Topic 3 Economic disadvantages of the current linear economy

Economic disadvantages

In addition to the damage caused by the linear economy to the provision of ecosystem services, this economic model also jeopardises the supply of materials. This uncertainty is caused by fluctuating raw material prices, scarce materials, geopolitical dependence on different materials and increasing demand. These problems are solved in a circular economy. The risks are:

  1. Fluctuating raw material prices
  2. Critical materials
  3. Interdependence
  4. Increase in material demand

Since 2006, the level and fluctuation of raw material prices have signficantly increased. This not only creates problems for diggers and buyers of raw materials, it also creates greater risks in the market. This, in turn, discourages investments in the extraction and processing of materials, which can ensure that raw material prices continue to rise over time. In addition, these price fluctuations prevent companies from making price forecasts, which gives them a weaker competitive position than companies that are less material-dependent (Circle Economy, 2018a).

Another disadvantage of the current linear economic system is that much is produced with scarce materials. A number of industries make intensive use of critical materials for their production processes, such as indium and chromium. These materials are only available to a very limited extent. In particular, the metal industry, the computer and electronics industry, the electrical equipment industry, and the automotive and vehicle industries make use of these raw materials. In the Netherlands, these sectors make up a significant percentage of the economy (CBS, 2019).

As a result of the increase in trade, the geopolitical interconnectedness of products has become increasingly strong. For example: countries with water scarcity but a surplus of oil trade oil to buy grain. As a result, these raw materials are, as it were, linked to each other. In addition, the production process of many goods depends on water and fuels. As a result of this interdependence, the scarcity of one raw material will have a widespread effect on the prices and availability of many more goods (European Commission, 2020).

In addition to the limited supply of raw materials available anyway, a significant increase in demand for materials is also predicted. As a result of population and welfare growth, the number of middle class consumers (with a higher demand for material consumption) will increase by three billion by 2030. In addition, the lifespan of products has decreased dramatically in recent years. This is one of the driving forces behind the increasing consumption of materials in the Western world. Product lifespan is still decreasing, because there is a process of positive feedback: consumers want new products faster and therefore use their “old” products shorter. This in turn means that less quality is needed in a product’s lifecycle, which in turn leads to consumers wanting new products even faster (Circle Economy, 2018a).