China's Economic Growth and the Environment Fa 08

Environmental Impact

Kuznets Curve (justin)

Background

The environmental Kuznets curve (shown above) represents that concept that environmental degradation will decline once a country's per capita income reaches a certain level. The curve represents the hypothesized pattern that developing countries will follow as they grow. There is much controversy surrounding the validity and practicality of the environmental Kuznets curve.

In the beginning stages of a country's growth, industrialization occurs. During this, the curve shows that environmental damage grows rapidly. At this point people focus more on income, jobs, and improving the standard of living while pollution takes a back seat (Dasgupta 2002). The country is too poor to be able to fund and enforce pollution abatement and environmental regulation is nearly nonexistent. As per capita income rises, however, it reaches a turning point at which people are now able to address the concerns of the environment. Subsequently, new technologies are implemented and legislation is passed which results in environmental degradation falling. Initial estimates of the per capita level of income that represents the turning point range from $5000 to $8000 (Dasgupta 2002).

Controversy

The traditional environmental Kuznets curve applies mainly to water and air pollutants. Since not all types pollution has been found to decrease with a higher level of income, several opposing curves have emerged. As shown in the above figure, the creation of new pollutants as a country develops will stray from the original environmental Kuznets curve (Dasgupta 2002). In fact, these pollutants represented by the New Toxics curve will continue increasing as there is no means to eliminate them. The "Race to the Bottom" curve represents the idea that the curve will rise to a horizontal line at maximum pollution levels as globalization promotes a race to bottom in terms of environmental standards (Dasgupta 2002). The concept behind this is that businesses will flock to these developing countries who are unable to enforce environmental regulation as a way to cut costs by not complying with stricter regulation in other countries. The final alternative scenario is one where the turning point is lower and is reached with less pollution than the traditional curve. The inability to gather proper data in developing countries makes a conclusive argument for or against the validity of the environmental Kuznets curve difficult to reach.

Relating to China

China's per capita level of income in 1998 was $3051, well below the level where improvements in the environment should start to be seen (Dasgupta 2002). This figure indicates that the next few decades should see continuing environmental damage in China. With World Bank estimates that mortality and sickness caused from urban air pollution represent a loss of 2-3% of gross domestic product (GDP) in China, the environmental Kuznets curve has received increased attention (Dasgupta 2002). As China continues to grow, regulation will become key in determining its environmental impact. Dasgupta et. al. argued three reasons why richer countries develop stricter pollution regulation. First, pollution becomes a higher priority after investments in health and education have been made. Second, richer countries have more funding to monitor and enforce regulations. Finally, higher income results in better education which increase awareness and demand by the public for regulation (Dasgupta 2002).

The Liberalization of an economy, as done in China, has been found to result in environmental improvements. When this occurs, government subsidies are often eliminated or reduced which most often benefits the environment (Dasgupta 2002). Subsidies typically are given to the heaviest polluters because those industries lend to state involvement. The elimination of subsidies will shift production to more efficient forms and also allow the free markets to guide firms towards more cost efficient methods These more efficient methods can also have a tendency of being environmentally friendly. As shown in Figure 3, the state-owned enterprises in China have much higher pollution abatement costs because they operate inefficiently (Dasgupta 2002).

Current Regulation (justin)

Over the course of the last century China has undergone vast changes in social structure. There was the process of collectivization that lasted from 1949-1978 which was followed by market reform and decollectivization from 1978 to the present (Muldavin 2000). Throughout this time of rapid economic expansion, environmental damage has been profound and evironmental policy largely ineffective. Policy for the environment was typically discretionary and failed to address the causes of problems.

Collectivist Period

During the collectivist period China operated under a system of communal capital (Muldavin 2000). The state provided the means to transform production from private household-based to collective organization of production through redistribution of resources. Under this collective regime, people enjoyed little vulnerability when it came to providing for themselves (Muldavin 2000). Since they were under the protection of the state, they need not worry about going hungry if they had a bad harvest.

Market Reform

When China entered the market reform period beginning in 1978, a major change was the change of entitlement back to the individual (Muldavin 2000). Along with increased freedom came vulnerability and risk that had not been previously experienced. The result of not being able to rely on the state and needing to fend for oneself was environmental damage. The free-rider problem evolved into an open access problem and current regulation was not prepared to combat the ensuing environmental damage. People began to over-consume and exploit resources as a means of getting theirs before others could (Muldavin 2000). Forests were relentlessly cut, overgrazing occurred, and general disregard for the environment developed.

References

• Dasgupta, S., et. al. "Confronting the Environmental Kuznets Curve." The Journal of Economic Perspectives, Vol. 16, No. 1 (2002), pp. 147-168.
• Jahiel, A. "The Organization of Environmental Protection in China." The China Quarterly, No. 156 (Dec. 1998), pp. 757-787.
• Muldavin, J. "The Paradoxes of Environmental Policy and Resource Management in Reform-Era China." Economic Geography, Vol. 76, No. 3 (July 2000), pp. 244-271.