Circular economy and innovative entrepreneurship, prerequisites for social progress

Manea, Daniela-Ioana; Istudor, Nicolae; Dinu, Vasile; Paraschiv, Dorel-Mihai Article Circular economy and innovative entrepreneurship, prerequisites for social progress Journal of Business Economics and Management (JBEM) Provided in Cooperation with: Vilnius Gediminas Technical University (VILNIUS TECH) Suggested Citation: Manea, Daniela-Ioana; Istudor, Nicolae; Dinu, Vasile; Paraschiv, Dorel-Mihai (2021) : Circular economy and innovative entrepreneurship, prerequisites for social progress, Journal of Business Economics and Management (JBEM), ISSN 2029-4433, Vilnius Gediminas Technical University, Vilnius, Vol. 22, Iss. 5, pp. 1342-1359, https://doi.org/10.3846/jbem.2021.15547 This Version is available at: https://hdl.handle.net/10419/317526 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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Published by Vilnius Gediminas Technical University This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons. org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. *Corresponding author. E-mail: dorel.paraschi[email protected]o Journal of Business Economics and Management ISSN 1611-1699 / eISSN 2029-4433 2021 Volume 22 Issue 5: 1342–1359 https://doi.org/10.3846/jbem.2021.15547 CIRCULAR ECONOMY AND INNOVATIVE ENTREPRENEURSHIP, PREREQUISITES FOR SOCIAL PROGRESS Daniela-Ioana MANEA 1, Nicolae ISTUDOR 2, Vasile DINU 3, Dorel-Mihai PARASCHIV 4* 1Departament of Statistics and Econometrics, The Bucharest University of Economic Studies, Bucuresti, Romania 2Department of Agro-Food and Environmental Economics, The Bucharest University of Economic Studies, Bucuresti, Romania 3Department of Business, Consumer Science and Quality Management, Faculty of Business and Tourism, The Bucharest University of Economic Studies, Bucuresti, Romania 4International Business and Economics Department, The Bucharest University of Economic Studies, Bucuresti, Romania Received 14 April 2021; accepted 04 July 2021 Abstract. Quality of life and social welfare are objectives of the social policy of any state. The study aims to identify the influence of factors such as the circular economy, digital innovation, sustainable entrepreneurship on social progress and completes the current approach identified in the literature by assessing the dependencies between the phenomena represented by them. The quantification of the influences of the enumerated factors on social progress was achieved by identifying some synthetic indicators, such as composite indices, which would surprise the complexity of the analyzed phenomena. To measure the progress of the transition to the circular economy – using multivariate analysis methods – a composite indicator has been proposed and determined that allows the ranking of EU states according to its orientation, as a premise of social progress, and can substantiate the adjustment national policies. The integration of the proposed indicator in the regression models used, with similar indices, is done to highlight the impact of the circular economy, innovation and sustainable entrepreneurship on social progress. Thus, the adaptation of digital technologies in current business models, the development of sustainable innovative entrepreneurship support the transition from the linear economy to a circular economy and offer new study opportunities. Keywords: circular economy, entrepreneurship, digital innovation, social progress, multivariate analysis. JEL Classification: C38, O35, O44, Q55. Online supplementary material: Supporting information for this paper is available as online supplementary material at: https://doi.org/10.3846/jbem.2021.15547 Journal of Business Economics and Management, 2021, 22(5): 1342–1359 1343 Introduction Sustainability, the foundation of the current global framework for sustainable development under the 2030 Agenda for Sustainable Development (United Nations & General Assembly, 2015), integrates elements of economic and social development, as well as environmental protection based on innovation, especially digital innovation. Achieving the goals of sustainable development is based on the transition from a linear to a circular economy, which is also reflected in the importance given to sustainability policies and programmes by the European Commission (2020). Also, one of the conclusions of the study “Impacts of circular economy policies on the labor market” shows that the application of the principles of the circular economy throughout the EU economy can generate about 700,000 new jobs and an increase in GDP by 0.5% by 2030 (European Commission, 2018b). For citizens, the circular economy can be considered a form of social progress highlighted by sustainable products and services aimed at a better quality of life. In addition to the efficient use of all existing resources, the circular economy brings to market the idea that the reuse of finished products is the most effective tactic to protect the environment. Certainly, any business, investment or project makes its mark on the environment in which it occurs, which makes investors and companies around the world act with greater social responsibility. In this sense, it is necessary to identify and analyze the stage of implementation of the fundamental principles and values of corporate social responsibility to make possible the elimination of growth policies and their diversification (Androniceanu, 2019). A main component of the evolution towards the circular economy of business models in recent decades is digital innovation, which involves both the incorporation of modern technology in the production, promotion, distribution of goods and services, but also in how to use it, through the proposed creative approaches, thus generating disruptive or accelerated solutions. By integrating new technologies, the consumption of raw materials is reduced, new sources, alternative renewable energy are used, enhancing the efficiency of production processes in which resources are maximized and waste is reduced. Another factor that can lead to sustainability in the economic, environmental and social sectors is blockchain technology, whose applicability has been recognized in stimulating ecological behavior, and the identification of alternative solutions that consume less energy makes it considered an essential component in the evolution from a linear to a circular economy (Rana etal., 2019). The idea of the necessity and influence of digital instruments is described by Tohănean etal. (2020) as a necessary and competitive factor in the development of sustainable businesses, innovation, sustainability and technology being the key pillars for business model innovation. The correlation of modern technologies with the circular economy in digital entrepreneurship supports the achievement of the Sustainable Development Objective “Responsible consumption and production” (SDG 12), by reducing the need to use new resources (Figure1). The authors aim in this article to highlight the influence of factors such as digital innovation, sustainable entrepreneurship and the circular economy on social progress as the core of a sustainable and inclusive society. In order to quantify the influences of the listed factors on social progress, we identified synthetic indicators, such as composite indices, in order to capture the complexity of the analyzed phenomena. 1344 D.-I. Manea et al. Circular economy and innovative entrepreneurship, prerequisites for social progress Thus, in the literature composite indices that measure social progress were identified – the Social Progress Index (SPI); the “health” of the entrepreneurial ecosystem – The Global Entrepreneurship Index (GEI), as well as the latest trends in global innovation – The Global Innovation Index (GII) (Ács etal., 2017; Social Progress Index, 2019; World Intellectual Property Organization, 2019). For the circular economy there is a set of common indicators at the level of EU Member States, as mentioned, in the literature, we may find proposals for the construction of a composite indicator. The development of the research had as a starting point the identification of the influences of the circular economy and of the innovative entrepreneurship on the social progress, these being the working hypotheses. The research is structured in 6 sections: Literature review, Research methodology, Creating the Circular Economy Index, Circular economy, digital innovation and innovative entrepreneurship as determinants of social progress, Results and comments and Conclusions. The first two sections were dedicated to the review of the literature in the field and the statistical and econometric methods used in the analysis. In the next section, Creating the Circular Economy Index, based on statistical data for indicators calculated by Eurostat, the authors create a composite indicator that quantifies the circular economy, providing a monitoring and ranking of EU economies. The fourth section, Circular economy, digital innovation and innovative entrepreneurship as determinants of social progress, includes an analysis, based on the composite indices identified for each of the areas under study, to verify the dependencies between the circular economy, social progress and innovative entrepreneurship. The Results and comments section contains discussions on the influence of the circular economy, digital innovation and sustainable entrepreneurship on social progress. The last section includes the authors’ conclusions, as well as the main limits and future research possibilities. 1. Literature review 1.1. Circular economy The circular economy (CE) is a regenerative concept that requires a systemic economic change, which brings the business reasoning, from production to consumption (Moraga etal., 2019). Defining and quantifying the circular economy is a complex process, which involves challenges in creating a system of indicators that aligns the development of the cir- Figure 1. Prerequisites of social progress (source: created by the authors) Journal of Business Economics and Management, 2021, 22(5): 1342–1359 1345 cular economy with the social progress. Thus, according to Mitrović and Veselinov (2018), assessing progress and stimulating the creation and adoption of innovative and corrective policies and strategies for the development of the circular economy requires the use of a coherent and synthetic method, the authors of this paper considered it necessary to create a composite index, based on the set of indicators provided by Eurostat, aimed at strengthening the research, development and implementation of the circular economy. The paper “A systematic review for measuring circular economy: The 61 indicators” summarizes the concerns of researchers and specialists on the definition and quantification of the circular economy, the authors identifying a framework for possible measurements, which can be applied to spatial levels of sustainability – micro, meso and macro (De Pascale etal., 2021). The approach on the three spatial levels was structured by Kirchherr etal. (2017), as follows: at micro level (products, companies, consumers), meso level (eco-industrial parks) and macro level (city, region, nation and not only), and the concept of Circular Economy is associated with recycling and reuse in the processes of production, distribution and consumption. The authors of the article agree with the idea supported by Arbolino etal. (2018) as well as the perspective of substantiating public policies in the CE field that a composite indicator must have the ability to better synthesize the available data and to transmit information on the performance of an entity: company, economic sector, region, country. At the same time, the constructed composite indicator can provide an overview of the opportunities created by the use of the circular economy, but also of the currently existing limitations, generated mainly by the absence of a standardized measure of it (Yigitcanlar, 2010). The complexity of this indicator derives from the quantification of the factors that lead to the development of the circular economy, based on a unique and valid measurement model that can be applied to the economies under analysis. During the past years, the responsible and cyclical use of resources and the development, the policies to minimize the negative effects on the environment and to boost the economy make the circular economy be defined as an umbrella concept, found in the literature as “a broad concept or idea used loosely to encompass and account for a set of diverse phenomena” (Hirsch & Levin, 1999). This is the result of the identification of common characteristics on the basis of which a relationship can be created between certain phenomena, that were not related to previous approaches and that evolves when a field does not have guiding theories or a development paradigm (Hirsch & Levin, 1999). All this undergoes the definition of the circular economy as an umbrella concept that applies various mechanisms aimed at minimizing waste generation, and thus decoupling economic growth from natural resources (Hirsch & Levin, 1999; Blomsma & Brennan, 2017). European legislation includes issues related to the circular economy since the 1970s (European Economic Community, 1975). However, even though European policies in the 2000s also refer to resource efficiency (European Commission, 2011), the first country to enact a specific law was China in 2008 (Naustdalslid, 2014; International Reference Centre for the Life Cycle of Products, Processes and Services, 2015). At European level, at the end of 2015, the European Union approved the law “Closing the loop – An EU action plan for the Circular Economy” (European Commission, 2015). The legislative package includes actions that aim 1346 D.-I. Manea et al. Circular economy and innovative entrepreneurship, prerequisites for social progress to cover the whole life cycle: from production and consumption to waste management and optimizing the use of secondary raw materials. In 2018, based on the action plan for the circular economy, a set of indicators was proposed, which would constitute a monitoring framework for the circular economy with the aim of measuring its progress. The indicators, grouped by areas of the circular economy, allow monitoring of future developments of its main elements and can provide information for the policy-making process. At the same time, the monitoring framework will allow the evaluation of the applied measures and the identification of good practices in the field (European Commission, 2018). Private consultants, who work regionally, nationally or internationally in various fields other than the circular economy, including the Ellen MacArthur Foundation – EMF (UK), LandSl (Italy), Sustainable Innovations Europe (Spain), InteriorPark (Germany), Antea Group (USA), Business and Sustainability (Argentina), Circular Economy Alliance Australia have a major contribution to the development of policies in the field. The development of the circular economy, by increasing recycling and decreasing the amount of waste generated per capita, is a result of the National Green Procurement Plans. The positive impact of their adoption is also underlined by the implementation of public policies by both central and municipal authorities (Siminică etal., 2020). 1.2. Digital innovation New digital solutions are essential elements of the circular economy by tracking the flow of production and sales, the resulting data and information providing the possibility of optimal management of resources and decision making at different stages of the life cycle of products and services (Antikainen etal., 2018; Bressanelli etal., 2018; European Commission, 2020). At the same time, digital technologies have an important role in the use of information that allows resource flows to become more circular. This can be easily observed when talking about the Internet of Things (IoT), which can allow automatic location tracking thus facilitating resource monitoring (Ellen MacArthur Foundation [EMF], 2016, 2019). The use of Big Data facilitates the generation of the necessary information regarding the production and consumption processes of the entire production cycle. Thus, understanding the requirements and operations of each stage of this cycle leads to the development of circular strategies to determine sustainable business models (Dubey etal., 2019; Low etal., 2018; Gupta etal., 2019). At the same time, Gupta etal. (2019) propose new perspectives of economic actors interested in the circular economy using Big Data as a tool in decision making that can lead to the implementation of sustainable business practices in accordance with the principles of the CE concept. From determining the quality and state of wear of products and optimizing the use of resources, to the design of sustainable businesses, the implementation of new IT technologies and the use of data analysis determine new ways to use the circular economy in production processes (Conboy etal., 2020; Mikalef & Krogstie, 2020; Micu etal., 2021). The digital economy is considered to be the fourth industrial revolution, characterized by the ability to transform economies, jobs and even society as a whole, by introducing new technologies and processes. The digital economy is expected to contribute to social and economic equality. At the same time, technology will help increase access to education, jobs and finance, even if, in the short term, it could lead to a reduction in repetitive and value-added Journal of Business Economics and Management, 2021, 22(5): 1342–1359 1347 jobs in almost all economic sectors, whether we are talking about industry, agriculture or services. In Romania, it is estimated that approximately 60% of existing jobs could be affected by the digital economy (Deloitte, 2018). The main causes are the development of the concept of e-government, robotization and automation in industrial sectors and the transfer of services from the traditional area to the digital area. If previous industrial revolutions have produced changes over several generations, the digital economy is producing significant effects in a much shorter period of time. 1.3. Innovative entrepreneurship One of the objectives of the Digital Agenda Europe 2020 (European Commission, 2010) is to achieve a new economic framework, which ensures the compatibility of activities between information systems and the circular economy. Thus, we can consider the digital circular economy as a premise of a sustainable society, and the intelligent use of resources in the CE can be supported by innovation. Innovation and entrepreneurship, two distinct but closely linked concepts, are essential ingredients in building a successful business enterprise. Developing companies and improving business based on innovation is not only part of a durable and sustainable economy, but can be an essential aspect of entrepreneurship. At the same time, the actions on climate change taken for the transition to a circular economy lead to innovation and make companies more competitive (Davidescu etal., 2020). It is agreed in the literature that the technological progress is the main premise of economic growth. Tsvetkova (2015) highlighted the link between innovation and regional economic performance through the businesses developed by local entrepreneurs. The entrepreneurial ecosystem approach emphasizes that entrepreneurship takes place in a community of interdependent actors (Stam, 2015). Each entrepreneurial ecosystem is unique, there are practically a variety of configurations that ecosystems can take (Spigel, 2017; Szerb etal., 2019). If the version proposed by Spigel argues that ecosystems are composed of 10 cultural, social and material attributes that provide benefits and resources to entrepreneurs and that the relationships between these attributes reproduce the ecosystem, the quantification of entrepreneurial ecosystem performance supported by The Global Entrepreneurship and Development Institute (The GEDI Institute) has a different approach. Thus, the performance of the entrepreneurial ecosystem formed by the mix of attitudes, resources and infrastructure is analyzed through the Global Entrepreneurship Index. According to the methodology, the Global Entrepreneurship Index (GEI) consists of three sub-indices covering 14 areas of the entrepreneurial ecosystem (Ács etal., 2017), including data on entrepreneurial attitudes, entrepreneurial skills and aspirations of the local population (Figure 2). Each country under analysis may have one or more critical areas which may affect the ecosystem. The importance of using GEI also stems from the fact that it is considered a tool that can be used in assessing the entrepreneurial ecosystem in order to create more jobs. In addition to the image of the performance of each country, from the point of view of the entrepreneurial ecosystem, actions that could be taken to generate improvements in each of these 1348 D.-I. Manea et al. Circular economy and innovative entrepreneurship, prerequisites for social progress 14 areas measured by GEI can be identified both in the domestic and in the international context (GEI, 2018). Obviously, these are actions that cannot cover all the contexts or all the economies analyzed, but can lead to solutions at regional, national or European level to improve the problems of blockage in the entrepreneurial ecosystem. Figure 2. The Entrepreneurial ecosystem configuration (source: Global Entrepreneurship Development Institute, 2019, created by the authors) The entrepreneurial ecosystem is strongly influenced by the digital transformation, and the innovation in the technology sector will lead to lower data processing costs, while digital integration will expand through artificial intelligence. All these transformations require new approaches to public policies to support the new generations of entrepreneurs. Tax regulations make the business environment relatively homogeneous at European level, but when it comes to digital entrepreneurship, the difference is given by the level of development of the digital infrastructure. This also emerges from the analysis of the Digital Economy and Society Index (DESI), a composite index that includes relevant indicators on the digital performance of European states and tracks the evolution of EU Member States in terms of digital competitiveness. 1.4. Social progress A sustainable society based on inclusive economic growth requires, in addition to economic progress recquires social progress. Economic growth leads to improved quality of life, but a sustainable development strategy based on this alone is incomplete. If in the past century the analysis of the evolution of the gross domestic product was sufficient because it offered a perspective of economic development and social progress, in recent years, in the literature, has been emphasized that this approach can only quantify material well-being. Kuznets (1934), the economist who developed the modern concept of GDP, warned against equating his growth with well-being. While some countries continue to use GDP as the main tool for measuring a country’s economy, others see its use as an insufficient and misleading indicator. In order to provide a panoramic picture of a nation’s economic and social well-being, Journal of Business Economics and Management, 2021, 22(5): 1342–1359 1349 non-economic factors should also be included in the analyzes: pollution and crime or factors that measure other important aspects of quality of life: health and education. Therefore, according to Costanza etal. (2014), other indicators can be used as an alternative to GDP, such as the The Genuine Progress Indicator – GPI (Talberth etal., 2007), Gross National Happiness– GNH, implemented by the Kingdom of Bhuthan since 1972 and the Social Progress Index (SPI) (Costanza etal., 2014; Kubiszewski & Costanza, 2015). Launched in 2014, the Social Progress Index (SPI) is a composite indicator developed based on extensive discussions with stakeholders around the world on what can be lost when policymakers focus on GDP and exclude social performance. SPI includes indicators that measure elements of social and environmental performance aggregated in a complex general framework (Mihai, 2017). On the other hand, the analysis of indicators in the composition of the SPI helps us to identify performance at country or regional level, so some countries have included the SPI in their development of policies and strategies. At the same time, SPI was accepted and adopted by private companies to establish investment strategies, and the European Commission determined the EU-SPI indicator at regional level as a measure of the contribution to the “Beyond GDP” agenda (Annoni & Bolsi, 2020). Similar to the Global Social Progress Index, the regional social progress index facilitates benchmarking between European regions by helping policy makers assess the evolution of regions in terms of social and environmental issues in order to support EU cohesion policy. For the calculation of EU-SPI 2020, being an aggregate index, 55 indicators (Annoni & Bolsi, 2020, p. 5) were selected from an initial set of 73 social and environmental indicators initially proposed. Compared to the first version of the index, calculated in 2016, this edition contains regional estimates with remarkably improved reliability, especially for those indicators in the EU Eurostat survey on income and living conditions and in the Gallup World Poll (Annoni & Bolsi, 2020). It should be noted that approximately 56% of the indicators are provided by Eurostat, and the new composition of the index includes 14 new indicators covering mainly concepts such as personal security, gender equality, fairer labor markets and cohesive societies (Annoni & Bolsi, 2020, p. 5). 2. Research methodology In order to analyze the impact of the circular economy, respectively of the innovative entrepreneurship on the social progress, the aggregation of the indicators, available in the Eurostat database and the construction of a composite index of the circular economy (CEI) was realized. The proposed index is also useful for monitoring the progress of each EU member state towards a circular economy. 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Component Score Coefficient Matrix and Coefficients index (source: created by the authors) Component 1 2 3 4 5 Coefficients Circular material use rate [CEI_SRM030] .136 –.027 –.102 –.103 .274 0.046 Generation of municipal waste per capita [CEI_PC031] –.023 .050 .066 .496 .023 0.075 Generation of waste excluding major mineral wastes per domestic material consumption [CEI_PC033] –.008 .144 –.206 –.091 .364 0.025 Generation of waste excluding major mineral wastes per GDP unit [CEI_PC032] –.137 .277 –.074 –.023 .205 0.020 Patents related to recycling and secondary raw materials [CEI_CIE020] –.113 –.162 .034 .283 .131 –0.027 Recovery rate of construction and demolition waste [CEI_WM040] .024 –.210 .179 –.369 .053 0.028 Recycling of biowaste [CEI_WM030] .032 –.058 .408 –.098 –.038 0.134 Recycling rate of e-waste [CEI_WM050] .125 .251 .435 .121 –.018 0.148 Recycling rate of municipal waste [CEI_ WM011] –.086 –.169 .146 .114 .571 0.163 Recycling rate of packaging waste by type of packaging [CEI_WM020] .230 .043 .103 .165 .007 0.022 Private investments, jobs and gross value added related to circular economy sectors [CEI_CIE010] .248 –.204 .098 –.109 .031 –0.049 Private investments, jobs and gross value added related to circular economy sectors [CEI_CIE010] .070 .495 .087 .095 –.179 0.049 Private investments, jobs and gross value added related to circular economy sectors [CEI_CIE010] .300 .143 .105 .047 –.059 0.189 Recycling rate of all waste excluding major mineral waste [CEI_WM010] .271 .043 –.207 –.247 –.248 0.052 Note: Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Component Scores. Journal of Business Economics and Management, 2021, 22(5): 1342–1359 1359 Table 2. The values of the indicators for the countries included in the analysis GEO (Labels) CEI GEI GII SPI Denmark 100.00 79.30 58.44 92.08 Austria 92.11 64.90 50.94 89.38 Luxembourg 85.57 58.10 53.47 89.40 Germany 84.30 66.70 58.19 90.38 Netherlands 82.74 72.30 61.44 91.16 Lithuania 74.43 44.10 41.46 89.40 Italy 73.11 45.10 46.30 86.82 France 72.15 67.10 54.25 88.95 Finland 70.78 70.20 59.83 91.94 Slovenia 70.65 56.50 45.25 87.82 Ireland 69.27 71.30 56.10 90.16 Portugal 67.26 46.30 44.65 88.01 Belgium 66.69 62.20 50.18 89.33 United Kingdom 66.63 77.50 61.30 88.83 Spain 65.41 46.90 47.85 88.68 Estonia 64.88 57.80 49.97 87.26 Sweden 62.06 70.20 63.65 91.32 Cyprus 60.32 45.60 48.34 86.42 Bulgaria 59.88 30.10 40.35 79.73 Croatia 56.91 36.10 37.82 81.71 Greece 56.05 35.40 38.90 85.61 Slovakia 55.54 42.60 42.05 82.58 Hungary 53.90 46.20 44.51 80.69 Latvia 51.88 39.30 43.23 82.77 Czech Republic 50.51 43.50 49.73 86.69 Poland 49.26 49.50 41.31 84.19 Romania 34.68 38.60 36.76 78.14