Circular economy and opportunities to overcome poverty in Latin America and the Caribbean

214 million people living in poverty, 34,7% of the region population, is the projection issued by the Economic Commission for Latin America and the Caribbean (ECLAC) in their 2030 Agenda for Sustainable Development in the new global and regional context. This represents an increase of 28 million people over 2019, mainly as a result of the global pandemic. This figure is bad news in itself, but it’s even worse when we see that since 2015, we have been facing a systematic setback in the progress achieved between 2002 and 2014, when poverty decreased from 45,5% to 27,8% of the population.

What is presented above shows that COVID-19 is accelerating, deepening and making visible certain trends which were already present, and seem to be more associated to structural factors, expressed in the fall of the Gross Domestic Product (GDP) average growth, from 6% to 0,2% in period 2010-19. Given the circumstances, it is necessary to acknowledge that even after the pandemic is over, and recovering the economic dynamism progressively, the foundations upon which the region development is supported, seem to be depleted.

With that in mind, the export model based on resource extraction, manufactured goods imports, and service provision at domestic level, present from Chile to Mexico, is facing a drop in International prices and a constant loss of competitiveness. Furthermore, this model has shown its limited long-term capacity to solve poverty and inequality issues, provide good quality jobs, access to better education, health and pensions, and reduce environmental liabilities. All this combined with a citizenry more aware of their power and more suspicious of any solution arising from the leading political, business, and even working classes, is generating an increasingly complex scenario for the future of Latin America and the Caribbean.

Circular Economy as a strategic framework

So, how to find our way back to reducing poverty? Part of the answer can be found in the ability to build a new social pact, together with a transition towards a circular economy, exceeding the linear thinking and economic paradigm, which has enabled us to reduce poverty, but shows important flaws when solving future challenges. Four ideas on how circular economy can be a contribution to overcome poverty in the region, are exposed below.

First, circular economy is a strategic framework to achieve sustainable development, which recognizes the importance of the society, companies, governments and the academy to develop economic growth, social welfare and environmental care. It contributes to build a political statement for a new social pact, at a time when institutions and the model of social relations of countries are facing serious legitimacy problems before the citizenry.

Understood as a political statement, circular economy allows the convergence of various interests which seem to be in conflict within the society, such as economic growth and environment; social equity and free market, business and society, among others. This is not a minor issue, when observing the danger of the international political speech polarization, which does not contribute to think a new model of development in a shared way, which ends up by affecting the poorest continuously. 

The importance of science-based innovation

Secondly, Science, Technology and Innovation are sine qua non conditions for its implementation. Making a transition from a linear economy towards a circular one requires the generation of science-based innovations ranging from process sensorisation to the generation of business models and create fields so diverse as renewable energy and the big data. Even though there isn’t a technology named ‘circular economy’, it enables a technology articulation around the sustainable development challenges.

This is in line with international recommendations, which emphasize the need to invest in science and technology as a driving force for development which allows the creation of new entrepreneurships, the generation of high quality goods and services, an increase in the number of high quality jobs, and an increase of incomes, contributing to reduce poverty in a sustained way over time. To do this, the region must increase the 0,74% of the Gross Domestic Product (GDP) it invests in research and development, which puts it way below the global average of 2,2%, according to the World Bank.

Industrialization 4.0

Third, in the centre of circular economy is Industrialization and Manufacture. Even though the idea that circular economy is the same as recycling has gained popularity, this is completely wrong. To a conceptual level as well as a practical one, it seeks to encourage a change in how and what we produce, not only in the final part of the process. That’s why the circular economy greatest effort is in fostering transformation, alongside with industry 4.0 and towards the reindustrialization of the countries of the region.

A new kind of industry, with a strong technology base, is urgent in order to increase economic, social and environmental well-being. Projecting the development of Latin America and the Caribbean based on the current production model and with a strong component of natural resources extraction, will only widen the social gaps and will continue increasing poverty. Reindustrialising areas from circular economy and industry 4.0 means moving forward in the triad person, benefit and planet.

Let’s not forget the environmental crisis

Fourth, the environment is origin and objective. The circular economy model can be understood as restorative and regenerative by design, which purpose is keeping products, components and materials under maximum utility and value throughout their life cycle. Consequently, this model seeks to decouple economic growth from finite resource consumption on the planet.

Circular economy contributes to the challenges brought about by climate change, which, as stated regularly by the United nations, will have deep social impacts, especially over the most vulnerable people, turning into a climatic apartheid, pushing nearly 100 million people per year towards poverty. That’s why, reducing climate change effects through efficient use of resources, closing the loop, is contributing to the struggle against poverty of 214 million people in the region.

Summing up, a circular economy model is one of the roads which opens ahead for Latin America and the Caribbean in their fight against poverty. Although the main concern today is to contain the COVID-19 pandemic effects, it shouldn’t be forgotten that this is happening in a region that was already showing evident signs of lack of growth, social inequality and environmental neglect, giving way to great social outbreaks in Chile, Colombia, Bolivia and Ecuador during 2019. Therefore, emergency solutions shouldn’t overshadow the need to move forward into a deep transformation process aiming at the sustainable development of the region from circular economy. While many wonder if after the pandemic we will continue being the same, the answer will depend greatly on whether our social economic model remains unchanged or decides its transformation.

• Article published by Regional Programme Energy Security and Climate Change in Latin America (EKLA) of the Konrad Adenauer Foundation (KAS).
• Spanish version.

Andreé Henríquez. Vice director at Innovation Observatory, Faculty of Economy and Business at Universidad de Chile. Director of Innovation and Research at Center of Innovation and Circular Economy.