Beyond Sustainability: The Rise of the Frugal Economy

A popular concept much-touted today is decoupling, whereby “continued growth in the economy is accompanied by a further contraction in CO2 emissions.” See Figure 1.

This so-called ‘green growth’ model based on decoupling calls for companies to “do more with less”, i.e., keep producing more goods and services while “decarbonizing” their supply chains.

While decoupling could reduce the negative ecological impact of business, it doesn’t incent companies to radically change their existing business models, or positively contribute to society.

My book argues that what the world needs today is not decoupling but recoupling. It’s time to “recouple” (reintegrate) economic activities with people, communities, and the planet.

Such tight recoupling will enable a regenerative development model that will boost human development and increase social and ecological harmony and will lead us toward a conscious society.

By engaging in – and actively shaping – this virtuous growth cycle, businesses could serve a noble purpose than is larger than just profit-making.

Here is the hiccup: our existing economic system which is built on capitalism lacks the right values and mechanisms to enable the “recoupling” of business and society/planet.

Here are four reasons why capitalism – the operating system that runs our modern societies – is unfit to drive the kind of inclusive and sustainable growth mentioned above:

First, capitalism exalts the virtues of private ownership, individualism, and competition, which motivate businesses to amass and hoard assets and compete ferociously with one another in a zero-sum game.

Second, it pursues relentlessly economies of scale (efficiencies) through mass production and global supply chains, which are gravely polluting and resource-hungry, and lack the flexibility and resilience to cope with catastrophic disruptions such as COVID-19, natural disasters like hurricanes, and water scarcity.

Third, it incentivizes businesses to maximize short-term profits exclusively for shareholders instead of creating long-term value for all stakeholders, including local communities.

Fourth, capitalism fails to hold businesses accountable for the harmful consequences of their operations – known as “negative externalities” – such as social inequality and ecological degradation.

Given its fundamental and systemic flaws, we can’t rely on a dysfunctional capitalist economy to power inclusive and sustainable growth. We need to totally upgrade and reinvent the economic system that undergirds our societies to make it more efficient and agile, socially inclusive, and ecologically beneficial. 

To build and sustain radically new business models and industry value chains that are truly beneficial to people, society, and the planet, we need a new operating system that I call a frugal economy. 

A frugal economy strives to expand human awareness and create more economic, social, and ecological value simultaneously while wisely optimizing the use of all available resources.

In contrast with the “do more with more” capitalistic system, which gobbles up ever more resources to pump out ever more useless products, the frugal economy strives to do better with less by making the most of all existing resources to maximize the value for all stakeholders.

A frugal economy responds to the needs of thrifty and socially-conscious consumers who seek a simpler, healthier, and more eco-friendly lifestyle and want to deepen their community ties through active local engagement.

This frugal economy is not a utopian vision.

Using over 100 inspiring real-life examples from all over the world, my new book vividly shows how this multitrillion-dollar frugal economy is already emerging, fueled by three megatrends that will radically reshape our societies in coming decades (see Figure 2).

Let us explore the three core pillars of the Frugal Economy:

Today businesses compete with each other brutally and hoard resources selfishly. Instead, what if they collaborated and shared their resources so they can cocreate greater economic, social, and ecological benefits for all – while minimizing waste ? Excitingly, this is already happening, and it’s called business-to-business (B2B) sharing.

Learn more about B2B sharing.

Businesses, especially in developed nations, can gain in resilience and agility by scaling out (distributing) their manufacturing and producing goods and services much closer to customers.

And by replacing their globally-dispersed supply chains – which are increasingly vulnerable to disruptions caused by climate change – with hyper-local value networks (HYLOVANs), businesses can mitigate operational risks and benefit both the local economy and the environment.

Learn how businesses can embrace distributed manufacturing.

Learn how businesses can build hyper-local value networks.

Businesses and communities can go beyond sustainability and regenerate people, places, and the planet altogether synergistically, hence boosting the health and vitality of citizens, communities, and natural ecosystems.

Learn how businesses can practice triple regeneration.

By cooperatively sharing their resources, decentralizing manufacturing and hyper-localizing value chains, and by regenerating people, places, and biodiversity, businesses can co-build a frugal economy that truly benefits society and the planet.

The content of this article is adapted from The Frugal Economy: A Guide to Building a Better World With Less by Navi Radjou. Copyright © 2024 by John Wiley & Sons, Inc.