In this episode, we talk with Ron Gonen, who is the founder of Closed Loop Partners, and the author of The Waste-Free World: How the Circular Economy Will Take Less, Make More, and Save the Planet. Ron believes we have a challenge in the American economy -- and a little bit in the U.K. as well some other developed countries -- where the highest status in society goes sometimes to the jobs that don't always create the most social benefit or require the most amount of intellect. The jobs of teacher, fire person, police person, public servants, soldier are the backbone of our society. Unfortunately, the status we’ve assigned to those jobs, and the financial incentive, is low in society. We hope you enjoy this conversation.
Matthew Bishop (MB): Hello, this is Books Driving Change, with me, Matthew Bishop. And today I’m talking with Ron Gonen, who is the founder of Closed Loop Partners, and the author of The Waste-Free World: How the Circular Economy Will Take Less, Make More, and Save the Planet.
Ron, I'm going to start by asking you, in one sentence, to tell our audience -- which is people mostly who are committed to public service and exploring how they can get involved in building back better as we come out of the pandemic -- why should they read your book?
Ron Gogen (RG): The Waste-Free World provides readers a window into an economic structure that is more profitable, and more equitable, and preserves our natural resources.
MB: Your book opens with a description of one of the world's biggest landfill sites, and then your first chapter starts with the image of the masks that the medical staff used during COVID, and how those were all designed to be thrown away after one use, which I thought were two pretty powerful images. Tell us how we got into this mess with what you call the “linear economy”?
RG: There's two parts to what got us here. First was the Industrial Revolution, where we began to mass manufacture items. And then fast forward to World War II, where we took that massive production capability and focused it on making machinery and weaponry. And it was actually a good thing that we could do that, because it's what we use to defeat Nazism.
The challenge was post-World War II, and that massive manufacturing machine needed something to continue to manufacture, as opposed to going back down to the size it was before the war. And what it decided to do was to just continue to manufacture, but just different types of things that people might need for their home, and in larger and larger quantities. And it worked with the burgeoning advertising industry, as well as people in the U.S. government, to change our perception of status from one of quality over quantity and that patriotism is all about resource conservation, to one in which status was all about how much stuff you had, and patriotism was not worrying about conservation, it was worrying about how much growth we have taking place. And that shift is really the beginning of the linear economy taking hold, both in the U.S. and globally.
MB: I like the phrase you use the “take-make-waste economy”, because I think the essence of it is, that it was about exploitation of resources, making things and then those things having waste built into it. And I I thought your discussion about the emergence of the notion of built-in obsolescence, particularly in the context of a light bulb cartel in the early 20th century, was fascinating. And the idea that you would be in trouble with your cartel if you actually had a light bulb that lasted more than a certain amount of time -- I hadn't heard that story before.
Tell us a bit more about what happened to that cartel, and how did that all come about?
RG: I'll give you a recent example of how that's finally beginning to change, in our view. It will be a shocking example and a realization for a lot of people.
So interestingly, when the light bulb was first invented, the original inventors and engineers working on the lightbulb knew that you could make a light bulb that would last a really, really long time, almost to the point where you barely needed to change it. But the business interest behind the engineers and the first light bulb companies looked at that innovation and said, "That's not going to work for us. If you're able to manufacture light bulbs that never need to be changed out, how are we going to sell more and more light bulbs to people?”
And so what actually got introduced into the market were light bulbs that intentionally ran out after a certain amount of time, so that the customer would then need to go buy more light bulbs. And so we all grew up in an economy, in a world, under the assumption that you get a light bulb, you use it for a while, and it runs out because that's the length that the technology can provide us. And then you gotta go to buy a new light bulb.
But it actually has nothing to do with the technology of a light bulb. It really has to do with the interest of the money behind the original light bulb industry [wanting] to make sure that light bulbs would eventually become obsolete, and you'd have to go buy a new lightbulb.
The modern corollary to that is, Apple recently announced that they're actually going to start selling tools that you can use to repair Apple products at home. This is a complete 180 [degree turn] from how Apple used to operate. Apple actually designed its products to become obsolete in six months, a year, two years, and it was impossible to fix an Apple product on your own. And in fact, if someone would try to open up a store in a neighborhood to fix an Apple product, Apple would legally go after them.
MB: Hopefully they will also make it possible to use the same charger from one generation of iPhones to the next as well. That would be nice.
RG: Exactly. And few people were questioning the contradiction around [the fact that] Apple seems to be made up of brilliant and visionary engineers who can develop these incredible products, but somehow the products only last a year. Nobody was questioning why do they only last a year? Can't they make them last longer? Why does my battery always go down? And to your point, why when I then buy the next iteration of the product do I have to buy a whole new set of chargers? And it was really based on the economic model that a hundred years before the developers of the lightbulb used, which was: we have a product that is going to be in demand because it's going to make people's lives better, but if we actually offer the customer the full suite of the technology we're not going to make as much money, because the customer is not going to need to continually buy more and more and more versions from us. And Apple adopted that model and did incredibly well financially. But it was done at the detriment of our environment, because it produced huge amounts of electronic waste.
Fortunately, Apple is now recognizing that there's a better way to do business, which is to try to maintain that customer for the life of the customer, by enabling them to buy your product, and buy the tools to continue to fix it.
MB: Now, some people would say that to criticize the business model that we've lived with for the last 70 years, 80 years is to be anti-capitalist. But in the book you made the argument, I think quite persuasively, that what we see today is not, in fact, capitalism in a proper sense, but is a form of socialism for the business community.
Can you just explain that a bit?
RG: Absolutely, I'll use the example of virgin plastic versus recycled plastic. For years, economists would say that if recycled plastic were cheaper, everybody would be using it. But we live in a free market, and the reality is virgin plastic is cheaper. And if we're going to allow the free market to work, and if we're going to be capitalist, we need to allow businesses and individuals to buy the most cost competitive product.
What economists weren't disclosing, and what the oil industry was trying to keep hidden, is that the oil and gas industry, which is the producer of plastics, receives billions and billions of dollars of tax subsidies from federal and state governments that artificially keep the price of virgin plastic low. So if we actually wanted to live in a free market, in a capitalist society, we would say either, no subsidies, or we would say the only things that are going to receive subsidies are things that we know have a major societal benefit, and we want to see be commonplace in society. Otherwise, we're just gonna allow the free market to work. That's an example of how our economy was gamed.
You're seeing that actually fixed in the energy industry, where for years people would say that if solar and wind or renewable energies were cheaper than oil and gas, they would win in a free market economy. What economists and the oil and gas industry wasn't disclosing was all of the federal and state subsidies that the only gas industry got to keep their price artificially low. As soon as solar and wind received the same subsidies, and we had a market in which everybody was fairly competing, not surprisingly, the price of wind and solar renewable energy became much more competitive, and is now much cheaper.
MB: And you make a similar point about waste. [About how] the costs of disposing of waste was not factored into the price of products, typically. And, as you say in the book, people who didn't even use products, their taxpayer money was being used to effectively subsidize people who did use the product, because it was covering the cost of disposing of the waste. And I think that's probably where we get to this notion of the circular economy as opposed to a linear economy. Linear economy is take-make-waste; the “circular economy” is what?
RG: The circular economy is being able to manufacture products without a reliance on natural resource extraction or disposal in landfill. And if we can build those types of manufacturing supply chains, we're going to significantly increase margins for consumer goods companies and retailers, because they don't have to pay the cost of extraction. And we're going to lower costs for consumers. And we're going to lower costs for taxpayers and municipalities, because then you avoid the cost of disposing of products in landfills.
MB: So when did this idea of the circular economy start to catch on -- the phrase and so forth? And how is the idea spreading at the moment?
RG: It's an interesting question, because the concept of the circular economy has been around since the earliest products were invented by human beings. Even within the last hundred years, it was commonplace. So if you go back pre-1940, the way you got milk was the milkman brought milk to your door, in bottles, you used the milk, and then you put the bottles back out. Then the milkman came, collected those bottles, and gave you new bottles of milk. All you were paying for was the milk. You weren't actually paying for the packaging. We then unfortunately evolved, in a negative way, to an economy where in order to buy a product, you must pay for packaging that required natural resource extraction. And then you also have to pay to dispose of that package in a landfill. That's a much more expensive way to consume a product.
So the circular economy is something that's actually within the way human beings, and economies, have operated since the beginning of when human beings started making products. It's really been in the last seventy-five years, post-World War II, that we unfortunately transitioned away from a circular economy to a linear economy. Which is why returning to a circular economy, I think holds so much promise; it's something that we've practiced for centuries -- and successfully.
MB: And, as you explore in your book, there are still challenges to be overcome in terms of regulation, and all sorts of things that need to be done. But you also see great opportunities to invest in some of the companies that will hopefully be winners in the circular economy of the future. And you founded this fund -- Closed Loop Partners -- just tell us a bit about what you do, and what sort of companies you invest in.
RG: Closed Loop Partners is an investment firm and innovation center focused on building the circular economy. We focus on the following four industries: consumer products and packaging, fashion and apparel, electronics, and food and agriculture. And within those four industry verticals, we have the ability to invest anywhere along the growth trajectory of the solution. We operate in four asset classes: venture, credit, growth equity, and private equity.
And then we also manage an innovation center. And so that gives us an ability to look at supply chains in those four industry verticals, identify a bottleneck, identify a solution, and then apply the right form of capital towards that solution. And if we don't find a solution to invest in, we lose our innovation center to incubate those solutions.
MB: And at the moment are you seeing lots of opportunities out there -- or what's the environment like now?
RG: We're seeing a lot of opportunities out there. One of the unique things about our firm is that some of the groups of LPs [Limited Partnerships] that we manage money for are the world's largest retailers, consumer goods companies, technology companies, and material science companies. And this is where they want to move their companies, especially their supply chains. And we're seeing a lot of tremendous innovation that we're investing in. And we're also seeing a number of best in class companies that are looking for capital to now scale to meet the demands of some of the large global companies.
MB: Now we're talking not long after the COP26 meeting in Glasgow, which had a lot of attention, a lot of media. The private sector was very present, very active. There were lots of discussions about private sector solutions, innovations, and so forth. And yet the event was really also about the politicians of the world coming together and trying to come up with regulations and treaties that could actually deal with some of the climate change challenges and biodiversity challenges that we're facing. And my sense was that for all the talk from the private sector, the political leaders didn't really get their act together in a way that gives us much confidence that we can avoid a significant increase in climate change problems.
What's your take? And how do you see the balance between the need for public sector action, and what the private sector can do on its own?
RG: I think with all social movements, what history tells us is there isn't any one thing that necessarily creates a tipping point or accelerates us to a new and better world, it's oftentimes a series of events that galvanize together to create a tipping point. And so I think COP26 served the purpose of bringing this issue to the forefront and bringing a lot of excitement to the potential for a solution.
But I think it also has its limitations where it gave people too many opportunities to make bogus commitments. And what I mean by bogus commitments is any commitment that involves 2050, even 2040. It's a bogus commitment, [if] we're talking about over 25 years from now. If a public company tried to make a commitment for 2050 around its sales, or its cost, or anything else, the CEO would be laughed at on his call or laughed off the stage, or people would be very annoyed and frustrated. But when it comes to climate, or this issue, people are applauded when they make commitments to 2050. And I think that's where events like COP26 need to be careful. I think if we can start to focus more on: you're welcome to be at COP26, it's a big tent, we need everybody in this tent. But if you're in this tent, you're talking in time frames of a year, three years, five years, maximum ten years. Otherwise, it's just not really relevant.
MB: So being in favor of the circular economy doesn't mean you have to buy all these pledges on net zero and take them seriously?
RG: If something isn't between today and 2030, I pretty much tune it out. It's not really relevant to this fear of what's taking place in the near future. And the world looks different in 2030, that the commitment you make in 2021 is going to have little to no relevance. I think we need to galvanize everyone's energy around: what do we do this year, what are we doing in the next three years, five years, seven years, ten years?
That doesn't mean that the problem is going to be solved by 2030. But we will solve the largest portion of the problem, or make the most headway, if we focus on trying to solve as much of the problem as we possibly can by 2030. And then in 2030, or 2029, we can re-evaluate where we are and what is that next one year, three year, five year, seven, ten year commitment to be before 2040. But for right now, let's focus on what we can do in those one, three, five, seven, ten year increments.
MB: Government policy, as we've already discussed, is crucial to enabling the private sector to orient itself around a circular economy as opposed to this linear, take-make-waste economy. You go into this in quite a lot of depth in the book, but what for you is the biggest idea that we need our politicians to take action on, if we're going to accelerate the circular economy?
RG: The cost of waste cannot be shared by the commons. Unfortunately, the way waste management was structured from a pricing standpoint -- and this was intentional, and driven by certain industries that saw this as in their financial best interest, it was not structured this way in financial best interest of of the citizen -- is if you think about how water is priced as utility, it's priced at the household level, you pay for the water you use. If you think about energy, it's priced at the household level, you pay for the energy you want to use. Nobody would accept sharing in the cost of their neighbor's water or in their neighbor's electricity. Unfortunately, waste is priced as a common charge, meaning you put your garbage out, the city comes and picks it up, and the cost of picking it up and disposing of it for everybody is spread across all taxpayers. And that type of system rewards laziness, it rewards wastefulness. And that's the biggest change that needs to happen, we need to price waste, both at the residential level and at the corporate level, as a utility, and the producer should pay. And if we can move towards that kind of system, that'll create major motivation and major incentive to reduce waste.
MB: Is anyone doing that?
RG: There are communities in the United States that have what's called “pay-as-you-throw”, where you pay for whatever you throw into the landfill. And in those communities, you see much higher recycling rates. You're starting to see some states, led by Maine, interestingly, small Maine, and big California, [working] around the concept of extended producer responsibility. [Which is] where the legislature and policymakers are telling large publicly traded companies who sell products in their states: “you're welcome to sell whatever you want, you're welcome to sell it for however much you want, but you're going to be responsible as a company for the disposal of your product in the landfill. That's not going to be the responsibility of the general taxpayer. If you sell that product, and you collect the revenue, record the profit on your balance sheet, you're going to also have to record the liability of it going to a landfill. If it goes to a landfill, that liability can no longer sit on the taxpayers account.”
MB: So your personal journey is quite an interesting one in terms of you started out working in a recycling company, and then you joined the Bloomberg administration in New York City as a commissioner overseeing recycling, and now you've gone into investing in circular economy firms in your current role. One of the themes that we're very interested in at Driving Change is how do we get more people of talent and who get some of these big questions, like what we do about climate change, into government? Because it seems like there's a real challenge to get talented people into government now. And then how do we keep them there? Or should we even be trying to keep them there? Is it better that they follow the kind of multi-sectoral pathway that you've been following?
RG: It's a really important question. I think doing public service for part or some of your career is a great opportunity. And I would encourage anyone listening, that if they have the urge or find an opportunity, whether it be for a year or for ten years, to definitely pursue it. It's an important thing to do. And I personally learned a lot in that experience.
How do you get more people to go and do it? I don't think there's one simple answer. I think there's a few answers. One is you can have an inspirational leader, like a Mayor Bloomberg, who creates tremendous positive energy about what's possible in the city, and you attract a lot of talent that just wants to be part of that person's administration. I think Barack Obama was also able to accomplish that. So that's one way of doing it.
I think another way of doing it is just creating status and appreciation around that type of job. I think we have a challenge in the American economy -- I think this probably exists a little bit in the U.K. as well some other developed countries -- where the highest status in society goes sometimes to the jobs that don't always create the most social benefit or require the most amount of intellect. And that's not taking anything away from those jobs or those people or those positions. It's just the jobs of teacher, fire person, police person, public servants, soldier, these are the jobs that are the backbone of our society. And unfortunately, the status that's assigned to those jobs, and the financial incentive that's assigned to those jobs, is low in society. And that creates a perverse incentive to drive some of the smartest people into the least productive jobs. And I think if we could find a way to change that view of the status of those roles, I think that would have a big impact.
MB: It's interesting, I remember talking to Michael Bloomberg when he was mayor, and he definitely had a sense that on some of the issues he cared most about, for example reducing smoking, he was able to achieve far more as mayor with the powers that you have in politics, then he was he was as a private philanthropist. I don't know if he still holds that view [especially] as he looks at issues like climate change, where he's very active through his philanthropy. But do you feel like you're going to achieve more now, in your current role, than you could have done in government?
RG: I think you can have tremendous impact in all of those roles. And I think that if you want to have impact, find the role that suits you best, where you can have the most impact. And there's some people that are designed to be able to maximize their impact in public service, there are some people that are designed to be able to maximize their impact by being in the financial sector, there's some people that are designed to have the most impact by being a journalist. And I think people should find what that calling is, at that moment in time in their life, and pursue that.
Mike Bloomberg has had a unique and very special life, where he's been able to have that impact in the private sector, in government, and as a philanthropist. That's rare. I'm not sure that we should all be able to aspire to that. And so I think people should just find their calling and have the most impact, wherever that calling is.
MB: So one last question is, you set out this agenda in The Waste-Free World -- how the circular economy will take less, make more, and save the planet -- as you look at the next twelve months, what do you feel is the number one priority for the world to take that movement forward?
RG: Economic justice. I think that without a sense of economic justice for most people, we're going to continue to inhibit this transition to a cleaner economy and moving away from climate change. I think that there are so many people in the world who are just barely getting by, so trying to engage them on a lifestyle change that doesn't include helping them live a better and more secure life is counterproductive. And I think we really need to figure out a way to merge the climate change conversation with the economic justice conversation.
MB: You've opened up a huge area there, but what would you see as being a sign of progress on that front?
RG: Look at the amount of government subsidies over the past fifty years that have gone to the oil and gas industry, and the amount of wealth that's been generated by executives in those industries, really on the back of the taxpayer. Let's move away from these ridiculous and historically inaccurate conversations around: government shouldn't be involved, or government doesn't have the money. Let's just agree to take the same amount of government/taxpayer-funded money that was used to fund the oil and gas industry, just that exact amount, and let's use it to provide subsidies for poor people to get access to clean, renewable energy. And let's just use that as a starting point. And I think we'd find a much more equitable, much more socially healthy, and much environmentally cleaner world.
MB: Well, that sounds like a plan. Let's hope it happens. Let's work to make it happen. Ron Gonen, thank you very much for talking to Books Driving Change about your book, The Waste-Free World: How the Circular Economy Will Take Less, Make More, and Save the Planet. It's a great book. I recommend it to all our listeners. Thank you very much.
RG: Thank you, Matthew. Good speaking with you today.
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This transcript has been lightly edited for context and clarity.