Recycling of paper is done by mixing the paper with water and other substances to make a slush, in which the original long pulp fibers are freed to be reused. These long fibers become tangled with each other when making (or recycling) paper, thereby giving the paper its strength.
Shredding the paper cuts these fibers to where they are too short to tangle and form strong sheets any more.
Now, there are shredders which are supposed to enable recycling by preserving these fibers, but they cost 1/10 to 1/4 million US dollars per unit.
To get around this problem we hire a private shredding/recycling firm for our documents, I'm still confused as to why we can not just shred the documents ourselves and place them into a recycling bin... somewhere, somebody is getting rich off of this scheme.