COVID-19 induced travel restrictions are not enough to mitigate crises like climate change. Could a circular economy be the answer?

Research by the Department of Management’s Dr Fred Yamoah and colleagues points to a new way to rebuild the global economy in the wake of the coronavirus pandemic.

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There is no doubt that COVID-19 is first and foremost a human tragedy, resulting in a massive health crisis and huge economic loss.

While the impact on life as we know it has been unthinkable, a side effect of the way of life forced upon us by the pandemic is an unprecedented reduction in global carbon dioxide emissions, which are projected to decline by 8%. If achieved, this will be the most substantial reduction ever recorded, six times larger than the milestone reached during the 2009 financial crisis.

However, these changes should not be misconstrued as a climate triumph. They are not due to the right decisions from governments, but to a temporary status of lockdown that will not linger on forever; economies will need to rebuild, so we can expect a surge in emissions in the future. Indeed, the relatively modest reduction in emissions prompted by the COVID-19 pandemic has proven that zero-emissions cannot be attained based on reduced travel alone; structural changes in the economy will be needed to meet this target.

The case for a circular economy

Before coronavirus prompted this dramatic shift in our way of life, it seemed that the world had been waking up to the need for change to protect our environment. The linear model of our industrial economy – taking resources, making products from them and disposing of the product at the end of its life – jeopardizes the limits of our planet’s resource supply. Girling (2011) found that around 90% of the raw materials used in manufacturing become waste before the final product leaves the production plant, while 80% of products manufactured are disposed of within the first six months of their life. Similarly, Hoornweg and Bhada-Tata (2012) reported that around 1.3 billion tonnes of solid waste is generated by cities across the globe, which may grow to 2.2. billion tonnes by 2025.

Against this backdrop, the search for an industrial economic model that satisfies the multiple roles of decoupling economic growth from resource consumption, waste management and wealth creation, has heightened interests in concepts about circular economy.

What is circular economy?

Circular economy emphasises environmentally conscious manufacturing and product recovery, the avoidance of unintended ecological degradation and a shift in focus to a ‘cradle-to-cradle’ life cycle for products.

In our current situation, there has never been a better time to consider how the principles of circular economy could be translated into reality when the global economy begins to recover. Strategies to combat climate change could include:

  • material recirculation (more high-value recycling, less primary material production)
  • product material efficiency (improved production process, reuse of components and designing products with fewer materials)
  • circular business models (higher utilisation and longer lifetime of products through design for durability and disassembly, utilisation of long-lasting materials, improved maintenance and remanufacturing).

Building back better

A circular economy could also act as a vehicle for crafting more resilient economies. The pandemic has forced a rethink of the way our global economy operates, revealing the inability of the dominant economic model to respond to unplanned shocks and crises. The lockdown and border restrictions have reduced employment and heightened the risk of food insecurity for millions.

To prevent a repeat of the events of 2020, it is necessary to devise long-term risk-mitigation and sustainable fiscal thinking, moving away from the current focus on profits and disproportionate economic growth. Circular economy concerns optimised cycles: products are designed for longevity and optimised for a cycle of reuse that renders them easier to handle and transform. Future innovations under this model would focus on the general well-being of the populace, alongside boosting the market and competitiveness.

This economic model would also support the achievement of social inclusion objectives, for example by redistributing surplus food from the consumer goods supply chain to the local community.

The benefits of a circular economy are therefore obvious in that it strives for three wins in terms of social, environmental and economic impact. The pandemic has instigated a focus on the importance of local manufacturing for a resilient economy; fostered behavioural change in consumers; triggered the need for diversification and circularity of supply chains and evinced the power of public policy for tackling urgent socio-economic crises.

Governments are recognising the need for national-level circular economy policies in many aspects, such as:

  • reducing over-reliance on other manufacturing countries for essential goods
  • intensive research into bio-based materials for the development of biodegradable products
  • legal frameworks for local, regional and national authorities to promote green logistics and waste management regulations which incentivise local production and manufacturing
  • development of compact smart cities for effective mobility.

Post COVID-19 investments needed to accelerate towards more resilient, low carbon and circular economies should be integrated into the stimulus packages for economic recovery being promised by governments, since the shortcomings in the dominant linear economic model are now recognised and the gaps to be closed are known. The question is no longer should we build back better, but how.

This blog was adapted from T. Ibn-Mohammed, K.B. Mustapha, J. Godsell, Z. Adamu, K.A. Babatunde, D.D. Akintade, A. Acquaye, H. Fujii, M.M. Ndiaye, F.A. Yamoah, S.C.L. Koh, ‘A critical analysis of the impacts of COVID-19 on the global economy and ecosystems and opportunities for circular economy strategies’ in Resources, Conservation and Recycling, 164. Available at: https://doi.org/10.1016/j.resconrec.2020.105169

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If there is social capital, good Mayors are re-elected

Are the public more likely to re-elect a mayor who invests in long-term development? Yes, if there is social capital. The Department of Management’s Dr Luca Andriani shares the results of his latest research in collaboration with colleagues Alberto Batinti and Andrea Filippetti.

If a mayor is good, she should be re-elected. Prior research tells us that what distinguishes a “good” mayor from a “bad” mayor is the adoption of long-term oriented and transparent municipal fiscal policies. “Good” mayors re-allocate the municipal budget more towards capital investments (rather than current expenditures) and towards property tax, which is more transparent than a surcharge income tax. However, “good” mayors are not always re-elected. In this study, we argue that social capital might be a key reason. In a context with low social capital, municipal long-run fiscal strategy might not be rewarded.

Social capital generally refers to elements of cooperation, reciprocity and mutual trust regulating relations among members of a community. It is generally expressed through the presence of civically engaged citizens preferring leaders and governments that show credible commitments in taking good care of public resources, in acting efficiently and fairly and that adopt long- rather than short-run political economic strategies.

In this study, we look at the Italian context, as this is characterised by a pronounced economic regional disparity between the southern regions recording low economic growth and high unemployment and the more economically advanced northern regions. Italy is also a country with a large disparity of social capital endowment across regions and municipalities for several institutional and historical reasons (Putnam 1993).

Since the late 1990s, Italy has implemented two significant reforms aiming to bring local public institutions closer to the citizens’ needs and preferences: an electoral reform to appoint local governments and mayors and a fiscal reform towards a more federalist system. These changes have been pursued by economically wealthy regions seeking greater autonomy. They were also advocated as remedies to stimulate those administrations in regions that are less developed and efficient.

We test whether the probability of “good” mayors being rewarded, i.e. re-elected, is influenced by the level of social capital endowment existing in the municipality. We investigate this empirically in 6,000 Italian municipalities over the period 2003-2012. We consider the structural dimension of social capital as one referring to the individual’s involvement in associational activities and social networks. This dimension captures citizens’ prosocial behaviour and individuals’ attitude towards planning capacity and forward-looking decision making

Our results show that “good” mayors are more likely to be re-elected in contexts with more social capital. One can speculate that social capital may favour the reallocation of the municipal fiscal budget towards public investment vis-à-vis current expenditures and towards property tax vis-à-vis surcharge income tax, thus enhancing the efficiency and transparency of local public policy.

What does this mean for policy makers?

These results raise important reflections on the implementations of public policies promoting decentralization.

Fiscal federalism theory claims that decentralization improves the ability of local institutions to tailor specific policies aiming to meet citizens’ demands (e.g., DiazSerrano and Rodríguez-Pose, 2015). This gets reflected in the citizens’ satisfaction (e.g. Espasa et al., 2017; Filippetti and Sacchi, 2016). This study qualifies these results, showing that decentralization works relatively well in the presence of high levels of social capital. In social contexts where individuals value forward-looking and transparent fiscal policies, decentralization promotes better public policies and benefits public sector financial performance.

However, this study also advocates that decentralization policies should be coupled with initiatives to improve the capacity of local institutions to stimulate the accumulation of social capital. This could be pursued through two complementary strategies. Firstly, by employing programmes that favour the capacity-building of civic associations, including organizations for environmental, human, democratic rights. Secondly, by enabling these associations to be more involved in local governance. This can be achieved by providing local associations access to formal and informal avenues for participation, engagement and closer monitoring of local public decision-making process.

This blog is based on the following research paper:

Batinti, A. Andriani, L and Filippetti, A (2019) Local Government Fiscal Policy, Social Capital and Electoral Payoff: Evidence across Italian Municipalities. Kyklos 72(4): 503-526

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Austerity – it can really drive you Wilde…

Dr Sue Konzelmann, author of Austerity, discusses the long-term impact of a policy that places price before value.

Over the last decade, most of us have been on the receiving end of innumerable attempts to justify continued austerity in the UK, all of which have had one thing in common – they focus purely on money. There has been much talk of public deficits and debt – although at times, even our prime ministers have confused one with the other. The impression you get is that everything has a price; and when it comes to austerity, that’s all that matters. In the words of Oscar Wilde’s Lord Darlington, a cynic is “a man who knows the price of everything and the value of nothing.”

There has been a fair amount of cynicism in discussions about austerity. For example, the value of spending over £136bn in public funds bailing out the banks following the 2008 financial crisis would be questionable enough in itself, without then using it as an excuse to deprive so many tax payers of essential government support services – especially since, as described in my new book, Austerity, the case of Iceland had clearly shown that there was a viable policy alternative to austerity. But whilst it all came down to cash at Westminster, the vast majority of us were losing essential public services that we use, value and, in many cases, depend upon.

If this continues, our society will soon begin to unravel at an even more alarming rate, as we cut the ties that bind it together. Cuts to local authority spending have already had a drastic effect on the level and effectiveness of social services, whilst you hear a lot on the TV – on a daily basis – about the devastating effects of cuts to the police and emergency services.

The corrosive effects of multiple cuts, acting together, became all too clear whilst filming a video about austerity at the Euston food bank – but that’s something you hear a lot less about in the news.

Perhaps counterintuitively, the vast majority of people who have been forced to use the food bank since it was set up in 2010 are actually in work. But the government’s attempts to save money through changes in the benefit system, like Universal Credit, has meant that people claiming it would not get a payment for up to five weeks. How many of us would be comfortable about missing a month’s salary – or more? Not many, I suspect.

It also turns out that in order to avoid homelessness, many Euston food bank users are choosing to pay their rent, rather than buy food. This is probably rather less surprising, given that the average UK household income is around £28,000 – and renting a two bed flat anywhere in that part of London will cost around £2,000 a month. Cuts to social care have also resulted in rising homelessness – and another source of people reliant on food banks.

Austerity, as a single policy, is a very blunt instrument, that has focused on price, rather than value. As a result, it has critically impacted many inter-related policy areas. Undoing its damage will therefore mean not only sharply revising policies in such areas of affordable housing, employment, health, education and social services; it will also require changes in benefit structures and delivery – to ensure that they work together as seamlessly as possible.

In a world where it is, for some unknown reason, apparently impossible to integrate such obviously linked services as the NHS and social care, this vision might seem ambitious. It shouldn’t be. In the words of Oscar Wilde’s Lord Darlington once again, “we are all in the gutter, but some of us are looking at the stars.”

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Why do women favour working in the public sector?

Research carried out by Birkbeck’s Dr Pedro Gomes and Professor Zoë Kuehn from the Universidad Autónoma de Madrid aims to understand why women self-select to the public sector.

The public sector is a large employer, accounting for between 10 and 35 percent of total employment in OECD countries. In most countries, the public sector hires disproportionately more women than men. With my colleague Zoë Kuehn, I developed a model to try and understand this imbalance.

Through the lens of our model, we view the gender bias in public employment as driven by supply, meaning that it is not the government that acts explicitly to hire more women, but it is women that choose the public sector more so than men. Our objective was to better understand this selection, in particular, how much of it is explained by public sector job characteristics that are related to management, organization and human resource practices in the public sector.

We documented gender differences in employment, transition probabilities, hours, and wages in the public and private sector using microdata for the United States, the United Kingdom, France, and Spain. We then built a search and matching model where men and women could decide whether to participate and whether to enter private or public sector labor markets. Running counterfactual experiments, we quantified whether the selection of women into the public sector was driven by: (i) lower gender wage gaps and thus relatively higher wages for women in the public sector, (ii) possibilities of better conciliation of work and family life for public sector workers, (iii) greater job security in the public compared to the private sector, or (iv) intrinsic preferences for public sector occupations.

A natural explanation for the gender bias in public employment could be that certain types of jobs that are predominantly carried out by the government could be preferred by women. However, our research revealed that, for the US, the UK, and France, once we exclude health care and education, women’s public employment is still 20-50% higher than men’s. Interestingly enough, the gender bias is less pronounced within public health care and public education compared to other branches of public employment.

Regarding transition probabilities, we estimated that the probability of moving from employment to inactivity is higher for women, but we found this probability to be significantly lower for public sector workers.

We also provided evidence that gender wage gaps and working hours are lower in the public sector. Individuals holding full time jobs in the public sector work between 3-5% fewer hours compared to similar individuals holding full time jobs in the private sector. However, fewer working hours are just one aspect of a better work-life balance (next to additional sick days, holidays, flexibility to work from home, employer provided child care etc.). In our model we wanted to capture differences in work-life balance across sectors in an ample sense, and hence we do not use these estimates to identify any parameters. Nevertheless, our results on fewer working hours in the public sector support the claim of a better work-life balance in the public compared to the private sector.

The results of our research suggest that women’s preferences explain 20 percent of the gender bias in France, 45 percent in Spain, 80 percent in the US, and 95 percent in the UK. The remaining bias is explained by differences in public and private sector characteristics, in particular relatively higher wages for female public sector workers that explain around 30 percent in the US and Spain and 50 percent in France. Only for France and Spain do we find work-life balance to be an important driver that explains 20 to 30 percent of the gender bias. Higher job security in the public sector actually reduces the gender bias because it is valued more by men than by women.

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