Is digitization driving a new economic growth paradigm fueled by the circular economy?
March 18, 2021
March 18, 2021
Digitalization is a potent driving force behind connecting the circular economy directly to global economic growth. The pandemic may help kick start it.
Over the last year, the world has fought the COVID pandemic. Many aspects of the global governmental, educational, and healthcare systems have not encountered as severe a stress test since WWII. Here we will consider how trends in globalization have resulted in the acceleration of digitalization as a means of decoupling economic growth from environmental cost using the circular economy as its centerpiece and how the pandemic may be influencing this movement.
Today’s world has experienced an exponential increase in connectivity among people across the globe, a reality that created what is now well-known as the “global village.” The emergence of the global village followed the collapse of the Cold War and expanded rapidly throughout the 1990s and 2000s. For many, the global village provides the necessary sustainable foundation upon which future generations can thrive. But the global village dynamic appears to have peaked in the last decade in its limits and capacities—not solely the result of major political shifts, such as the rise of populism.
We argue that other realities have contributed. First, recent international trade disputes had a significant impact, bringing the global village to a near standstill. Second, the number of countries—particularly in the developed world—still attempting to integrate into the global economy are fewer, as more fear global interdependence may threaten political and economic stability at home.
Next, industries that have been the stalwart of global economic growth (e.g., primary resource extraction, heavy infrastructure, and transportation) have reached the limits of being able to leverage technologies to maximize their output, resulting in pressure to hold the resources for their own economies. Finally, and perhaps most importantly, the world has not fully leveraged political systems that promote open and equitable capital markets to global offerings. Each of these factors has driven the isolation wedge deeper, weakening the worldwide benefits previously realized from the global village.
To restore the benefits brought by our global connection, what must be in the driver’s seat?
A complicating factor exists to getting back on the global village path. Demographers project that the globe will add an extra 2 billion people to today’s figure of 7.7 billion by 2050 and reach 11 billion by the end of the century. It is uncertain if the planet can sustain itself under such a scenario. The traditional forms of our globalization-driven economy, which relied on people consuming what has been perceived as inexhaustible resources in a linear paradigm (i.e., extract, process, use, dispose), faces a far greater challenge as populations expand.
So, what will need to be the force that fuels the economies of our future while backing us away from the cliffs of our planet’s fragile environmental boundaries? The answer lies in decoupling economic growth from environmental cost—a circular economic model.
Circularity requires connectivity at macro scales, a feat accomplished through the world of digitalization. The digital “globe” is the catalyst for the human connectivity, critical to restoring the global village in forms we have yet to imagine. This is a new way of thinking. It will shift economies away from traditional consumption-based economies toward digital-based globalization.
Global economies must inevitably give way to these new paradigms of economic growth to sustain expanding populations. But this requires growing populations become more and more integrally connected. In recent years, the world’s connectivity has struggled to keep up with the pace of population growth. As such, the social fabric elements of the global village—critical for founding stable and sustained economic growth—have gradually been replaced by socioeconomic models that restrict connectivity. As a result, the ideal global village of years past has been in decline. This is evidenced by political changes experienced around the globe.
The pandemic’s message is loud and clear: reform of our current form of globalization is a must—global digitalization stands at the crossroads.
The hypothesis here is that an integrated global digitalization enhances human connectivity across all economic sectors and is the impetus for reversing the decline of the global village. The greater our interconnectedness, the more circularity penetrates our economies. The more circularity—closed loops—the less dependency economic growth holds on environmental limits. The outcome is a restoration of a new global village crucial for a sustainable global future.
With circularity no longer confined to academic towers, opportunity arises for its establishment as an institution (i.e., broader than just economics but embraces social equitability, as well). Connectivity, via digitalization, is what makes this possible. Data-driven and digital-based business models are accelerating, becoming critical to everything from manufacturing to services, some of which involve cross-border exchange. According to a report delivered at the World Economic Forum 2019, cross-border bandwidth in use grew 148 times between 2005-2017, a proxy for the surge of information on the move.
Many in the media and public view globalization in the context of global unilateral interdependence between businesses and governments who make up economic systems, rather than a webbed multilateral supply chain and market network. Unfortunately, this interdependence tends to be somewhat linear, which means that if one fails, it can bring down the whole lot with it. In other words, this type of interdependency promotes greater vulnerability to unexpected shocks to the system. The onslaught of the COVID pandemic seems to have shed a new light on this.
The lesson is not that the pandemic has caused a failure of consumption-based global economic systems. Rather, the pandemic has brought to light just how fragile and vulnerable our consumption-based globalization is despite of, or because of, its benefits.
The above chart illustrates the role that the pandemic seems to be playing in resetting our focus away from political and economic isolation (i.e., the loss of connectivity to one of renewed connectivity fueled by the power of digitalization). The pandemic’s message is loud and clear: reform of our current form of globalization is a must—global digitalization stands at the crossroads. This message seems to have been playing out as a disruptive force during the pandemic of 2020 (and illustrated below). Indeed, this may well be a silver lining that emerges from the global pandemic experience.
Digital transformation has been on the agenda of organizations for years. But 2018-20 had been predicted to be a crucial time for leaders to plan for and implement it across industries. While the past few years have seen some movement in digital transformation, the global pandemic has added an urgency to accelerate this shift. Digital transformation has an unprecedented impact on how we accomplish our daily routine, from telemedicine to taxes.
What the digitalized world will look like in the future remains somewhat unknown. However, the shape and form of it will be driven with the technological advancement and adaption strategies by companies and nations. One thing for certain, the advent of 5G will have a major role in this shift. Digitalization will likely provide a base web of interconnectivity horizontally and vertically to every aspect of human life, including economic growth, while becoming more resilient to perturbations like COVID. After all, globalization will be reshaping itself by digitalization to resemble a much more sustainable integrated system such as we see in nature, a perfect example of biomimicry and the foundation of circular economic principles.
The impact of such major change on society and human interaction, and the psychological aftermath are other significant aspects of uncertainty such a paradigm shift poses as we move forward.
Although COVID is not the root of change toward a global digitalization to regain connectivity, it has been the catalyst. So, in our mind, though COVID has shaken us to our core, it may indeed be “just what we needed” to wake us up to what the global village really means and why it must be the foundation upon which global population growth becomes sustainable.