A new wind blows through China: addressing pollution’s economic effects
Photo by Arran Smith on Unsplash
When an economy breathes polluted air, its lungs get damaged. China has become asthmatic by running too fast. The population has gone into atrophy, intoxicated by economic growth: producing often pollutes. Natacha Raffin and Thomas Seegmuller explain what China is going through: the contamination is affecting longevity, economic stability, and welfare, all at the same time. They provide answers that could help avoid asphyxiation.
China has entered the "airpocalypse", an area where pollution in the atmosphere reaches record highs. When smog masks the skyline, masks are the only way to protect yourself. And you have to be well prepared to face the devastating contamination. The health of the Chinese population is at risk and its longevity has decreased.
Although successful campaigns against infections and epidemics have improved longevity in developed economies, new threats to health are emerging. Most are linked to contamination. A study published by the University of Chicago in 2017 found a decrease of three and a half years in the average life expectancy of Chinese people. Surprising, for a major economic force. And this decrease in life expectancy is even greater in the worst-affected areas. The people living north of the Huai River consumed a lot of coal in the winters between 1950 and 1980. They lost 5.5 years of lifespan compared to their neighbors to the south!
Natacha Raffin and Thomas Seegmuller come to the conclusion that pollution jeopardizes economic stability. They also analyze its impact on both longevity and social welfare.
A three-pronged relationship: health, pollution and sustainability
Is economic growth possible without negative impact? Production is a double-edged sword: economic growth carries with it pollution. Fine particle emissions obstruct the atmosphere and the economic skyline/horizon darkens.
A large range of mechanisms play a crucial role. For the authors of "The Cost of Pollution on Longevity, Welfare, and Economic Stability", what matters is longevity's impact on savings rates, a two-way process. First, the more people age, the more they accumulate capital and invest it. As a consequence, the savings rate improves and, as savings cover health expenses, longevity also improves. The two variables evolve in complementarity: when one increases, the other follows.
Pollution's increase has a ripple effect. If the population sneezes, longevity dips and the savings rate catches a cold. When pollution severely impacts public health as in China, economic sustainability falters. The savings rate no longer fosters production. Endogenous cycles emerge and disturb economic stability.
Economic cycles
Longer-term growth in market economies faces fluctuations called economic cycles. They encompass both recession and expansion. External shocks occurring outside the economic domain may hit economic stability, an example being the well-known technological shocks. Independently of external shocks, other mechanisms can threaten stability, but this time endogenously. Perturbations may be interpreted differently, based on demand or market distortions.
Although increased capital improved social welfare, pollution is now changing this relationship. There is a point beyond which growth in production is offset by the negative impact on the environment and therefore on social welfare.
A second wind
China is on its way to a new "ecological civilization" promoted by President Xi Jiping. It appears that the government is moving heaven and earth to offset the toxic clouds darkening its atmosphere. Is it aware of the main danger that lurks, not only to health but also to economics?
In 2013, a plan to address climate change was launched. In just a few years, China has become the world's largest solar energy producer, reducing its coal consumption by 50% between 2013 and 2018. World's leading greenhouse gas emitter or advocate for the environment? China's schizophrenia has been depicted in "La crise environnementale en Chine" by Jean-François Huchet.
When it comes to tackling pollution's consequences, there are different ways of stabilizing the economy. Natacha Raffin and Thomas Seegmuller assess two main public policies. To face negative externalities induced by growth, a State has two main levers for action. In their model, it faces a trade-off when redistributing its national income. It can allocate its budget to health expenditure or else to pollution abatement: increasing one automatically reduces the other.
The first channel is curative, offering a remedy to cure the "modern diseases" caused by contamination. The second is preventative, dealing with the real source of the illness. Which is the best option? The solution involves looking at the initial share of national income, say the authors.
Photo by Raj Eiamworakul on Unsplash
To cure or to prevent?
While the State has long dedicated a significant proportion of its budget to public health – at the expense of pollution abatement – its efforts should now be focused on decontamination. This is the best way to counteract the longevity curve's trend. The curve cannot ascend fast indefinitely, and at some point its ascension will slow down. In such a situation, it's not worth increasing health expenditure even more, which would effectively reduce the budget allocated to decontamination. Pollution would therefore increase, once more threatening both health and the economy, which is totally counter-productive.
The longevity curve
This curve is often drawn as an inverted U, called concave for theoretical purposes. In the beginning, it increases exponentially, then continues growing more slowly. Medical progress has vastly improved longevity. In France for instance, it was assessed at 43.4 years for men and 47 for women in 1900 and reached 79.2 and 85.4 respectively in 2014. But such growth does not go on forever: after a point, improvement slows down and further growth is sluggish.
Restoring a healthy environment requires time. Those who really receive the benefits are future generations. By choosing this policy, the government is considering the welfare of future populations. Nathacha Raffin and Thomas Seegmuller consider pollution as a stock, underlining its persistence through time. It takes on an intergenerational character because of the accumulation of particles in the atmosphere, day after day.
The public policy trade-off required to deal with contamination raises major issues. Pollution is creeping into all areas of state concern: health, economic stability and social welfare. To be sustainable, it is becoming impossible to ignore the growing cloud above our heads. China is fighting hard to pave the way for a sustainable economy. To a certain extent, this is alleviating the pain of its economy and its population, which have had to endorse unrestrained development, with all its attendant consequences.
Reviser: Marjorie Sweetko
