Introduction to Economics                                 Lesson 5 / 07



Recycling has been practiced throughout history. Since the last part of the last century, however, it has been pursued with considerably increased vigour.  This change has occurred as a result of a significant shift in focus. Historically recycling occurred because of the economic benefit to be achieved by producing new products, using cheaper recycled materials rather than virgin raw materials, or in order to avoid the costs of otherwise disposing of used materials; in other words, for profit or for cost avoidance.  Thus scrap metal merchants purchased scrap for melting down and re-use.  Wood ash and coal dust from fireplaces and furnaces was removed by brickmakers, at no or minimal cost or fee to the owner or producer of such ash or dust, to be incorporated into bricks, at less cost to the owner of producer than of otherwise disposing of them.  Modern recycling however is largely not of this type. 



Recycling is the reprocessing of waste products into reuseable new materials.  It is not to be confused with reusing, which is using the same product again for a further time, either for the same or for a different purpose.


Modern Recycling

Whilst profit and cost avoidance continue as driving motives for recycling, modern recycling is now driven by a number of other claimed motives.  These include claims that recycling

              *    conserves scarce natural resources

              *    reduces energy consumption and hence the emission of greenhouse gases

              *    avoids waste disposal alternatives that would otherwise pollute the environment,

                    such as landfill or ocean dumping

              *    creates employment


It is readily discernable that these motives are different in nature from profit and cost avoidance.   The latter provide their own incentive and are likely to be engaged in voluntarily by participants in the market.  Conversely, apart from the moral or ideologically motivated, the new claimed motives are unlikely to provide the incentive needed for the bulk of the population to engage in voluntary market recycling, which would otherwise benefit the community.  In economic terms this lack of a market incentive is referred to as an "Externality".



An Externality arises when the actions of one person affects the well being of others, either detrimentally or beneficially, but the affect is not reflected in market prices.  This is seen to be a market defect. Externalities are characterised as either positive or negative. If I keep my garden clean and tidy and without litter, I provide a positive Externality for my neighbours, who benefit from the absence of pollution.  Yet I am unable to charge them for the benefit they receive from my efforts in cleaning up.  As a result I might be less diligent in supplying the level of cleanliness and tidyness that they desire.  There will thus be a likely undersupply from the optimum level desired.  If they were to pay me for the benefit they so receive I may be more willing to make the effort required to supply the desired level.  In the absence of some form of coercion, however, they will be unlikely to do so.  In such circumstances my neighbours can be described as freeloading; taking the benefit of the positive Externality, namely the absence of pollution, but not contributing to its cost.  This is sometimes referred to as the "Freeloader Problem".   


Conversely if I do not clean up my garden but allow pollution to accrue my neighbours will suffer a detriment or negative Externality caused by my actions  [or absence of them] for which I do not have to pay.  There is thus no market incentive for me not to be lazy or conscientious and there will be the tendency for there to be an oversupply of pollution above the level desired, and from which my neighbours will suffer.  In such circumstances however, the law, [traditionally the law of nuisance, more recently regulatory penalties] will be likely to step in and provide an incentive for me not to pollute in the form of damages or fines.


Public Goods

In economics, a Public Good is a good that is unlikely to be produced at its optimum level by a free market.  [We have previously discussed the concept in the context of the lesson on Defence].  In economic terms, to qualify as a Public Good a good must satisfy two criteria.  Firstly it must be non-rivalrous.  That is to say that once it is produced it is no longer scarce; anyone can enjoy or utilise it without diminishing anyone else's enjoyment or utilisation.  Secondly it must be non-excludable.  That is to say, once it has been produced it is not possible to preclude anyone from enjoying or utilising the good.


If a good meets the twofold criteria required it is said to be a true Public Good.  Inherent in all true Public Goods is the Freeloader Problem.  In economics, it should be noted, Public Good does not necessarily mean the same thing as a good provided by the government or even goods one thinks should be provided by the government.  A true Public Good, however, is said to require and / or to justify government intervention, in particular in order to resolve the Freeloader Problem.  Examination of the new claimed motives for recycling, as referred to previously, suggests that the goods thereby produced,- the conservation of finite resources, an improved or safeguarded environment, or increased employment-, are largely, if not completely, true Public Goods.  Modern recycling, it is argued, requires government intervention, whether mandating, supplying, subsidising, regulating or whatever in order to achieve an optimum result.


Examples of Recycling

Perhaps the prime example of market recycling is aluminium.  In 1964, it is estimated only 2% of beverage cans were aluminium.  It is estimated today to be about 98% of which about 64% are recycled  Generally, recycling aluminium cans to make new ones is significantly cheaper than making them from virgin raw materials.  Used cans are collected relatively easily and cheaply, typically by boy scouts and charities, and sold back to recyclers.  The scrap cans are then shredded and melted to produce molten aluminium.  An aluminium can is 100% recyclable with no loss of quality.  Apart from the fact that the scrap is relatively cheap, the real saving is in the saving in energy costs; due to the lower melting point of scrap compared to ore, it takes only 5% of the energy required to make a can from virgin raw materials as it does from scrap.  In addition it is estimated only 5% of greenhouse gases are emitted by recycling in comparison with producing from virgin raw materials, exclusive of those emitted in the related mining and transport involved.


Ferrous metals have traditionally been recycled. The process is relatively cheap and easy. They can be separated magnetically from the waste stream.  Again the metal is 100% recyclable with no loss of quality.  It is estimated that perhaps 42% of crude steel is produced from scrap.


The market for recycled glass is far more dubious.  The raw material, sand, is cheap and easy to obtain.  Glass can be reprocessed indefinitely but because only slightly less energy is used to recycle than to make new glass, and the recyclables must first be collected, sorted for colour and transported, it may be that the cost and the amount of energy required to recycle is greater than in making anew.


The market for recycled plastics is, if anything, even more dubious.  Compared to glass or metals, recycling plastics poses many problems.  Plastics are of many different types and recyclables must first be sorted for compatibility and generally separated from their lids, which are likely to be of a different type of material.  New plastic is relatively cheap to produce and recycled plastic suffers from a decrease in quality.  Nonetheless it is estimated that perhaps 20% of plastics are now recycled.


Many other products and materials are presently recycled; paper, cardboard, textiles, cars, ships, batteries, timber, whitegoods, non-ferrous metals and so forth.  Exactly how much is economic in market terms is difficult to say.


Criticism of Recycling

On 30 June 1996 an influential, albeit extremely controversial, article was published by John Tierney in the New York Times entitled "Recycling is Garbage".  It purported to demolish the economic argument for modern recycling and suggest that recycling could be America's most wasteful activity.  Many articles have subsequently been written addressing the issues raised therein with the intention of refuting them.   Nevertheless the article retains considerable significance.


Some of the key economic criticisms of modern recycling include the allegations that it is based on the fallacies that landfills and incineration are inherently bad or that in some way there is a shortage of space for landfills.  Also that government intervention and involvement in recycling has made it difficult if not impossible to calculate whether any particular instance of recycling is worthwhile or not.


                                          David Sharp

                                            10 April 2007    



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