86 Jennifer Hinton – Rethinking how profit is used

Interview Transcript

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Catherine Weetman  00:56

Welcome to Episode 86. Thank you as always for listening and for the encouraging comments you’re sending. Today we’re talking about a different way of thinking for how business fits into our society and economy. Jennifer Hinton is a systems researcher and activist in the field of sustainable economy. Her work focuses on how societies relate to profit, and how that relationship affects global sustainability challenges. Jennifer’s relationship to profit theory, user systems thinking and institutional economics to explain how key aspects of business and markets drive social and ecological outcomes for sustainability. Jennifer started developing this theory in the book How on earth, which outlines a conceptual model of a not for profit market economy, the not for profit world model. She holds a double PhD in economics and sustainability science. As an activist, she collaborates with civil society organisations, businesses and policymakers to transform the economy so that it can work for everyone within the ecological limits of our planet. Jennifer is a researcher at Lund University, and a senior research fellow at the Schumacher Institute. Let’s meet Jennifer, and I’ll catch up with you afterwards with what I took away from our conversation. Jennifer, welcome to the circular economy podcast. And thanks for taking the time to join us today.

Jennifer Hinton  02:32

Thank you so much for having me, Katherine.

Catherine Weetman  02:34

So we’ve been talking about this this episode and sharing documents and research and so on for quite a while. But maybe we could start with the big question. What is post growth? And why is this idea gaining traction all around the world?

Jennifer Hinton  02:51

Yes, it’s a great question. So post growth, both in scholarship and activism is basically the idea that we need to reorganise our economies so that they can function without constantly growing. And the idea there is that, you know, all economic activity has some sort of environmental impact through resource use energy use, you know, creating pollution and emissions to some extent. And so, given the fact that we are in such a dangerous situation right now, with the climate crisis, with biodiversity loss, and a whole host of other environmental problems, globally, we need to reel in our economic activity globally. And so this means some communities that are currently consuming more than they need, will need to shrink and consume less than they are now. And other communities that aren’t getting as much as they need, will, will need to consume more. But overall, we need to shrink the global economy. And post growth is just trying to explore okay, how can we reorganise our economies so that they don’t require and drive constant growth? And I think it’s it’s catching on so much right now. Because these these problems, environmental problems, and the inequality problems created by the growth based economy are becoming more and more evident, and they’re making more and more people suffer and pushing them out of their comfort zone. So we’re seeing a real sort of awakening to the fact that we need to move beyond the growth based economy.

Catherine Weetman  04:30

Yeah, and certainly, in the research I’m doing for my next book, I’m seeing that emerging particularly strongly with the younger generations, who were you know, and then not so attached to the idea of owning things and they want to work for companies that have a deeper purpose they want to buy from companies that share their values and so on. So there’s lots of very By encouraging trends, I think around that. Okay, so So post growth might put some people off. And I think we’ll we’ll talk later about how the circular economy can enable that. So we’re not necessarily talking about going back to lifestyles of the 1920s, and so on, we’re not talking about you know, sort of hair shirts type philosophy, or we were talking about having a different approach to the way that products and services work, following Circular Economy principles, and and hopefully, we’ll have a chance to come back to that. But your particular theory is something slightly different a different sort of take, if you like on post growth or or a more refined way of thinking about it. And your you’ve called your theory relationship to profit. So could you explain how that relates to pro post growth?

Jennifer Hinton  06:04

Yeah, sure. So the theory, the relationship to profit theory, offers an explanation for how the profit driven economy or what I call the for profit economy. Systematic systematically drives environmental and social problems, away decades of concerted efforts to make the for profit economy sustainable, have so far failed fairly miserably. And then the theory also offers a way out of this conundrum, by exploring the possibility of not for profit economy, so organising our market economy, but in a not for profit way with the using not for profit business structures, which already exist, and how that creative economy would actually allow for much better social and ecological outcomes, including allowing for a non growing or shrinking economy, whereas the for profits, type of economy, because you’re constantly seeking more and more profit for investors, you have to constantly sell more and more stuff to make profit. And so it’s a growth based economy.

Catherine Weetman  07:11

And I guess, my take on that is that it’s, it’s kind of a consumption based growth economy. So and I think we’ve gradually come to see that as the only way forward. But when we think about things from a circular economy perspective, it we’re breaking that link between consuming more resources, and having the better standards of living that everybody aspires to, because we know that we want to bring people in less well off countries, up to the standards of living that, you know, they they deserve, and are entitled to. So I guess, and just to unpack the, the not for profit part of it a bit more, because I think it is easy for people to get confused. To think that not for profit means profits are a bad thing. And if I, the way I understand it from reading some of a little bit of your work, is that we’re talking about profits that can be reinvested in the business, perhaps for, you know, updated facilities and equipment. And even if we think about moving towards a circular economy model, it might need to be investing in cashflow buffers, if you’re going to switch from selling products to leasing products, then most companies would feel more comfortable having their own profits to use for that instead of having to borrow to fund that cash flow from from a bank or whatever. So we’re not saying profits, per se, are a bad thing. What we’re saying is, and correct me if I’m wrong, is that the purpose of the business should not be to keep growing its profits, so that they can be distributed to make shareholders and you know, board members and so on. Ever richer. The point should be to have a purpose that goes beyond profit, a purpose that’s doing better things for society and for our planet. Am I Am I understanding that correctly?

Jennifer Hinton  09:30

Exactly. Right, exactly. Right. It was an excellent summary of what they did. So it’s exactly what you said, profit is neither good nor bad in itself. It’s how the profit is used, how it’s generated and why it’s generated and then how it’s used. And so, you know, not for profit businesses have a core social benefit mission which can include environmental benefit, and all of the profit is either reinvested back in making the business a solid business like you say I’m including having cashflow buffer, and or reinvested in social benefit for larger community, which can include, you know, helping kids with learning disability, that there’s a whole wide range protecting for us, whatever it is. So rather than making a handful of business, private business owners and investors, Richard, it goes into making the community better off.

Catherine Weetman  10:25

So, and I’m sure you’ve got lots of examples to share. Is there a legal structure for this for these kinds of businesses? What what umbrella do they sit under? And is that a sort of globally standard legal structure? Or is it different in every country?

Jennifer Hinton  10:43

Oh, yeah, that’s a good question. So basically, the part of the reason I was attracted to the for profit, not for profit distinction is because it is legally binding. This is a legal category of organisations and businesses. And so it’s more like when I said a category, where you can find a whole range of incorporation structures, so or specific incorporation structures. So for instance, you mentioned a community interest company. So in the UK, the community interest company limited by guarantee is not for profit, so they all of their profits have to go back into social benefit. Whereas the Community Interest Company, limited by shares, actually has private shares, and can distribute up to 30% of their profit to private investors. So that’s a case where social enterprise model has taken both a not for profit and a for profit for two different forms. But this distinction between for profit and not for profit comes down to not for profits have a social benefit mission. And all of the profit legally has to go back into serving that either through keeping the business going or through directly investing in social benefit. And so they’re not allowed to do distribute any profit to private individuals. And that distinction holds around the world. So it’s a really handy distinction. And in that sense, because we can look at companies and markets around the world through this lens and have a better understanding of whether they’re really set up to enrich private investors. And they’re part of the sort of system wide dynamics that come with that kind of way of organising the economy, or if they’re set up to really, legally and illegally, by new way, serve the larger community.

Catherine Weetman  12:39

I’m curious to know what sparked your interest in this to begin with? Where did that all come from?

Jennifer Hinton  12:46

Yeah, I mean, so it’s a long story, but I’ll wrap it up into a nutshell. So in a nutshell, I found myself teaching English in China after I finished my bachelor’s programme and in international relations, and I have been hearing about this miracle of Chinese development, you know, that double digit growth has been bringing people out of poverty and solving environmental problems. So I was excited to see it when I got there. But what I saw instead was all of the factories in the countryside where I was teaching English, were polluting the water, polluting the air, killing off the ecosystems, making the people sick. At the same time, these strong community and family ties that had existed in this rural village where I was living, were being ripped apart. Because all of our working age, people were encouraged to leave the village go to the cities find jobs, and they were leaving their kids behind in the village to be raised by grandparents. So I met small children that had never even met their parents because they were working in the city far away, and they weren’t able to come home. Yeah, so you know, this just made me rethink everything that I had been taught about development and progress about. Okay, so this is double digit economic growth, but is this progress, and this is the kind of development we want, where people and ecosystems are getting sick, and families and communities are getting ripped apart. And then, you know, fast forward, I did a master’s in sustainability in in Sweden, and I wrote my thesis actually on the circular economy. And, you know, it was more of a learning experience and a solid piece of research that came out of that, but it was really had me start thinking more critically about you know, the circular economy kept being framed in terms of circularity can allow us to have green growth and sustainable profits. And so it was still like, sustainability is a means to growing the economy it’s a means to having more profit. And this always rubbed me wrong and then I thought, you know, as circular as we can get the economy and it will know ever be perfectly circular due to the laws of thermodynamics, right? So if we can make it as regular as possible, but we keep trying to grow it, it’s still going to require more inputs, more resources, more energy, and it’s going to keep creating more and more emissions as we grow it. So I started really be thinking does the economy need to grow? And I bumped into Tim Jackson’s book, prosperity without growth. And it really convinced me that no, this is just a fiction in our heads, that we’re convinced the economy has to grow. There’s no natural law here. We just have to think creatively about how to organise the economy so that it doesn’t constantly drive growth and environmental crises.

Catherine Weetman  15:41

Hmm, yeah. And I’ve just read Tim Jackson’s latest book, Post Growth. And there’s some really interesting takes on wipe a post growth societies is a better way for us all to live, and also some very interesting historical insights into how we’ve got to this stage and why why we’re kind of manipulated into thinking that this is the only the only way and some you know, some interesting perspectives on on marketing in particular. So, okay, so in terms of, you know, how you talked about the three stages. So how can this work at scale? And have you got any examples of businesses that are sort of doing large, large scale things? To you know, that that can help persuade people that this, this is a viable way forward?

Jennifer Hinton  16:45

Yeah. So I think that this question of scale is a really interesting one, because it almost ties directly into a theory of change, like, how, how can this transition? You know, going back? And going back to that second phase of how can we transition from here to there? I think a lot of us assume that we need to get the largest corporations on board, or we need to make not for profit businesses and circular businesses so big, they out compete the global incumbents. But I think then back about the principles of sustainability and how we really need to draw down our economic activity, we need to re localise our economic activity. And I think then we can see the transition in quite different light. So when I, when you ask, How can this work at scale, I think it can work at scale. But for me, that means a lot of local, not for profit markets, connecting with each other, but serving local community needs and using all of their surplus. So you know, they might redistribute the surplus from some global North communities to global south communities, and that sort of way. But I find this to be a much more useful way of female sort of network smaller local community economies rather than having these large global incumbents because I think that’s part of the problem. And so but there aren’t that said, there are some larger not for profit companies. So BRAC is a company based in Bangladesh. That started in order, their main purpose was to make health care and education available to rural Bangladeshis. And to serve that mission, they started a bunch of enterprises, so they have a dairy. They have retail shops that sell handmade products that are made by the rural Bangladeshis, and all kinds of a basic banking services. And so all of the surplus goes back to helping Bangladeshis. And that model has worked so well that it’s now expanded to several other countries. So I think there might be one in Kenya and Pakistan. And so BRAC is actually quite large. So that is an example of how that can work as well. But those local branches are really embedded in their local communities. So

Catherine Weetman  19:07

that’s interesting. And that reminds me of another book. I’ve just finished by Craig Johnson and Ken Webster, who both used to work for the Ellen MacArthur Foundation, and whose book sensor and sustainability was the first book I read about the circular economy that kind of switched the light bulb on for for me back in back in 2010. So their latest book is called ABC+D. And one of so they’re talking about local food systems are talking about much more democratic systems and, and principles of regeneration so on, and one of the things they mentioned a few times is the need to think about scaling out rather than scaling up. And that seems to fit into what you were talking about with BRAC that. First of all, they’ve scaled out into other services to help their customers and probably their employees. And then now they’re scaling the model out to different parts of the world. So yeah, that’s, that’s useful. I’ll put a link to that in the, in the show notes. So I think we’ve, we’ve perhaps covered the next question I had, which is, what would you say to people who are sceptical about this, but is there any anything you want to add to our points earlier?

Jennifer Hinton  20:29

Yeah, I mean, I can, because there are, you know, I’ve been going around and talking about this for nearly 10 years now. So I’ve, I feel like I’ve bumped up against all kinds of different scepticism, although that said, I have to say, most people tend to latch on to this idea quite easily, if it makes a lot of sense to them. So it depends on what the source of scepticism is. So one of the sources of scepticism is that, you know, people say, Okay, this is such a common sense way to organise the economy, you know, of course, the economy should be organised to meet social needs, and not to make investors rich. That just makes sense. But, you know, then their scepticism comes from, why hasn’t it already happened? If it’s so common sense? And what’s is it actually realistic? Can it happen? And my sort of response to that, is that, you know, I even though it feels really perhaps utopian and unrealistic from where we sit right now, I think it’s much more realistic, and then imagining a sustainable for profit economy, an economy that is, you know, set up to make a small handful of investors rich, and somehow magically, that trickles down and works out for people and planet as well. So that’s the more utopian imagination, imaginary kind of thinking, than the not for profit economy, I think. And then I can quickly just also mention a couple of other sources of scepticism that I often bump into, which your listeners might also have in their minds right now, is, you know, if you take away the profit motive, if you take the profit motive out as the engine of economic activity, then won’t you lose innovation and efficiency, because that’s one of the core ideas about the capitalist for profit economy, right? So profit motive drives efficiency and innovation. But I like to just point out that this is a large myth, you know, and I find one of the things I do in my talks is really bust this myth. You know, innovation, if you think about the longer term, large scale human innovation that have happened, the most important innovations, if you think all the way back to like the invention of bridges and wheels, and then we go further, you know, bicycles, the earliest vaccines, computers and the internet. So this whole breadth of human innovation, all of that was innovated out of human creativity and the desire to solve social problems, not to make the innovators rich. And then actually the for the for profit economy, the profit motive that incentivizes harmful innovation in a lot of ways. You know, it’s it’s incentivized the weapons industry that is profiteering from war. it incentivizes pharmaceutical companies to have patterns that keep low income communities from getting medicines that could save lives. And at the same time, you have pharmaceutical companies developing medicines vary erectile dysfunction and male pattern baldness, for high income communities, you know, so there’s all kinds of negative and talk about efficiency, the profit motive incentivizes companies to use planned obsolescence, you know, to make our fast fashion that goes obsolete before it needs to laptops and mobile phones that break down before they need to do that all the profit motive. So it’s highly inefficient, I would argue,

Catherine Weetman  24:05

I think you’re right. And of course, we can come up with lots of examples count with businesses using addictive and not just addictions around tobacco, alcohol, gambling, those obvious things, but you know, addictions to drugs, addictions to the fat, salt, sugar ratio in in food, to get the dopamine hit, and of course, you know, addiction to scrolling on social media. So yeah, lots of things that are definitely not good for our health and well being. And just coming back to the circular economy, have you ever some good examples of circular businesses that are succeeding with a not for profit model?

Jennifer Hinton  24:48

Yeah. So I think one of the fun things about connecting these ideas of a not for profit economy in the circular economy, is that a lot of money Traditionally, circular economy, companies are not for profit. So if you think about the second hand markets, you know, most charity shops are not for profit. And so they’re doing a lot of the second and traditionally have been doing a lot of the second hand, reselling of clothes and furniture and all that. And they often, you know, combine that with a worker integration sort of model. So they’re doing both Circular Economy stuff and helping people get employed meaningfully. So there’s a lot of interesting stuff in second hand markets, but also increasingly in recycling and waste sorting, we’re seeing not for profit companies doing a lot of interesting stuff there. Then if you think about, you know, keeping materials in circulation in the first place, so sort of the reusing and sharing part, most car sharing schemes are not for profit. A lot of bike hiring schemes are not for profit companies that refurbish and give or sell waste, sort of like food waste, or I read this interesting example yesterday, about a company in the US that takes all of the waste soap and cosmetics from hotels, you know, you go and you stay in a hotel, and you use the the little bar. So once and what happens? Well, traditionally, it gets thrown away, but this company is actually working with hotels, taking all of that waste soap and shampoos, cleaning it up and then refurbishing it, or I don’t want to say be packaging it because they basically make new soap bars from it.

Catherine Weetman  26:37

Yeah, so kind of reformulating it,

Jennifer Hinton  26:39

reformulating it, and then they sell it on and, and give a lot of it away to low income communities around the world. So and that’s a not for profit. So there’s a lot of exciting and interesting things happening in the not for profit, circular economy.

Catherine Weetman  26:55

And I guess, thinking about the way that just going back to innovation, again, thinking about the way that innovation works, and some of Clayton Christensen’s teachings is that, you know, constraints drive innovation. So one of those constraints could be to do this in a way that benefits wider society, not just the customers that you’re selling to. But how can you create a business that is profitable, in terms of having money to reinvest in the business, you know, to work out how to reformulate the, the next type of soap or whatever, but that has at its heart doing something that’s better for people and planet. And that can be a constraint driving more creativity around the business model, and that, you know, the products or services and so on. So I think that can, that can be a really interesting way to set out on that path and kind of set yourself that challenge with with those extra constraints. So if businesses have ever listened to this, whether they’re, you know, large businesses, small businesses, people wanting to get started with something, how would you encourage them to get started with this and to begin that journey?

Jennifer Hinton  28:21

Yeah, I would say, Well, the first thing businesses can do is really think about embedding a social benefit purpose, as the core of you know, their reason for existing as a business is Why do we exist, you know, in better social benefit purpose, and start to transition to seeing money and profit only as a means to serve that core purpose. And I think there’s all kinds of benefits that come with that beyond just being a more sustainable business model. But you, you know, employees and CEOs will get more of a sense of purpose from their everyday work as well as they know that they’re working to benefit a larger community. And I would encourage them, you know, move all the way in the not for profit direction. So that can be done either by you know, having a not for profit foundation takeover, as the sole owner of a for profit company, then it’s not for profit, basically overnight, or just shutting down your for profit one day, opening it up as a not for profit, the next day is just changing the legal structure. Or if you really like your legal structure based on where you are, you can write your social benefit mission into your charter in a legally binding way. So put it in your incorporation documents so that it’s really legally binding, as well as a non distribution cap. So, or non distribution constraint so that, you know, all all of the profit will go back into that social benefit mission rather than enriching private owners and investors. And I think, you know, a lot of businesses are already moving in this direction in response to that crises and the demands of our times. So it’s sort of a common sense thing. I’m happy to see it becoming more and more common sense for more people in businesses.

Catherine Weetman  30:08

Yeah, that’s interesting. And I guess that, you know, that could be a really useful part of the toolkit to help those bigger businesses understand, what are the various steps on the journey that I need to make, you know, that makes it acceptable, and return some value back to those shareholder owners. Because otherwise, they’re, they’re just going to block it, I would have thought. So

Jennifer Hinton  30:35

if I can just quickly touch on this idea of value, because I think that’s at the core of what we’re talking about, as well. And I think that that’s part of the shift we are seeing, and that we need to see more of, is a shift in understanding value, and what kinds of value we expect from the economy and businesses and right so far with the for profit economy, it’s really focused on financial value. Everything is measured, success is measured in financial value. returns are measured in financial value, but we’re moving into a space where success is increasingly measured in social and environmental value. And then, you know, likewise, returns on investment, we’re talking about, you know, increasingly, social returns on investments, and even environmental returns on investment, which are not financial, you know, just the fact that I invest in a company and it helps alleviate nutritional deficiencies in a community, for instance, that’s a social return on my investment, and it makes me feel good as an investor, it’s, it doesn’t make me feel sad that I didn’t make money from that, because now kids in this community have better things to eat. So I think there’s this mind shift happening, and it’s a very necessary mind shift for sustainability.

Catherine Weetman  31:45

Yeah, I think that’s really interesting. And I’ve been trying to come up with some sort of frameworks for helping people think about those different aspects of value. Yeah, Paul Hawken, came up with a sort of list of ways that you could decide whether you were a regenerative business or not, you know, are you are you probably going to misquote him, but one of them was, you know, are you creating meaningful work or destroying livelihoods? That kind of thing. So, and just coming back to the circular economy, is there a favourite Circular Economy example that you’d like to like to share? I know, you talked about the soap company, maybe maybe you have another one that you that you like?

Jennifer Hinton  32:35

Yeah, there are so many. But there is one from my, my home state in the US, Colorado, called Blue Star recyclers. And they’re one of these models that combines recycling and circular economy, with worker integration. So they do recycling and waste sorting of electronics, when people you know, or companies are done using their computers, computers aren’t working anymore, or whatever, they can call blue star, and they’ll come pick up your electronics, and then go and recycle and sort them. And I think it’s 85% of their staff are people with autism or other disabilities. And so, you know, it’s sort of doing this, so much beautiful work, and in terms of preventing harmful waste from going, you know, to places like Africa or China. And at the same time recycling those parts so that they can be reused, and providing meaningful employment for people who might really struggle otherwise to find meaningful employment. So I think it’s just sort of like one of these examples of a win win win.

Catherine Weetman  33:47

Yeah, that sounds great. And, Jennifer, if you could wave a magic wand, and change one one thing to help create a better world overnight, what what would that be?

Jennifer Hinton  33:58

Yeah, I have to point out, firstly, this is a dangerous question, because anything that I say will make me sound like an authoritarian. But let’s say in this magical world, if I could change one thing, it would be actually the underlying narrative of our economy. You know, this narrative of the motor of drives innovation and efficiency, this thing that we’ve has been thoroughly debunked with evidence, but we still really believe in so if I could do something I would change that belief to, you know, go from, we have to have an economy driven by profit and growth to we have to have an economy that seeks to solve social problems and provide for social and environmental needs.

Catherine Weetman  34:45

Hmm. I like that phrase. That’s, that’s, that’s a nice, neat way to sum it up. Thank you. And lastly, Jennifer, how can people find out more and get in touch with you?

Jennifer Hinton  34:55

Yeah, so you can go to my website which is www The relationship to profit.net. And I have to point out that there are some hyphens in there. So it’s relationship hyphen, T O to hyphen profit.net. And you can find under the learn more of the different things I’ve written and some interviews and hopefully lots of interesting resources that can help help me understand these ideas better.

Catherine Weetman  35:27

Great stuff. And I’ll put a link to that in the show notes. So Jennifer, thank you very much for sharing just a little bit of all the great stuff you’ve been doing over the last few years. And I think there are some really resonant themes in there. I think you’re right that more and more people are questioning the current myths that have been demoed debunked by leading thinkers, but are not those those. You know that those debunking stories are not getting their time that they deserve. And they’re still being squashed by all the millions being poured into disinformation campaigns. Thank you very much. And I look forward to seeing more of your your writing and your work in the future.

Jennifer Hinton  36:15

Thank you so much, Catherine. This is a really fun discussion.

Catherine Weetman  36:19

What did I take away from that? It seems that profit in itself isn’t the problem. It’s what happens to the profits? Are they being used to create benefits for society and communities? Or are they used to enrich the wealth of the board and the business owners, which is often the shareholders, Jennifer calls this wealth enriching model, the profit economy, not for profit essentially means having a purpose that focuses on making a better world and reinvesting the profits to help further that purpose. Instead of taking the profit out of the business, the transition from incorporated companies and PLCs to not for profit companies seems complex. Though, I guess there are ways to do this through gradual changes, such as by transferring parts of the business to employee ownership, or member cooperative models. I was interested to hear about Jennifer’s example of BRAC that spelt be a RC in Bangladesh, offering health care and education to rural communities, including a dairy, a bank and retail shops. I’ll put a link in the show notes. And I’m looking at for more businesses and social enterprises adopting these models. I mentioned the concept of scaling out rather than scaling up, which Ken Webster and Craig Johnson talk about in their latest book, ABC plus d, which focuses on regenerative food economies. I’ve included a link to that in the show notes. And to a couple of Jennifer’s articles, including the one I mentioned for the circular conversation platform. Here at rethink, I have at last I sent out a newsletter. And my apologies for getting so bogged down in the book that I’d let those slip, you can sign up on the website if you’d like to receive those circular insights. And soon I’ll be including news of where the book is up to and how you could get involved as a beta reader.

So that’s it for this episode of the circular economy podcast. Thank you to our guests this week, Jennifer Hinson for sharing a little bit of her work on business models that are better for people and our planet. And thank you for listening. Thanks to Emma and Wally DeFrancesco of circular conversations, and to Ezra sadder, a friend of the podcast for making this episode possible. You can find out more and follow Jennifer Hinton on social media and find all the links we mentioned in the show notes at Circular Economy podcast.com.