.
The idea of circular economy, in short, is that we use products, materials, waste, side-streams or any ingredients in ways that minimize the extraction of new natural resources as well as production of waste. The idea is not new. The engineering side of it has been studied over a couple of decades. Eco-design is a field of research, and studies of circular business models are making their way into management research. What remains understudied are governance challenges, slowing down the development of circular economy in practice.
Why does circularity pose unique governance challenges? Circular economy is about using residual waste and side-streams accruing from processes of other organizations: they are privately owned and not readily for sale like virgin resources in the linear economy. They accrue in smaller amounts, in scattered locations. They may need dismantling from other products or materials. Many of them do not have a clear market price, and knowledge regarding such residual resources is often withheld as a business secret.
These issues pose governance challenges yet have not received much attention in management research. Existing organizational theories such as cross-sector partnerships, meta-organizations and industry self-regulation do not provide an adequate lens for collective governance of these privately owned residual resources.
Inspired by the work of Elinor Ostrom and colleagues, our research published in the Journal of Management Studies empirically investigates three circular economy systems in Finland, Spain and the USA. We analyse how multiple actors overcome the above challenges, and how over time they develop models to collectively govern the sustainable use of privately owned residual resources. Our work speaks to those interested in the new forms of cross-sector collaboration required by resource sustainability.
The “tragedy” of privately-owned resources?
The “Tragedy of the Commons” introduced by Hardin (1968) is frequently cited, but we identify another kind of tragedy which regards privately owned residual resources. Waste and by-products are increasingly valuable, as they could be reintroduced in circular processes to generate value. Yet sharing and exchanging these residual resources tends to stumble on (1) lack of resource information, (2) lack of scale of residual resources, and (3) disconnected governance of residual resources across many actors.
We apply knowledge from the study of commons to the governance of privately owned resources. E. Ostrom refers to polycentric governance as an interconnected system of governance where actors from multiple sectors coordinate collective action and develop structures for sharing common resources, which eventually leads to an emergent order for common goals.
Understanding the growth of circular economy systems help us understand the development of new polycentric forms of governance, where privately owned resources (material or immaterial) are shared to generate collective benefits, as opposed to traditional commons research starting from common ownership.
How does a polycentric governance framework for privately owned resources in circular economy systems look?
We find that heterogeneous organizations – private, public, and civil society organizations – are able to develop polycentric forms of governance for sustainable resource use in circular economy systems through the dynamic interplay of three key elements: (1) mutual adjustments enabling collaboration and actor adaptation; (2) practices for collective agency that enable information sharing about privately owned residual resources; and (3) structures for sharing resources that support diverse, interconnected units of governance.
Mutual adjustments refer to organizations departing from their traditional roles to new ones, adoption of new governance logics (e.g. shift to a systemic view of resource use) and temporal frame adjustments to adapt their operations to those of their heterogenous resource network (e.g. public sector actors using expedited permitting to facilitate reuse and recycling or enterprises capable of fast action adjusting to slower-paced ones in their system). Practices for collective agency we identified include essentially two types of governance practices: those for forming protocols and shared strategies and those for building and sharing systemic knowledge.These practices were many, ranging from creative experimentation for developing new ways of reusing residual resources to gathering resource information to standardisation practices for discarded materials. Structures for sharing residual privately owned resourceswas the third essential element. Structures that allow the sharing and exchanging material resources range from immaterial ones like master plans for the systemic optimization of resources to physical platforms like resource reprocessing hubs.
In the studied CE system cases, the above elements developed in tight interplay with one another and through either actor- and structure-induced recursive dynamics. These dynamics did not follow an identical path through the CE systems, which offers readers the possibility of learning from alternative dynamics. The polycentric governance model we develop helps with understanding the dynamics of interorganizational collaboration for sharing privately owned resources and developing systems for circular economy accordingly.
Circular economy is critically important for ecological sustainability purposes, but increasingly also for socio-economic resilience as the linear economy, based on global sourcing, is partially collapsing due to escalating catastrophes. System-level and diverse collaboration is necessary for the development of circular economy.
Businesses may ultimately need to rethink competitive advantage in the context of CE and consider building practices for collective agency. This requires collaboration among diverse participants and may involve sharing resources, infrastructure or equipment that has traditionally been kept in-house. For businesses, our work exemplifies ways of sharing their resources in semi-open platforms, which present new business opportunities, while limiting the risk of competitors gaining access to confidential information.
Our findings will also help policymakers design new programs for facilitating CE. Importantly, they demonstrate the potential of system-level governance and the polycentric integration of multiple governance units.
Thank you for this study and for sharing a short overview of it! My takeaway is the concept of collective agency, which will be a key concept in the times to come to develop much needed resiliency and innovation.