Financing the circular economic model

Abstract

AbstractCapitalism, as we know it, is the result of the industrial revolution, when resources were perceived as abundant and limitless. The population was much smaller and the environmental impact of the industrial activity was perceived as minimal. As the world population increased exponentially and more countries emerged from poverty to join the middle‐income rank, demand for products increased leading to a rapid industrialization with no concerns for its environmental and societal impact. Capitalism is also based on the idea of free markets that adjust automatically to new information about scarcity, demand, and processes of production to allocate resources in the most efficient way possible. However, free market implies that possibly unobservable factors are taken into consideration to lower the potential impact of negative externalities by imbedding them in the pricing process. Unfortunately, free markets failed in this task and the list of environmental disasters from the Gulf oil spill of BP, the tobacco health issue are good examples of the inability of the markets to gauge the impact of these negative externalities.