Thursday 29 March 2012

Are the Youth of Today the ‘Betrayed Generation?’

‘Years of struggle for a jinxed generation’ was the headline on the front page of last weekend’s Financial Times. The necessity of  ‘averting a lost generation’ was talked about at Davos this year. It is important that attention is being given to the massive intergenerational wealth transfer created by the Western world’s past borrowings. However I’m not sure the terminology is quite right – a point I will return to in a bit. 

 The article in the Financial Times explains, ‘for the first time in half a century, young Britons embarking on their careers cannot expect to be any better off than their parents.’ The FT’s analysis shows that disposable incomes of young people have stagnated for years. What’s more, for our parents, many things that we have to pay for came for free. The biggest item may be University education; now young people will have to take on massive debts before their mid-twenties to get an education. These are debts which (as I discussed back in 2010) few of them will ever pay off. What’s more, until this month nearly all the burden of austerity in the UK was felt by the young and working age people and almost none by retired or nearly-retired people. 

It is pleasing to see that the government is finally starting to address this. Some newspapers jumped on the removal of the Age Related Allowance as a ‘granny tax,’ exaggerating the impact the changes will have in a transparent attempt to sell more copies by inducing outrage in the public. But George Osborne’s move was long over-due. The Age Related Allowance is an unfair distortion of the tax system – and because income tax allowances are going up anyway its gradual removal for new pensioners will only have a small effect on a small number of people. Further distortions that favour older people need to be looked at. Also, more generally, increasingly progressive taxation will help young people in low-paid jobs. 

Many older people in the UK don’t seem to realise how angry the younger generation really is. The London riots of 2011 were not just mindless criminality, as many seem to think. They were an outburst of the tension that is simmering, mostly under the surface. The same anger led to the trashing of the Conservative party headquarters. The same anger led to the occupation of St Pauls. Much of the press expressed puzzlement at these events (and misrepresented the Occupy movement by calling it ‘Anticapitalist’). But while I find the first two of these examples of expressions of anger deplorable and regrettable respectively, I can at least partially understand why they occurred. 

When newspapers and politicians use words like ‘jinxed’ or ‘lost’ to describe my generation they seem to imply no one is to blame (much like Nick Frost’s use of the word ‘Accident’ in Hot Fuzz). In reality, it is the financial mismanagement of previous governments for several decades that has resulted in the current situation. Perhaps the next time the Financial Times prints and article on the plight of young people today, we would be more accurately referred to as the ‘betrayed generation.’ 

Tuesday 13 March 2012

Will the Circular Economy be dominated by entrepreneurs or big business?

Two of the big environmental problems that exist today – the high amount of waste we produce, and the vast amount of raw materials we consume – would appear to have a fairly straightforward, complementary solution. We need to re-use more stuff.

While this is easy to say, it is not so easy to do. Our products were not designed with re-use in mind. With a few exceptions, it is normally more profitable to let people throw away the old so they can purchase something new. Dismantling an old product to re-use the materials is often more costly than getting fresh raw materials for your manufacturing process.

Having said this, recycling of raw materials has become ever more prevalent due to a mixture of legislation and rising commodity prices. But environmentalists have long argued that we need to take matters to another level: instead of decomposing waste into raw materials that resemble our current commodity feedstock, why not design products in such a way that at the end of their lives they can be dismantled and the components re-used without extensive materials processing.

For example, you might want to dispose of a bicycle once the seat and gear mechanisms are worn out. On the one hand, you might take it to the tip, where the steel frame would be used as scrap to help manufacture fresh steel, and the rest would end up in landfill. On the other hand you might give it to a small business which would overhaul the bike, fitting a new seat, a new gear mechanism, giving it a new lick of paint, and then selling it on. In a world where raw materials and landfill space are increasingly scarce, it makes send to do the latter – and this is what the hypothetical ‘Circular Economy’ is all about.

Last week’s New Scientist contained a small but notable article highlighting the publishing of two high profile reports into the potential of the Circular Economy. The reports are well worth a read in their own right, but the most important message is that the idea of the Circular Economy is gaining traction.

Over the next few decades, the Circular Economy has clear potential to be a disruptive force in almost every manufacturing industry. Big companies need to ask themselves where they will fit in the circular value chains of the future. If they don’t take a lead in the move towards ‘remanufacturing’, they risk allowing a new generation of industrial entrepreneurs get a head start. Economies of scale should give established businesses a clear advantage in moving towards a new economic paradigm. But organisational inertia – the natural preference for maintaining the status quo – could hold back companies even when some of their managers understand the need for change. It has happened many times before and it could happen again. For entrepreneurs there are valuable opportunities for building businesses with the circular economy in mind.

It will be fascinating to watch the transition to a more circular economy. I expect it to occur gradually, and it may not even be complete in my lifetime, but the next 10 to 20 years should begin to reveal who will be the winners and who will be the losers.