The sharing economy and the circular economy: what’s the difference?

The sharing economy and the circular economy: what’s the difference?
Stephanie Ferguson, The Idea Tree Consulting
January 28, 2016.

The sharing economy and the circular economy are two economic models we are increasingly hearing about, but what are they, and what is the difference? The circular economy and sharing economy are not synonyms, but they can be related.

The circular economy can be understood as the opposite to a linear economy. In a linear economy resources are extracted, manufactured into goods, distributed and sold, and when they reach the end of their useful lifespan, no longer work, or are no longer wanted, typically they turn into waste that goes to a landfill, or they are only partially recycled or downcycled. A circular economy seeks to keep all the resources within a closed loop system so that nothing is lost as waste. Materials are simply transformed from one form to another, broken down and reused over and over again in additional manufacturing processes in a way that does not degrade the materials.

The sharing economy refers to the sharing of goods or other resources by multiple people. Examples within the sharing economy are becoming increasingly common and recognizable. Tool libraries, which lend tools instead of books, are one example, as is AirBnB, a platform which allows people to share extra space in their homes as an alternative travel option to hotels. Sharing allows existing goods and resources to be used more fully, rather than letting them lay dormant, and depends greatly on either access to goods via a membership (car sharing, resource libraries), or peer-to-peer interaction (AirBnB, ride sharing, clothing swaps).

The circular economy is more about goods as they are manufactured and as they are taken apart for reuse and reconstruction as new goods. It deals with the raw materials, ensuring that they never become waste or pollution. Sometimes this might mean a company designs their produts such that they can be completely disassembled and the parts totally recycled and turned into the same product again, or it can mean multiple companies/manufacturers form an ecosystem wherein one company’s “waste” is another company’s raw materials.

The sharing economy then is what we do with these goods during their lifespan. We can manufacture a tool which can be returned to the manufacturer and fully recycled into new tools, but the tool would need to be rented or lent from a tool library for it to be considered part of the sharing economy. If everyone owned one of these circular economy tools for themselves and it spent most of its time in storage, you would have the circular economy but not sharing. Similarly, you can share tools which have no end-of-life plan, and can only be recycled in part, if at all.

So the circular economy and sharing economy are not automatically created at the same time, but they can (and should) be complementary. You can learn more about both in these brief videos: