Special Report

Earth Day 2014: Chinese Conundrum

A steep climb on the Kuznets Curve?

By 4.19.14

UPI
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Several years ago, in 2007, I wrote an account of my visit to Shanghai which focused, primarily, on the city’s and China’s astounding economic boom, then achieving 11 percent growth in GDP for the third straight quarter. This torrid pace has throttled back a bit to 7.4 percent.

I noted that, with the economic growth, “A lot of pollution comes with the territory, but we did a pretty good job of polluting during our boom years.” Take Chicago at the end of the 19th and beginning of the 20th century. Upton Sinclair, in his muckraking novel, The Jungle (1906, Chapter 9), described the infamous “Bubbly Creek”:

“Bubbly Creek” is an arm of the Chicago River, and forms the southern boundary of the yards: all the drainage of the square mile of packing houses empties into it, so that it is really a great open sewer a hundred or two feet wide. One long arm of it is blind, and the filth stays there forever and a day. The grease and chemicals that are poured into it undergo all sorts of strange transformations, which are the cause of its name; it is constantly in motion, as if huge fish were feeding in it, or great leviathans disporting themselves in its depths. Bubbles of carbonic acid gas will rise to the surface and burst, and make rings two or three feet wide. Here and there the grease and filth have caked solid, and the creek looks like a bed of lava; chickens walk about on it, feeding, and many times an unwary stranger has started to stroll across, and vanished temporarily. The packers used to leave the creek that way, till every now and then the surface would catch on fire and burn furiously, and the fire department would have to come and put it out. Once, however, an ingenious stranger came and started to gather this filth in scows, to make lard out of; then the packers took the cue, and got out an injunction to stop him, and afterward gathered it themselves. The banks of “Bubbly Creek” are plastered thick with hairs, and this also the packers gather and clean.

Allowing for artistic license and some dodgy water chemistry, the yuck factor here is pretty dramatic. Yet, today, if you visit that part of the Windy City, you will find trendy condos valued at a million dollars plus and spot a salmon swimming up the river from Lake Michigan. (I highly recommend taking an architectural boat tour of both branches of the Chicago River which will give you a tangible sense of how the world has changed, revealing a town that takes its architecture seriously.) Economic growth, a rising middle class, and a willingness to pay for and demand environmental amenities has had a salutary effect.

Yes, I was awestruck over Chinese economic growth and the paradoxical hybrid of capitalism and Marxist totalitarianism. Never mind that I did not see the sun for days. I did not dwell on the fact that the five-star hotel at which my host, an American company, housed me, cautioned against drinking its tap water while providing bottled water instead. I heard but did not appreciate stories of businessmen and journalists who spent a few years in China with their families, returning with children suffering from asthma. I should have paid greater heed to the environmental and social consequences of high-octane economic growth in a society and political culture lacking the rule of law, private property rights, constitutional democracy, and freedoms of speech, press and religion. This Earth Day seems like a good time to right the balance.

A day does not pass without some horrific report of environmental destruction in China. On Friday, the Wall Street Journal reported that a new study by the Chinese government itself (a good sign in terms of increasing transparency) documents “that about 16% of the country’s soil and 19% of its arable land was polluted to one degree or another.” The vast majority of the pollution are heavy metals —cadmium, nickel, and arsenic. China has a total land area of 3.7 million square miles but has only 334 million acres of arable land.

The same week, another WSJ story reported a crude-oil leak contaminated the city of Lanzhou’s water supply in Gansu province. Tests revealed levels of benzene some 20 times the national limit of 10 micrograms per liter. True, we experienced an ugly chemical spill recently in West Virginia, but such incidents are routine in China. Recall the 16,000 dead pigs floating down Shanghai’s Whampoa River in March of 2012 or the removal of many industrial operations out of the Beijing airshed for the benefit of the 2008 Olympics.

In her disturbing book, The River Runs Black: The Environmental Challenge to China’s Future (2004), Elizabeth C. Economy, Senior Fellow and Director, Asia Studies, at the Council on Foreign Relations, tells the story of an “environmental disaster” in 2001 in the fertile Huai River Valley, China’s breadbasket, when heavy precipitation flushed 38 billion gallons of highly polluted water into the river. Downstream, the river was rife with garbage, yellow foam, and dead fish. Seven months earlier, the government had proclaimed its cleanup of the basin a success.

The Economist magazine ran a cover story, “The world’s worst polluter” (August 10-16, 2013), which fully characterized China’s miserable environmental conditions while crediting its aggressive steps in areas such as green energy and reforestation. China produces twice as much carbon dioxide as the United States, and the average Chinese person produces the same amount of it as the average European and, at the same, does appear to be pursuing an “all of the above” energy strategy.

“The worst problem is water,” claims the Economist. Water shortages threaten the nation as a whole. This is due to both water withdrawals and pollution that can make it impossible to use the water even for economic uses much less personal consumption. “The Yellow river Conservancy Commission, a government body, surveyed the ‘mother river’ of China and found that for a third of its length the water was too polluted for use in agriculture,” reports the magazine. “The housing ministry’s chief engineer for water safety says only half the water sources in urban areas are fit to drink.”

Says the Economist, “The costs of environmental and natural-resource degradation, according to the World Bank, are the equivalent of 9% of GDP, an enormous amount which is dragging down the long-term growth rate.”

The good news is that China is experiencing local protests, especially among the middle-class, which often results in immediate responses against local corruption or even Army-owned businesses.

This brings us back to long-term economic growth, the possibility of environmental recovery in China-and the Kuznets Curve. Will China emulate the U.S., Europe, Japan, Australia, and other affluent nations in which the demand and willingness to pay for environmental amenities, especially cleaner air and water, followed their economic rise and the emergence of a sizable middle class?

In 2005 Steven F. Hayward, formerly of the American Enterprise Institute, now on the faculty of University of Colorado, wrote a very interesting essay entitled, “The China Syndrome and the Environmental Kuznets Curve” which, while recognizing the severe environmental challenges facing China, also noted that, for some parameters, there were signs that emissions were peaking.

Hayward believed China would be “an excellent test case for the controversial theory known as the ‘environmental Kuznets Curve’ (EKC).” The curve was originally designed to illustrate the relationship between inequality on the vertical axis and income per capita on the horizontal one. For the environmental version of the curve, substitute “environmental degradation” for inequality but leave income per capita where it is.

The original curve was named after the Nobel laureate, Simon Kuznets, who, in the 1950s, postulated that income inequality increases and then declines with economic growth. Economists Gene M. Grossman and Alan B. Krueger applied the curve to the environment. The World Bank also bought into this reformulation. An interesting factoid: Alan Krueger is former chairman of President Obama’s Council of Economic Advisors.

Basically, says Hayward, “the relationship between economic growth and environmental quality is an inverted U-shape, according to which environmental conditions deteriorate during early stages of economic growth but begin to improve after a certain threshold of wealth is achieved.” For sulfur dioxide (acid rain) the EKC seems to decline at somewhere between $5,000 and $9,000. For particulate matter in the air, it declines at the range of $5,000 to $15,000. Hayward indicated China, in 2005, was still outside these ranges with a per capita income of roughly $3,000. Today, it is around $6,000.

There is a robust debate among economists over this theory, which space does not allow me to discuss. But, considering the historical experience of Europe, Japan, Chicago, etc. does invest the EKC with a degree of plausibility.

There is a parallel debate among political scientists as to the nature of the dynamic elucidated by the EKC. There is more to the story than just a simple relationship between economic development and environmental recovery. The Soviet Union had a modicum of prosperity but left a massive legacy of pollution and contamination to today's Russia.  It is in a close race with China for being the most polluted place on earth, along with several of the former Soviet Bloc countries. It would seem that the rule of law, private property rights, elections, constitutional democracy, etc., provide a necessary mechanism by which middle-class demand and willingness to pay for environmental protection is translated into action within the body politic. Hands, both visible and invisible, contribute to the turnaround in environmental trends.

I recently corresponded with Dr. Hayward who still thinks the EKC describes what is likely to happen in China — eventually. However, he is concerned, among other things, with the lack of transparency the Chinese government displays regarding solid data on pollution, etc. So its climb up the EKC may be both steeper and longer than he once believed.

China is all in on clean energy but also needs a lot of coal to burn. Except for a penchant for massive dam building, it is pretty clueless on water policy. It is committed to economic growth but is slow in allowing for civil liberties. Despite serious demographic problems ahead, its leaders have barely budged on its one-child policy. It sometimes responds to local protests but still tolerates local corruption and disregard for national policies designed to remedy environmental challenges. The jury, it seems, is still out on this massive society’s efforts to reconcile economic growth with environmental protection. The Chinese conundrum remains unresolved for the nonce.

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About the Author

G. Tracy Mehan III served at the U.S. Environmental Protection Agency in the administrations of both Presidents Bush. He is a consultant in Arlington, Virginia, and an adjunct professor at George Mason University School of Law.