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China's Economic Growth and Environmental Challenges

Explore the rapid economic growth of China and the environmental challenges it faces, including air and water pollution. Understand the need for just and effective environmental policies.

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China's Economic Growth and Environmental Challenges

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  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

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