The Circular Economy, the SMEs, and the State: How to Govern a Circular Institutional Change Process?

The linear economic (LE) system is increasingly becoming unsustainable as its use and dispose logic mercilessly exploits the environment. As an alternative to this, the circular economy has recently gained popularity. The CE promises a more sustainable system through decreasing resource leakage from the economic system via circulating economic activities from production to consumption. However, there is not a clear blueprint on the institutionalization of the CE. To provide an answer to this problem, this research focused on the Small and Medium Entrepreneurs (the SMEs). After qualitatively analysing the secondary data derived from the literature within an institutionalist theoretical framework, the research found that the structural dependence of the SMEs on the existing LE system prevents them from performing proper CE actions. As a solution, the state emerges as a macro-level rule-breaker, which could play a catalyst role in the SMEs’ transition to the CE. Particularly, it could provide necessary regulative frameworks, financial sources, technological infrastructures, and a circular change in consumers’ attitudes, which are strategically important to drive the SMEs towards the CE system. Therefore, this paper argues that the re-conceptualization of state-market relationship is an initial need to successfully govern an institutional change towards the CE.