Institutions and Circular Economy

Why institutions matter so much for the circular economy transition?

Veltha supports and promotes the generation of circular economic development strategies that fully empower the local institutions, based on the recognition of regions (or provinces) as the most efficient authority capable of detecting and sustaining the needs of the local stakeholders through the application of bottom-up approaches that are specifically tailored to the local characteristics. In fact, the role of institutions in the local development processes has been studied in the literature, highlighting how these can be determinant in providing and stimulating growth. 

Thanks to the valuable experiences of SCREEN, REPLACE and the Policy Lab, Veltha is supporting the adoption of a shared strategy for the circular economy transition that is institution-driven and place-based.

In the next programming period 2021-27, regional institutions will be key players in promoting the transition toward a circular economy: being the closest level of governance to the economic and social systems, their potential to positively influence and encourage circular economy driven sustainable development is significant. The local public authorities have in fact a deep knowledge of their territories and have the availability of European indirect funding to launch policy instrument dedicated to the transition. But, as stressed by Hodgson (2007), public administrations do not match with institutions. 

In fact, institutions are an intangible concept, the enduring systems of socially ingrained rules NOT coinciding with a specific organization, such as the local public authority, but having two fundamental components, as defined by North (1990):

  • formal: rules of law and habit 
  • informal: norm and traditions

Veltha, SCREEN and REPLACE approach to circular economy embraces the view of institutionalists and embodies the necessity to contemplate the institutions as the sum of their formal and informal components, without considering them as a synonym for public authority. This understanding stands behind the employment of bottom-up approaches engaging the local stakeholders throughout the policy-programming phase.

The local institutions are place-specific and generate the rules of the game in the society, these shape human interaction and are strictly related to the local environment. As Putnam (2000) highlights, institutions are the ‘key enablers of innovation, mutual learning and productivity growth’, paving the way for the design and implementation of efficient economic development strategies across territories. Moreover, local and regional institutions generate the necessary and adequate conditions for investment, economic interaction and trade, while reducing the risks of social and political instability and conflict (Jùtting, 2003). 

Development strategies need to understand and be specifically tailored to the potential of place-bounded institutions in order to make the most of intervention, concentrating the strategy on the overall institutional arrangements, which refer to place specific customs and procedures that shape interaction, in general, and economic exchanges, in particular. The strategic framework developed by SCREEN and tested by REPLACE regions, with the support of the advisory partner Veltha, embraces the above mentioned theoretical background and establishes a common methodological path to promote the circular economy transition at the local level, by engaging the whole institutional environment, while creating an interregional cooperation framework to ensure the transfer of knowledge, resources, technologies and innovation. 

This final concept will be the focus of a future article, highlighting the importance of the local context and the circulation of assets for the strategy development and its implementation: stay tuned!

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