China's Economic Growth and Environmental Challenges

1. CHAPTER 2 Economics, Politics, and Public Policy

2. China: factory to the world • The Chinese economy has grown at 10% per year • People own a car and an apartment • Travel • Purchase consumer goods • China has a huge labor pool • People move to urban centers for jobs • The literacy rate is over 90%

3. China’s environmental problems • Toxic air: China has 16 of the world’s most polluted cities • Sulfur dioxide from coal-burning power plants and stoves • Air pollution kills 750,000 people prematurely each year • During the 2008 summer Olympics, Beijing closed factories and banned cars • Toxic water: China is the cancer capital of the world • High esophageal and stomach cancer rates • The Yellow River is being sucked dry by irrigation • Water is grossly polluted with sewage and industrial wastes

4. The Yellow River turns red

5. China’s environmental laws? • The Chinese economy flourished due to decentralization of power • Local governments and private industries developed free from central planning • They flaunted environmental laws and policies • The State Environmental Protection Agency could not enforce the laws • China turned to international nongovernmental organizations to focus attention on environmental issues

6. China: the bottom line • Economic growth can lift millions out of poverty • But when this growth is at the cost of natural resources and people’s health, it is unsustainable • Industrialized countries have environmental laws and regulations to address problems • Economic growth must be accompanied by the development and enforcement of just and effective environmental public policies

7. Economics and the environment • Economics: the social science that deals with • The production, distribution, and consumption of goods and services, and • The theory and management of economies or economic systems • Economic goods and services are connected to, and depend on, the environment • We need to understand the biological and physical world

8. Relationships between economics and the environment • An economy: the system of exchanges of goods and services worked out by members of society • Goods and services are produced, distributed, and consumed • People make economic decisions about • What they want and what they need • What they provide to others • Economic activity impacts all society • It can damage the environment and human health • Government rules and regulations imposed limits

9. Development and policies • A relationship exists between a nation’s development and its environmental public policies • Patterns between environmental indicators and per capita income levels show that as income levels rise, • Problems (inadequate sanitation) decline through taxes and technology • Problems (air pollution) increase and then decline through recognition and public policies • Problems (suburban sprawl, CO2 emissions) increase • Effective public policies and institutions solve problems

10. Environmental indicators and income

11. Economic systems • Economic systems: social and legal arrangements people construct to satisfy their needs and wants • To improve their well-being • A centrally planned economy: occurs with dictatorships • A free-market (capitalistic) economy: occurs with democracies • “Factors of production” in an economy • Land (natural resources) • Labor • Capital

12. The classical view of economic activity

13. Economic activity • Involves the circular flow of money and products • Money flows from households to businesses • People pay for goods and services • Money flows from businesses to households • People are paid for their labor • Labor, lands, and capital are invested • In the production of goods and services by businesses • In the products consumed by households

14. The rulers decide • The rulers make all basic decisions in a centrally planned economy • What, when, and how much is produced • Where and by whom • The government owns and manages industry • Workers lack freedom to choose or change jobs • Seen in China and the Soviet Union • An environmental and economic disaster • China grew economically when it abandoned this model

15. The market decides • In a free-market economy • The market itself decides what will be exchanged • The market is free from governmental interference • The system is open to competition and the interplay of supply and demand • With a limited supply: prices rise • The system is driven by people acting in their self-interest • To obtain goods, services, and wealth • Competition increases efficiency • This system works best when it is left alone

16. Governments step in • No country has a pure form of either economy • Governments are involved in most market economies • Governments own and operate infrastructure • Postal services, power plants, public transportation • They also control interest rates and adopt policies • To stimulate economic growth • Powerful business interests manipulate market economies • Unscrupulous people can defraud others • Only the government can police the market

17. Is there an economic conscience? • Many believe a capitalist economic system lacks a conscience • A market economy creates hardship for the poor • Workers are often exploited • Market economies only offer access to goods and services • Access alone does not provide them to the poor • Society must provide a safety net • Self-interest leads to resource exploitation and pollution • Governments also manipulate the market • Through barriers and subsidies

18. International trade and the WTO • Trade is a fundamental economic activity • It drives the free-market economy • It has become a dominant force in society through increased globalization • The World Trade Organization (WTO) • Implements and enforces trade rules • Tries to reduce or eliminate trade barriers (tariffs) and subsidies

19. Free trade rules • The WTO adjudicates international trade issues • Elevating free trade over human rights and environmental concerns • Carrying out trade agreements and dispute rulings in closed sessions • The WTO ruled against the United States for • Requiring shrimp imports to be certified as turtle safe • Banning the import of wooden crates because they harbored the Asian long-horned beetle • Banning products made by using child labor

20. More talk • Talks have broken down in recent WTO meetings • Developed nations subsidize their farmers • Developing nations protect farmers by erecting tariffs • The future of the WTO is unclear • Failure to reach agreements signals a weakening in global trade governance • The future will likely consist of bilateral agreements between countries

21. The need for a sustainable economy • The global economy successfully mobilizes people • To engage in economic activity • The global economy has improved well-being • Higher life expectancy • Labor-saving devices • Lifestyle and work opportunities • It has also created environmental problems • Poverty and hunger • Decline of ecosystem goods and services • Loss of biodiversity

22. A sustainable economy • Instead of promoting growth, it will improve human well-being • Instead of drawing down natural capital, it will value and preserve ecosystem goods and services • Instead of using damaging technologies, it will use the precautionary principle to minimize risks • Businesses will eagerly provide green products

23. Resources in a sustainable economy • Land, labor, and capital are essential resources for a country’s economy • Ecological economists argue that the environment encompasses the economy, not the other way around • Without the environment there is no economy • Economic production: the process of converting the natural world to the manufactured world • Resources from the environment are transformed by labor and capital • Then reenter the environment as waste

24. Environmental economic view

25. Ecosystem capital • Ecosystem capital: the role of natural ecosystems as essential life-support elements • As the economy grows, the natural world shrinks • Natural capital: ecosystem capital plus non-renewable mineral resources (fossil fuels and minerals) • A major element in a nation’s wealth • Natural capitalism: an economic system promoting sustainability • It recognizes the central role of natural ecosystems

26. Produced capital • Three major components of a nation’s wealth • Produced, natural, and intangible capital • Produced capital: goods and services • Human-made buildings and structures • Machinery and equipment • Savings • The most easily measured • Assets have clear income-earning potential • Assets become obsolete and must be replaced

27. Natural capital • Goods and services supplied by natural ecosystems • Including mineral resources • Renewable natural capital (ecosystem capital): can be depletedif not managed wisely • For production of goods: forests, fisheries, water • Provides services: waste breakdown, climate regulation, oxygen production • Nonrenewable natural capital: can be depleted • Provides no service unless it is extracted • Some components are easier to measure than others

28. The three elements of intangible capital • Human capital: the population’s physical, psychological, and cultural attributes (talents, competencies, abilities) • Social capital: societal and political environment • Government, laws, court systems, civil liberties, religious or ethnic affiliations • Social relationships affect, and are affected by, economic processes • Knowledge assets: knowledge that can be transferred to others (e.g., libraries, schools, universities, the Internet) • Useful only if people have access to them

29. The wealth of nations

30. These assets improve well-being

31. Calculations • The World Bank measured and evaluated the wealth of nations • They found notable differences in per capita wealth • Human resources are the dominant source of wealth • Natural capital also ranks high • It would rank even higher if service components were included in the calculations • Natural capital plays a more important role in poor countries • They depend more on their natural resources

32. Measuring economic progress • The dominance of intangible capital • Shows the importance of investing in health, education, and nutrition • Emphasizes an efficient judicial system and an uncorrupt government (social capital) • The tool for measuring true economic progress: • Growth in all components of wealth • Not just growth in the gross national product (GNP) or gross domestic product (GDP)

33. Using GDP or GPI to measure progress • Gross national product (GNP): all goods and services produced (consumed) by a country in a given time frame • The most common indicator of health and wealth • Gross domestic product (GDP): GNP minus net income from abroad • Compares rich and poor countries • Assesses economic progress • Net GDP accounts for assets used in the production process

34. GDP is flawed • Buildings and equipment wear out or depreciate • Capital depreciation: is charged against the value of production • Net GDP: production of goods and services minus capital depreciation • It does not include goods created and services performed by a family for itself (e.g., subsistence farming) • It also omits natural services provided by ecosystems • Clean air helps prevent asthma, but is not included in GDP

35. Natural capital depreciation • GNP does not account for depreciation of natural capital • Resources and services are considered nature’s gift • After logging a forest, a nation can account for sale of the timber • But not loss of natural services • Environmental degradation and depletion count as an asset and as economic productivity • Nations underestimate the value of their resources • Leads to depletion of fisheries, soils, forests, and rangelands

36. Correcting GDP • To correct this system: calculate the current market value of natural assets • Consider it as part of a nation’s wealth • Add the value due to natural services performed • When natural resources are depleted, the depreciation would be used in calculating GDP • An accurate GDP accounts for all depreciation • This does not happen

37. Environmental accounting: Agenda 21 • Agenda 21: a document from the 1992 Earth Summit in Rio de Janeiro • Called for developing national systems of integrated environmental and economic accounting • Countries should put environmental assets and services in monetary units • Include the effects of environmental accounting on their net domestic product • Integrate environmental and economic accounting

38. Genuine Progress Indicator • GDP does not measure true economic progress • Growth is offset by environmental and social costs • Genuine Progress Indicator (GPI): assumes some economic activities are positive and sustainable • Others are not • Positive factors: housework, parenting, volunteering • Negative factors: crime, pollution, resource depletion, farmland loss • In the U.S. in 2004: GDP = $11.71 trillion • GPI = $4.42 trillion ($11.06 trillion – $6.64 trillion)

39. GDP and GPI per capita

40. Essential conditions for a market economy • Resources are not distributed evenly among nations • The greatest differences are in intangible and produced capital • To achieve equity in the distribution of resources, economic development must support • Social capital: definition and enforcement of rights • Laws, an honest legal system, a free press • A well-developed market economy • Free entry into and exit from markets • Communication and transportation networks

41. Societies lacking these essential conditions • Suffer poverty and environmental degradation • Corruption, inefficiency, banditry • Injustice and intolerance • The rule of law index: a major part of intangible capital • Switzerland scores a 99.5 out of 100 • Nigeria scores a 5.8 (corruption and human rights abuses) • Some countries have a negative intangible capital • They are becoming poorer

42. Intergenerational equity • Intragenerational equity: making possible for others what is possible for you • Intergenerational equity: for sustainable development • Meeting the needs of the present without harming the ability of future generations to meet their needs • Problems with this perspective: the discount rate • Finding the present value of some future benefit or cost • A dollar is worth more today than in five years because we can earn interest on it now

43. Use it up! • Some resources or benefits are worth more now than in the future • For example, an owner of a forest can • Cut all the trees and sell the timber • Hold onto the trees and hope for a higher price later • Sustainably harvest the trees and spread out the profits • If the trees grow slower than the interest rate, the profitable decision is to cut them now • This calls for maximizing short-term profit over long-term resource use

44. Maximizing short-term profit is problematic • Future generations bear ecological costs • The self-interest of present individuals conflicts with the long-term sustainable interests of society • Some argue that conserving resources puts the interests of future generations above today’s poor • However, many are willing to sacrifice now to protect their children and grandchildren

45. Environmental public policy • Includes laws and regulations that deal with a society’s interactions with the environment • Is developed at all levels of government • Local, state, federal, and international • Its purpose is to promote the common good • Its two goals are • To improve human welfare • To protect the natural world • It addresses prevention or reduction of pollution • As well as the use of natural resources

46. Societies need environmental public policy • All public policy is developed in sociopolitical context called politics • Humans can do great damage to the environment if society does not have an environmental policy • Often seen in developing nations • Laws protecting the environment are not luxuries to be tolerated only if they do not interfere with freedom or economic development • They are part of the foundation of human society • They are essential for sustainability

47. Policy in the United States • The U.S. Constitution has established the most effective form of government on Earth • The three branches of government help establish and enforce environmental public policy • The legislative branch (Congress): citizens elect legislators to the Senate and House of Representatives • It establishes laws • The executive branch: citizens elect the president • Administrative agencies report to the president • The judicial branch: interprets the law

48. Three branches of the U.S. government

49. Rules and regulations • Congress has responsibility for environmental public policy • Government agencies implement legislation • Agencies develop rules and regulations covered in the law • They put the bite in the laws • Business and other groups may comment on the rules • New rules are published in the Federal Register • The executive branch asks for money for agencies and programs • Congress decides how much will actually be funded

50. Policies at the local level • States replicate the structure of the federal government • Cities and towns use conservation commissions, planning boards, health boards, water and sewer commissions, etc. • Cities and towns establish • Zoning regulations and policies like smart growth • Recycling and “pay-as-you-throw” regulations • States have established policies to reduce greenhouse gas emissions, encourage recycling, etc. • They are often ahead of the federal government on environmental issues