Working Papers / Documents de travail
FRANCE
WP 2023 Nr 14
Technological Innovations and Obsolescence:
Leveling the Playing Field for Remanufacturing
Pedro H. Albuquerque
Kiara S. Winans
Technological Innovations and Obsolescence:
Leveling the Playing Field for Remanufacturing
Pedro H. Albuquerque
Aix Marseille Univ, CNRS, AMSE
Marseille, France
ACCELERATION & ADAPTATION
Aix-en-Provence, France
ORCID 0000-0002-5034-3082
Kiara S. Winans
Department of Civil and Environmental Engineering
University of California Davis
Davis, California, United States
ORCID 0000-0002-2656-8839
Abstract—In a linear economy, manufacturing is less costly and more profitable than
remanufacturing because of reduced private costs of utilization and production. However,
manufacturing also involves higher resource extraction and waste as externalized costs than
remanufacturing. We use a vintage capital framework to assess technological innovations in
remanufacturing and their potential benefits to society and human occupations. Our study shows
that replacing manufacturing with remanufacturing technologies creates positive static and
dynamic circular economy externalities. These externalities can be quantified to assess
improvements in social outcomes. A smartphone remanufacturing innovation case study is
presented as an illustration of the article’s main ideas. Future research should investigate
additional specific cases to develop a comprehensive methodology for assessing the impact of
remanufacturing innovations on social outcomes. This will provide valuable insights into the
broader implications of remanufacturing practices.
Keywords—manufacturing, externalities, occupational meaning, circular economy,
sustainability, national accounting systems.
© 2023 IEEE. Personal use of this material is permitted. Permission from IEEE must be
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The project leading to this publication has received funding from the French government under the “France 2030”
investment plan managed by the French National Research Agency (reference: ANR-17-EURE-0020) and from the
Excellence Initiative of Aix-Marseille University - A*MIDEX.
I. INTRODUCTION
Technological innovations in durable goods often lead to increased productivity when
considering a narrow definition and accounting framework. However, national accounting
frameworks like the Systems of National Accounts typically do not fully measure the productivity
of natural resources, stock changes, pollution, human well-being, or occupational meaning [1]. In
addition, these omissions create an upward bias in total factor productivity (TFP) gains attributed to
technological innovations, as it fails to account for the losses incurred through extraction and
environmental damage caused by accelerated obsolescence. Therefore, it follows that reconsidering
the limitations that current accounting systems impose on technological innovations in
manufacturing and remanufacturing is essential to achieving sustainability goals.
This paper uses a vintage capital theoretical approach and model production function to
quantitatively demonstrate the feasibility and benefits of remanufacturing, considering principles of
circular economy [2], [3], sustainability, and occupational science [4], to explore the limitations of
current national accounting systems and opportunities for alternatives.
There is extensive literature on technological innovations and economic growth that tries to
capture the effects of technological progress on growth dynamics in accordance with Solow’s [5]
observation that innovations must be embodied in new vintages of capital before they can be
effective. This vintage capital theory is supported by the empirical observation that capital prices
decline steadily and rapidly compared to what would be expected without technological progress
and embodiment [6]. Additionally, economic growth based on vintage capital replacement is
characterized by accelerated depreciation due to obsolescence and gestation lags [7]. Of course,
there are several tradeoffs to consider.
On one hand, technological innovations and remanufacturing have the potential to reduce
negative environmental impacts by optimizing the use of resources (such as materials, energy, and
information) and minimizing waste and pollution. However, these innovations can also result in
wasted resources and diminished well-being when older products are discarded. Furthermore,
remanufacturing often involves increased capital and labor costs for technological upgrades [8], [9].
This raises the question of whether there are alternatives to national accounting frameworks that can
facilitate the transition towards remanufacturing and address the limited current focus on capital and
labor productivity gains and losses in relation to natural resource extraction, environmental and
human ecosystem protection, and occupational meaning [10].
In other words, when national accounting frameworks primarily emphasize indicators like gross
domestic product (GDP) growth and monetary value, they tend to overlook the positive
environmental and human impacts of remanufacturing and the resource efficiency it offers.
Remanufactured goods are often treated as used products rather than valuable resources with
embedded labor, materials, information, and capital. The current framework encourages the
production of durable goods that contribute to environmental damage in a linear economy
characterized by extraction, processing, and disposal. This phenomenon is compounded by the fact
that durable goods become obsolete at a faster rate due to technological progress, leading to their
depreciation [6], [7].
Additionally, it is interesting to note that the combination of vintage capital and innovations can
create macroeconomic volatility due to “replacement echoes” – the ability of an economy to
reproduce its history in cycles [11], [12]. This phenomenon refers to the economy's tendency to
cyclically reproduce intense investment periods because of waves of obsolescence. In other words,
when vintage capital is present, technological innovations can recreate past cycles of substantial
investment unless mitigated by limiting factors. Limiting or stabilizing factors may be imposed with
the help of effective fiscal policy [13], for example, by using taxes. Moreover, including all
durables and materials in assessments of remanufacturing could lead to improved guidelines to
develop stabilizing factors, green accounting systems, environmental protection measures, and the
promotion of humane technological innovations [14] that prioritize the well-being of labor and nonlabor
human occupations that align with sustainability goals [15]–[17].
II. OBJECTIVES
The objective of this study is to evaluate the potential impacts of replacing manufacturing
technologies with remanufacturing technologies on positive static and dynamic circular economy
externalities. It also examines how national accounting systems frame and may limit the realized
benefits of remanufacturing and explores alternative approaches such as green accounting systems.
Additionally, the study considers the potential effectiveness of green policy instruments such as
taxes, regulations, and nudges in promoting remanufacturing.
III. METHODOLOGY
We use a vintage capital model production function [12] and expand on this previous work using
a vintage capital theoretical approach to account for static and dynamic circular economy
externalities. We assume remanufacturing encompasses all durables and associated flows. We apply
the theoretically expanded model to a smartphone industry remanufacturing innovation case study
to explore and discuss potential impacts on human well-being and occupational meaning.
Fig. 1: The vintage capital model production function
Figure 1 provides a conceptual diagram of the vintage capital model production function and
relationships among relevant variables. Production depends on capital Kv, labor L, and natural
resources extraction Nv. The index v represents the innovation cycles that lead to new vintages
(generations) of durable goods. Yv represents the physical output, while Wv represents the
environmental burden. The environmental burden captures all waste, pollution, and detrimental
effects of productivist industrial processes on human well-being, including disruption of labor and
nonlabor human occupations [15]–[17]. Therefore, the environmental burden, Wv, represents all
negative externalities to the natural and human ecosystems. Output Yv has two components:
consumption Cv and investment Iv. Capital Kv of vintage v becomes obsolete at the end of each
innovation cycle, contributing to Wv. New capital Kv+1 of vintage v+1 is built during vintage cycle v
with investment Iv and is deployed at the beginning of the next innovation cycle.
Subscripts m and r are used to differentiate between manufacturing and remanufacturing
variables. Following the discussion in the first section, and ceteris paribus, we simplify the analysis
with the following hypotheses:
Nvm > Nvr (1) Wvm > Wvr (2)
Ivm > Ivr (3) Cvm > Cvr (4)
Inequality (1) represents lower amounts of natural resources extraction under remanufacturing.
Inequality (2) represents the smaller environmental burden of remanufacturing. Inequality (3)
represents the increased physical costs of building-up capital (investment) under remanufacturing.
Finally, inequality (4) represents that increased investment needs in remanufacturing come at least
partially at the expense of consumer goods production.
IV. RESULTS AND DISCUSSION
A. Remanufacturing, National Accounting, and Green Accounting
Remanufacturing in a vintage capital theoretical framework (Figure 1) can be seen as the
embodiment, at every vintage cycle, of materials, energy, and information required by the upgrading
of older vintages of durable goods. Solow observes that these factors should be included in national
accounts' investment and capital formation categories [8], [13]. Remanufacturing activities in a
circular economy are, however, harder to objectify and measure than linear economy activities
based on productivist manufacturing business models due to the higher complexity of the tasks
involved and the exclusively human (at least for now) craftsmanship necessary to perform many of
its tasks. We present this as the first limitation to including remanufacturing in national accounting
systems.
As a second limitation, circular economy activities such as remanufacturing create complex
chains of positive externalities that are harder to measure than the negative externalities created by
linear economic activities. This point is discussed extensively in [18], which identifies three types
of positive externalities related to circular economy activities: (1) systemic static externalities, (2)
idiosyncratic dynamic externalities, and (3) systemic dynamic externalities. All these positive
externalities of remanufacturing tend to be undermeasured in legacy national accounting systems,
and as such, they put remanufacturing in a disadvantaged position compared to manufacturing.
Finally, as a third challenge, legacy national accounting systems do not consider the gains or
losses in human well-being and occupational meaning due to the productivist linear economy
business models very commonly used in manufacturing, an essential social problem brought to light
recently by phenomena such as the Great Resignation or Big Quit [19] and the quiet quitting [20].
Although the loss of occupational meaning due to technological disruptions is a relatively recent
concept developed by occupational scientists [21]–[23], the notion has been known at least since the
writings of Karl Marx on work and alienation [24]. Remanufacturing involves a stronger component
of occupational meaning, possibly leading to higher occupational engagement levels [25] through
human craftsmanship.
There is no question on one hand that remanufacturing improves resource productivity and
reduces environmental damage [26]–[28]. On the other hand, TFP, as it is currently measured,
probably falls due to increased costs of investment and production, although the existing literature
is unclear concerning this point. Some authors suggest that remanufacturing can potentially increase
TFP [28]. In contrast, others are somewhat more cautious, showing that labor and capital costs are
probably higher, and TFP is probably lower in remanufacturing [1], [2]. The latter hypothesis is
used to justify inequalities (3) and (4) above.
Notice that, under the legacy system of national accounting, the following accounting identities
apply:
GDPvm = Cvm + Ivm and GDPvr = Cvr+ Ivr.
GDPvm and GDPvr are outputs measured as the GDP under manufacturing and remanufacturing,
respectively. Due to inequalities (3) and (4), we can conclude that:
GDPvm > GDPvr,
or that legacy GDP under manufacturing is always higher than that under remanufacturing. This is
the usual argument governments and business leaders make to defend the linear economy status
quo.
Consider now the evaluation of green production and well-being as two additional elements
added to the national accounting identities above: depletion of stocks of natural resources and
environmental damage. In the cases of manufacturing and remanufacturing, the Environmental
Domestic Product (EDP) accounting becomes respectively:
EDPvm = Cvm + Ivm – Nvm – Wvm, and
EDPvr = Cvr + Ivr – Nvr – Wvr,
so, this time, we find that:
EDPvm < EDPvr when
Nvm – Nvr + Wvm – Wvr > GDPvm – GDPvr,
meaning that the EDP of remanufacturing will surpass the EDP of manufacturing whenever the
losses due to excess of natural resources extraction and due to excess of environmental burden
offset the excess of GDP under manufacturing.
To summarize, under this theoretical framework, remanufacturing GDP is always lower than
manufacturing GDP, but remanufacturing EDP can be higher than manufacturing EDP, and the EDP
advantage will become more significant as the negative externalities of manufacturing under a
linear economy and the positive externalities of remanufacturing under a circular economy become
more important.
This begs the question: why do societies still struggle to recognize that the maximization of EDP
should take precedence over the maximization of GDP? One explanation is market failures [29],
[30]. Agents in a decentralized economy maximize private consumption without internalizing
external costs.
Another explanation is government failures [29], [31], [32]. In this case, at least four
mechanisms may play a role. Firstly, to obtain popular support, policymakers may mirror the
behavior of consumerist agents instead of promoting sustainable resource use and well-being [33].
Secondly, inappropriate specification of private, public, or collective property rights may lead to
individual or collective actions negatively impacting resources and well-being [33], such as rentseeking
activities. Thirdly, not only will agents in a decentralized economy not internalize
environmental damage costs, but policymakers may also not have the right political incentives to do
it, hence the broad use of the simpler GDP instead of the complex EDP to evaluate policies.
Fourthly, government efforts may be systematically misdirected by inadequate conceptual
frameworks and measurements of economic activity, such as legacy national accounting systems. A
final explanation is that individuals or policymakers always choose to manufacture over
remanufacture because they are caught in a prisoner’s dilemma due to the lack of mutually
beneficial coordination and collective action [34].
Remanufacturing becomes desirable when the agent’s choices are individually and socially
optimal. This scenario is achieved by changing incentives, for example, with green (Pigouvian)
taxes [35], regulations, and nudges [36]. For example, green taxes internalize external costs, giving
agents a coordination incentive to align individual interests with human well-being [35]. In other
words, when a green tax is levied on excessive natural resources extraction and environmental
damage, it provides incentives that help the transition to remanufacture to take place, be it due to its
static outcomes (e.g., immediate processes changes) or its dynamic outcomes (e.g., increases in
remanufacturing innovation research and development).
B. Rethinking Remanufacturing Innovations
Beyond the policy interventions mentioned in the previous subsection, another important
dimension of the transition to remanufacturing in a circular economy is fostering remanufacturing
innovations. Research and development efforts in this area should become a priority for the three
institutional spheres of the triple helix [37].
Efforts in this area are extensively discussed in [38]. The Ellen MacArthur Foundation, for
example, has spearheaded initiatives to gather knowledge in remanufacturing through events,
articles, and case studies [39]. Remanufacturing innovations include the creation of reverse logistics
ecosystems, developing materials better suited to remanufacturing, remanufacturing-oriented
design, and sharing economy business models that integrate remanufacturing.
The vintage capital theory provides us with a useful insight that facilitates remanufacturing
innovative thinking and that we summarize through the following proposition:
Proposition 1: any activity that reembodies materials, energy, or information into a durable good to
upgrade its technological vintage is a remanufacturing activity.
C. The Fairphone Case Study: Commitment to System Upgrading as a Remanufacturing Innovation
Proposition 1 tells us that remanufacturing does not necessarily involve physical attributes of a
durable good, as in the case of digital equipment operating system (OS) upgrading. Although
upgrading is a relatively common activity in the digital age, it is not always the case that it is part of
enterprises’ business models in the durable goods industry. Smartphones, for example, are known to
have short lifespans, not because of hardware failures but because their OS become obsolete [40].
Fairphone, a Dutch designer and producer of smartphones, has been broadly studied for its
modular design and ethical and participatory business model [41]–[46]. Previous research has not
addressed a less evident but significant remanufacturing innovation: it offers OS upgrades to its
customers for as long as it is commercially and technically feasible. In the case of the Fairphone 2
model, this innovation resulted in seven years of OS upgrades, which made this device the only
known smartphone to have operated under six versions of the Android OS, from version 5 to
version 10 [47], [48].
Proposition 1 tells us that Fairphone has integrated remanufacturing into its durable goods
production business model since OS upgrades are activities that reembody information into a
durable good to upgrade its technological vintage. Unlike other enterprises in the technology sector,
Fairphone credibly committed to providing this remanufacturing activity for unusually long periods,
a significant contribution to the transition towards a circular economy: as stated by the Fraunhofer
Institute, “keeping phones for 5 years cuts yearly impact on global warming by around 31%” [49].
Remanufacturing through OS upgrades can be costly. Firstly, engineers and designers must make
the hardware compatible with future upgrades. This technical exercise increases a new device's
research and development costs and business risks. Secondly, each OS upgrade involves significant
remanufacturing costs of coding, testing, distribution, and technical assistance during the life of the
device. This is why producers of digital devices typically operate under a business model based on
OS obsolescence.
How can remanufacturing activities and establishing a level playing field for sustainabilityfocused
enterprises like Fairphone be achieved? It is theorized that stabilizing factors or policy
instruments like green taxes, regulations, and nudges are crucial in creating an environment that
fosters environmentally responsible practices. For instance, a potential hypothesis suggests that
designing production and sales taxes in a way that correlates inversely with the lifespan of a device
could provide financial incentives for longer-lasting products. The hypothesis further proposes that
regulations mandating operating system upgrades would ensure the longevity and functionality of
devices. Additionally, enacting "right to remanufacture" bills is expected to establish legal
frameworks that support and promote remanufacturing initiatives. Furthermore, the hypothesis
suggests that implementing nudges, such as green labels, sustainability rankings, advertisement
restrictions, and mandatory customer warnings, could effectively raise consumer awareness
regarding the environmental impact of operating system obsolescence, thereby encouraging the
adoption of more sustainable choices and helping to reduce possible consumer bias against
remanufactured goods [50].
V. CONCLUSION AND RECOMMENDATIONS
This article discusses a theoretically expanded vintage capital production function model and
framework, and briefly addresses limitations in current national accounting systems to propose an
alternative approach to the evaluation of the potential impacts of replacing manufacturing
technologies with remanufacturing technologies on positive circular economy outcomes.
One major limitation is that governments rely on insufficiently developed national accounting
systems that fail to integrate principles of social and environmental sustainability, circular economy,
and occupational science when measuring production, human well-being, and occupational meaning.
This hinders their ability to accurately assess the true impact of different economic activities.
To overcome these limitations, the development and use of the EDP with a focus on industry
applications like remanufacturing and labor and non-labor occupational well-being are crucial. These
can contribute to the design of better systems of private, public, and collective property rights for
natural resources management and facilitate the transition from a linear to a circular economy.
Additionally, research and development efforts across triple helix institutions need to be
intensified to foster technological innovations in remanufacturing. A case study in the smartphone
industry exemplifies how integrating remanufacturing innovations into a company's business model
can effectively contribute to the circular economy. However, to incentivize further adoption of
remanufacturing, it is essential to level the playing field.
While this analysis offers valuable insights, it has some limitations. It relies on a single case study
and lacks a comprehensive exploration of consumer attitudes and behaviors toward, for example,
adopting remanufactured goods. To improve this work, a more rigorous comparative analysis of
vintage capital theory and circular economy theory is needed. This analysis will help identify
complementary aspects and opportunities for leveraging their strengths to optimize remanufacturing
processes, reduce associated costs, and further develop the vintage capital theoretical framework and
production model. Future research should focus on applying this framework and model to additional
specific cases and investigate communities' roles in driving remanufacturing. The goal is to develop
a comprehensive and repeatable methodology for assessing consumers’ roles and potential impacts
of remanufacturing innovations on human well-being and occupational meaning.
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