Humber River Delta II: A Circular Economic Fantasy

Back in January, I wrote The Humber River Delta - An Economic Fantasy, which made the case for a Special Economic Zone (SEZ) encompassing Hull, Grimsby and Scunthorpe. The SEZ was a response to the multi-generational policy failures which have allowed the area to at first gradually, and then unignorably, to fall ever further behind in terms of UK income.

That failure continues:

In 1997, Hull residents per capita gross disposable income was only 56.2% that of London; by 2006 the ratio had fallen to 51.3%; by 2018 it was down to 47.8% - less than half. For the UK as a whole, Hull's per capita disposable income is only 66.4% of the national average.

In North Lincolnshire (home of Grimsby and Scunthorpe), the decline was, if anything, more vertiginous: in 1997 per capita disposable income was 70.5% that of London; by 2006 that had fallen to 61.9%; by 2016, it was down to 55.2%. It's disposable income has fallen to 77.2% of the national average.

In fact, in the 10yrs between 2006 and 2016, North Lincolnshire's per capita disposable income actually fell in real terms, with a nominal rise of 17.6% compared with a CPI rise of 20.6%.

I argued that for an SEZ here to be successful, it had to show at least two characteristics: first, it had to develop into or discover a coherent industrial cluster; and second, developing policies allowing the region to vary administrative regimes including tax, planning, and employment, must not only win local democratic approval initially, but must be controlled and policed within the SEZ itself, and emphatically not from Westminster. Even the post-Maoist Chinese government realized that the best chance for success in Shenzhen demanded it allow local control, local endeavour, and a degree of local autonomy.

Six months later, my Humber River Delta fantasy has added a new and specific focus: the circular economy. The 'circular economy' idea is, at its very roots, can only be developed as a coherent industrial cluster - there is simply no other way of promoting it. Developing the Humber River Delta as a Circular Economy SEZ reconciles my commitment to growth and prosperity with the need to speak to environmental concerns.

My Climate Muscle Memory Gym excercises have shown me two things: first, the world really does have a problem - global temperatures really are rising; second the world's current policies are not working. Specifically, not only are CO2 concentrations not going down, not only are they not stabilizing, not only are they still growing, but they are growing at an accelerating trend rate.

This is an absolutely collosal failure. How many hundreds of billions of dollars have been ploughed into direct subsidies for green energy? How many hundreds of millions of working-hours have governments and bureaucrats wasted? How many flights around the world to attend conferences? How come all the promises by all the world's major economies have had no discernible impact? How come the much ballyhooed efforts of most of the world's major companies to 'go green' have made no difference.

Nor is the failure to be accounted merely in the still-accelerating concentrations of CO2: if we're honest, we have to reckon up what else has been damaged by these failed CO2 reduction policies. It seems to me clear that biofuiel production, and biomass power generation are tremendously hostile to the environment; production of solar panels and wind turbines are tremendously power-intensive and has at its core use of 'rare earths', which are only rare because almost no country except China is prepared to tolerate the environmental damage associated with their production.

Both wind and solar are intermittent, the ability to truly scale them will demand either a leap forward in battery technology and/or a rebuilding of our network distribution infrastructure. In their absence, they have to be backed up by expensive and badly-polluting diesel turbines.

In short, renewable energy has not/is not 'tackling' climate change, and on every other environmental yardstick these technologies are horribly hostile to the environment.

Not to mention that right now is about as favourable economically/financially as things are going to get for wind and solar. That's because unlike, say, coal or gas, production is largely determined by fixed costs, rather than variable costs. For coal/oil power stations, the most important thing for their finances is the cost of coal/oil. For solar/wind, variable costs are (one hopes) negligible, so their finances depend very largely on the cost of capital. If/when interest rates go up, the finances of 'renewables' will/must deteriorate very badly. It's not difficult to see how they would act as an inflationary accelerator if interest rates rise in response to inflation!

In any case, the merely intensifying these destructive policies, even if they worked, would make not the slightest difference to the underlying problem: the UK, after all, is responsible for only approximately 1% of annual global emissions (https://en.wikipedia.org/wiki/List_of_countries_by_carbon_dioxide_emissions). A 'zero carbon Britain', would be no more than a rounding error in the global total. I can think of no argument why the future prosperity of anyone in Britain should be compromised to achieve a victory that could only ever be a meaningless 'moral' victory.

After all this, I conclude that the only hope for reversing the environmental damage caused by our current economic model is offered by the concept of the 'circular economy'.

However attractive the 'circular economy' concept is, it suffers from a major flaws built in at foundational level - it can never succeed until it is scaleable. Whilst enthusiasts can offer the occassional 'success story' demonstration, nowhere has it been shown to be scaleable, or possessing of a coherent economic/financial model. It is one thing to point to the virtues of, say, Fairphone; it is quite another to demonstrate what it would actually take for a circular economy revolution to be sufficiently self-financing to overthrow the existing extractive model.

This is the challenge, and the opportunity, which a Circular Economy SEZ could embrace and profit from.

In order to discover the ideas, technologies, and economic/financial infrastructures that will make the circular economy real and viable it will necessarily take a holistic effort. You can read it in virtually every paper put out about the Circular Economy: to get it to work will involve a huge vertical effort, starting with design, going through to technology, then finance, then production engineering and distribution. No single company can hope to kickstart it: a Circular Economy SEZ which is tasked to develop the design, tech, finance, production engineering, recycling etc can hope to discover what it takes. And if it did, the SEZ would have a head-start in building a new world economy.

So let me dream a moment. Imagine the SEZ based around Hull/Grimsby/Scunthorpe developed as the world first Circular Economy SEZ. It would aim to attract not only design and tech companies appropriate to the concept, but also to develop financial instructures to support the global circular economy.

For example, it could develop financial markets and associated physical infrastructures for recycled plastics, tin, paper etc, the absence of which are already been lamented by companies involved in various aspects of recycling. It could develop specific financial expertise to assess the viability of circular economy projects and trajectories, and where appropriate help finance them. Of course, it would hope to attract all manner of recycling companies. Hull port could be reborn as the key hub of Europe's entire recycling efforts for, say, plastics. And, of course, the obvious corollary is that it the cluster would hope also to provide the world's most friendly environment for genuine circular manufacturing companies.