Yves here. Growth versus “groaf” had become a favorite topic of the NC commentariat. This article sets forth some of the ways for differentiating between them, using China as an example.
By Sara Hsu, an Assistant Professor of Economics at the State University of New York at New Paltz. Originally published at Triple Crisis
Since the seventies, with the assertion by Gunnar Myrdal that economic development should prioritize equality, economists have increasingly come to believe that not all types of growth are wholly “good.” Growth that ignores human well-being and equality are viewed as problematic. Certainly growth that results in severe environmental destruction, as in the case of China over the past twenty years, cannot be classified as good, either, despite the country’s much-lauded successes during this period.
Real-world views of growth depicted in the mainstream media do not fall in line, however, with the economic development literature. The focus on China’s growth in the news has distracted from a more balanced view of the looming inequality problems or polluting production methods in the world’s most populous nation. As China’s growth has slowed, headlines have read, “China’s Economic Growth at Stake,” “China’s Economic Growth Slows,” and “China’s Second Quarter Growth Slows.”
Even when inequality and pollution problems are described, they are considered separate from the growth process—as “side effects” of growth rather than issues that detract from the extent of growth itself. Headlines read, “China Blocks Access to Air Pollution Data,” “China Declares War on Pollution,” or “China’s Wealth Disparity Erupts in Protest.” It could, however, be argued that such destructive types of growth both take away from “good” growth and dampen positive growth in the long-run, so we should read about growth and its associated externalities within the same context. This is clearest in the case of pollution, where natural resources are destroyed and rendered unusable to future generations.
For example, China is home to many “cancer villages” along the Huaihe River, into which toxic factory effluents are emitted. This has reduced production costs in the leather and paper industries while poisoning a source of drinking and irrigation water. The pollution of the river not accounted for in the cost of production of leather and paper goods, and future health care costs and resource destruction costs are not accounted for either (except that “defensive expenditures” like health care or environmental cleanup costs will add to future GDP!). Yet the GDP growth rendered by production processes along the Huaihe River is part of what has been considered China’s stellar “post-reform” economic performance.
A better representation of China’s growth would include social and pollution costs. These costs would detract from GDP itself by incorporating negative externalities. Years ago, China attempted to account for environmental costs in GDP using a measure called Green GDP. However, after taking into account pollution costs, GDP was substantially reduced; this proved politically unfeasible and the practice was ended. If inequality were similarly accounted for within growth statistics, China’s GDP would also decline. If prices reflected the social and environmental costs of Chinese goods, producers and consumers would think twice before supporting this type of production regime.
Another related misconception about growth is that reconstruction after a natural disaster is a positive phenomenon, since it increases GDP. Since GDP measures account insufficiently for capital depreciation that would reflect natural disaster destruction of infrastructure, homes, and plants, a negative shock can appear to be an economic boon. As climate change sets in, due to the same externalities created by polluting production processes, we are continuing to misrepresent environmental devastation as a positive contribution to GDP.
Trying to analyze separate elements of growth, inequality, and pollution has resulted in separate analyses of each. A unified view of growth, incorporating inequality and pollution, needs to be emphasized in the news media, and possibly more uniformly in the economics literature. According to this view, China is less developed than it appears due to the dirty and imbalanced reform practices that have accompanied its industrial rise. This is not to invalidate China’s growth story on the whole; certainly, it is a model for reform in some areas. However, one should pause before celebrating this reform wholesale, and consider what the growth story actually embodies. Is this the type of growth path that other nations should follow? Is all growth good, no matter the cost? If not, which of China’s growth statistics represent “good” growth and which should be discounted by savvy analysts?
China’s economy illustrates the problem of growth measured in numbers versus measured in real economic change. The surge in fixed asset investment carried out post-global crisis resulted in an inflation of growth figures, despite the creation of uninhabited apartment buildings, or even entire cities. This is socially unproductive growth, wasteful production, “bad” or false growth. Although the distinction between “good” and “bad” growth exists only in theory, it is essential to clarify the difference to the public in order to move along the path of long-term development.
Admittedly, it may be overambitious to request that a more comprehensive view of growth penetrate the media. However, it would benefit our understanding of China’s economic performance; reconceiving growth would increase competition to generate “good” growth and discourage the race to build businesses that produce “bad” growth.
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The fetish / fixation on GDP is another symptom of economic’s “physics envy”: only that is real which can be quantified. It is a materialistic worldview which by its very nature ignores the qualitative.
I applaud any steps we can take to correct this one-sidedness and blindness in economics, because it ignores an essential part of human existence: the qualitative, the aesthetic, the ethical.
True, though I must say that GDP doesn’t really do a good job of measuring resource consumption/production, it has a hard enough time measuring Capital volume. A big chunk of the problem is the value of our means of exchange is only determined by politics and theory (both of which are not limited by a natural law “governor”). As of today the only tool monetarists have that is of any consequence is the interest rate, and this is tied to a currency only limited by the irrationality of the participants in an undirected market. So, the punch bowl at the party, interest rates in the market analogy is probably pretty accurate. A hybrid energy/political based currency could provided the limiting factor of energy production/consumption with the abstract human values of “progress” and “innovation” (i.e. society and politics). From this growth would be more measured and optimized for a given resource environment, and energy would always be the limiting factor. Easier said than done, but maybe something to work toward.
If all externalities were accounted for, it’s more than likely that the industrial processes that create modern consumer goods would show a net negative to our living standards. Industrial activity is not a productive process, it’s a deductive process where nature is pillaged to create cheap plastic trinkets that will end up in a landfill in a few months. Unfortunately for humans that process is not just boneheadedly stupid and mean-spirited, it’s also suicidal.
Preindustrial societies were also ruinous for the environment; it’s only in the last few decades that people have figured out how to do agriculture while building soil fertility, and how to engage in living arrangements that heal ecosystems and build biodiversity. Hopefully those techniques will be more or less wide spread by the time the collapse of industrial civilization is further along than it is today.
I think the eternalities of science like nuclear bombs, GM foods, drones are not being properly accounted for.
I would vehemently discount that. If your assertion were correct, then the US would be a far worse place to live than say, 100 years ago.
Fail.
There are a few exceptional technologies that neutralize many of the the modern world’s many problems:
* flush toilets
* refrigeration
* antibiotics
* vaccines against killers such as smallpox, polio, tetanus, and rabies
* light bulbs. Who wants to risk starting a fire just by reading at night?
* the electricity that powers light bulbs and refrigerators
If you discount all the externalities, those things you mentioned may appear to be beneficial to a limited population in a very limited time frame. The comment however regarded not ignoring externalities. One such externality, for example, is the population crash that follows a species exhausting a non-renewable resource that it’s come to rely on. Such can be quite horrific for the species involved.
Hence the enormous importance of another family of technology:
* Contraceptives
If we keep our human numbers at a level where we can use resources sustainably, we’ll be okay. Tragically, there are various ideologies (not technologies) which are adamantly opposed to the use of contraception.
There is so much wrong with your statement that it’s difficult to find the start point for how to refute it. It’s like talking to someone who genuinely believes the earth is flat. To start you’d first have to come to an agreement on the empirical nature of reality and the supremacy of natural law in our universe, which would probably be impossible.
If pre-industrial societies were also ruinous for the environment, than it can’t be your industry that is responsible, but something else.
This is actually part of Sara’s point. China first started out with this idea of Green Growth. But it compromised the narrow and dogmatic figure of GDP, so they discarded it. But building empty cities, and polluting rivers and air quality which have a huge determent to worker productivity is perfectly acceptable and may even see to contributing to GDP down the line as they demand a response from the state.
There is a legend that when the Greeks breached the walls of Troy, the defending Generals ran to the temples and prayed for deliverance from their deity, rather than rally the troops and mount a proper defense.
We might laugh at them now, but to them they believed in the power of there deity, probably even after the Greeks forced their ways into the temple sanctuaries. Those that escaped probably even blamed the General’s lack of faith or inadequate tribute as the cause of the disaster, rather than actually working to mount a defense, or letting in the Trojan Hoarse to begin with.
The view of growth is so dogmatic that it becomes the goal by definition of the GDP itself. It’s the number of GDP that is sacred here, not the concept of growth. If it was, then greater deference would have been given to the issues that Sara raises. Building empty cities is pointless. But because it adds to GDP, it becomes good by definition. Any harm or relevance to the real world economy is complexly outside their perspective.
Industry is only the latest and most effective way people have figured out how to destroy their environment. This is a familiar pattern: people find a fertile area, build civilization on it, deplete it into a desert, and then move on to denude some new area. This may be beneficial in the short run for reproduction and growth, but it’s ruinous over slightly longer time-frames. Industrialism follows the same pattern, but on a compressed time frame.
Not just industrialism, but that agricultural pattern must be broken too if humanity is to have a future. Some of us do know now how to build topsoil, biomass, and biodiversity while making a living. Such knowledge is not generally valued by our society yet. At least some people in China get it though. The Loess Plateau is a good example of how people are adaptable enough to find a new pattern of living that’s not destructive.
Exactly!
William Ophuls puts it quite pithily in Immoderate Greatness: “As a process, civilization resembles a long-running economic bubble. Civilizations convert found or conquered ecological wealth into economic wealth and population growth.”
As you rightly point out, industry just makes the inevitable more far reaching and (likely) devastating. We have idolised the process of converting ‘idle’ resources into ‘valuable’ goods and services, deluding ourselves that this means we are ‘above nature’. Obviously we are a part of nature and in strip mining all our habitats everywhere on earth, are cutting off the branch on which we sit. Economic growth is thus merely the acceleration of that strip mining.
The solution cannot possibly be more growth, unless we are talking about quality, not quantity. Economic orthodoxy as we currently have it cannot handle that paradigm change. Either we change it and ourselves wisely, creatively (probably symbiotically), or we’ll be crushed by our own ‘success’.
And the article is kind of odd. It’s not just the media that’s to blame. I recall a certain President Obama intoning recently that growth is an imperitative. I don’t recall other world leaders or any politicians anywhere taking him to task on that. Growth (green, purple, black or otherwise) is the only game in town. And GDP was presented cautiously when it was first rolled out as a measure way back. It’s not new that GDP as a measure of societal and economic health is seen as insufficient at best, and downright destructive at worst. It’s because we are systemically addicted to growth that GDP became the headline grabber it has become, the idol, the god. When it’s bad, things start falling apart left, right and centre. That’s the problem.
Michael Ruppert – Three Guarantors of Near-Term Human Extinction
Funny enough, a country which is in general considered to suffer from “Socialist Mismanagement” ranks first under the aspect of “sustainable growth” . Not only arguably a better medical supply than the US (especially after Obama Care…), as well as far less analphabets, but also re-recycled cars from the 50s lead Castro`s utopian island to rank 1 WORLD WIDE in this (wealth per used environment) respective. Of course: apart from all the other real problems this country certainly has.
GDP otoh is more or less an index for the geo -economic- political POWER and influence a country possesses, and reflects far less the wellbeing of neither its population nor of its environment. After all, some Prussian Frederick measured economy as the ability to win wars. It is only rather “incidently” that a higher GDP (as such) offers at least short-mid-term benefits to the population, such as a higher standard of living. While, in the end, there is still this purely materialistic aspect that you can neither eat money, nor plastic products.
Take a look right here in US of A. Growth here is now continually measured by stock value and not value of its citizens life. In recent news a major Hedge fund wants GM to spend $8 billion of cash over next 12 months to enchance shareholders value. It seems like Wall Street/Financiers forgets the 1st priority of carmaker should a successful business with successful products not enriched shareholders.
Very sensible essay – thank you Sara Hsu.
I used to think about how to state this problem. I came up with some words and phrases which I offer for free here, in case anyone wants to use them or improve them. These thoughts were little more than figurative or metaphoric, but here goes.
Any pollution or depletion which shrinks a natural resource available in present or future or which shrinks or degrades ecosystem “services” or “yields” in present or future could be called a “destruct”. The type and extent of those “destructs” called be called “bads and disservices”. For the purposes of measuring and discussing, one could count up the money-price value of all “goods and services” and the money-price value-loss or value-destruction of all “bads and disservices” and then see which number is bigger.
The money-price value of all Goods And Services could be called the Gross National Product (GNP).
The money-price value of all Bads And Disservices could be called the Gross National Destruct (GND).
If GNP were bigger than GDP we would be left with a Net National Product (NPP) of whatever non-negated size was left after subtracting all the Bads And Disservices.
If GND were bigger than GDP, then the remaining negative worth of all the Bads And Disservices still remaining after the worth of all Goods And Services had been negated by an equal money-price value of Bads And Disservices, then we would be left with a Net National Destruct (NND).
Perhaps we could also speak of regional or sectoral Gross Products, Gross Destructs, and Net Results.
What was the cash-price value of all the passenger pigeon meat sold for pigs or people to eat? That would be the Gross Passenger Pigeon Product. What was the cash-price value-destruction of having no passenger pigeons ever again for all time to never ever harvest in a sustainable copper river sockeye salmon management-style ever again? That would be the Gross Passenger Pigeon Destruct. If we lost more than we gained by extincting the passenger pigeon to have 10 decades of feasting on passenger pigeon, then the size of the loss-number would be the Net Passenger Pigeon Destruct. For example.
I must disagree.
The problem with GND and regional GDP and GND is that they are still fiscally centric, focusing exclusively on monetary and fiscal properties towards the velocity of money transfers.
Neo-classical already describes these things as externalities and internalities. But the reason why they are not factored into GDP is because externalities and internalities, by their nature, difficult to quantify.
Case in point, how do you quantify the value of clean air? You can apply the loss of productivity and added healthcare costs that results from pollution, and simply reverse this towards a non-polluted environment, but how do you measure the loss of productivity that is caused by pollution, and not by other factors? Or even blame it on “lazy workers?” Even by objective standards these factors are nearly impossible to measure.
But about the simple property of quality of life, something that is beyond quantification because of its subjective nature?
You also run the risk of perverse outcomes. What if you’re metric shows that polluting actually does produce greater GDP than GND? Is polluting now justified?
The reality is that any industrial or domestic activity involves a certain degree of toxifcation. Even the benign task of eating a chicken salad will inevitably produce toxic fecal mater in a few hours. And part of Peek Oil demands that finite resources necessarily require the exhaustion of those resources. Carful use and efficiency can extend the life of those resources, but not indefinitely. At some point even the most frugal of organism will exhaust its options and parish.
This is such a basic fact of reality that Fungi actually evolved to exploit this truth. They will grow and ravenously consume all resources it finds for its own growth, not unlike our GDP-growth scenario. But when resources become scares, the main body self sacrifices into the fruiting body in order to launch its spoors. Its’ own death actually factors into its own survival strategy.
All economic activity, by necessity, produces waste and consumes resources. They key point is to balance out our consumption along side our ability to process that waste to mitigate and control that damage as much as possible.
And that involved dedicating additional resources towards what the Free Market could consider to be an externality. It doesn’t bother with sewage processing because there is no profit to be made from it. Who wants to buy toxic sewage after all. But the state realized that treatment is a necessary function of the economy and demands resources to process waste, and it must do so at a substantial financial loss when compared against normal market mechanisms. The key metric here is the ability to process waste against the resources needed to do so, a non-fiscal metric.
I was fond of my little thoughts and it hurts to think they may be worthless. I suspect you are correct at the ultimate level of the upgraded culture and its way of thinking that Banger has written about. But people have to crawl before they can walk and walk before they can run. Perhaps my little thoughts and words are not-yet-incorrect for people who are not yet running. Perhaps these thoughts can help crawlers walk and walkers run . . . at which point they may be discarded.
Most people are still only thinking of things like GNP when they think of economics and ecologics at all. Perhaps it would help them to see the fact of destruction to speak of quantifiably price-able destruction acts and processes? Thinking about Columbia Dam (I think it is called) . . . I read that Columbia Dam stopped once-and-for-all the salmon run which had used to swim up the Columbia River to spawn in the headwaters. But the Columbia Dam gives us hydropower and irrigation water.
How much is all the electricity and irrigated food permitted by that dam worth in money-expressed terms? That is the Gross Columbia Dam Product. How much “would” the salmon be worth if we still had the great Columbia salmon run . . . as measured in money terms? The destruction of that salmon run is the Gross Columbia Dam Destruct. If the dam were magically gone and the salmon magically back, would the salmon sell for more money that what the irrigated crops and hydropower sell for now? If so, then the difference between the greater money-worth of salmon we don’t have versus the money-worth of the irrigated food and hydropower we do have instead would be the Net Columbia Dam Destruct. Talking like that would get crawlers realizing that there is at least a Destruct to think about and measure against the Product for deciding whether the Product is even worth it at all. People who realize that might then get ready to think about the higher ethics of non-measurable quality of life itself.
But that is just a thought and could be wrong at every level, not just the highest level. If everyone agrees that talk of Gross National Destruct versus Gross National Product is worthless at any and every level, then these words will die on the page.
Helpful thoughts from Ms Hsu. Thanks.
The growth imperative for China is largely over now. She has got our attention and recognition. Hopefully, more enlightened development policies will be adopted together with measurements like the Green GDP calculation she mentions.
Earthquake destruction has been limited to Yunnan Province so far as I know. A removal of residents from the known danger zones and the restricted use of that area to tourism would suffice.
The Yangtse no longer causes serious flooding since the Three Gorges development but China’s rivers are now more dangerous to the people from the industrial and agricultural pollutants they carry. River clean-ups are quick and effective. I remember the filthy state of the Thames in London in my youth. There has just been a similar clean-up of the Saigon River at Ho Chi Ming City.
Fingers crossed Beijing will press the provinces to act. I feel particularly involved as a resident of Hong Kong which gets its water from the East River in Guangdong. It was a huge loss of amenity when that grey stuff started coming down our water pipes and a great impetus to water filter and bottled water sales. If we could go someway back towards the pristine quality of our former reservoir water that would be heavenly.
Growth that is unregulated and non-productive or harmful to the whole is essentially the definition of cancer; perhaps it’s no cooincidence that a cancerous system produces ever more cancers.
China is probably an unsolvable mess, and it’s big enough that it’s many serious problems are not going to have effects only within its borders.
Virtually all the debate on these issues seems predicated on the assumption that there’s a solution to every problem, when in fact the evidence increasingly points elsewhere, at least away from practical or even palatable solutions. Interesting times ahead, the only question is how soon things start going noticeably south.
China’s not changing. They’re not changing because they don’t know how to. For all the talk about switching to a consumption-based economy, it’s just that…talk. There are too many vested interests who like the current model just as it is regardless of the fact that it is sleepwalking into the same deflationary trap that the Japanese are mired in. They are addicted to mercantilist policies that provide enormous gains to connected insiders at the expense of the environment, the public, and a future high wage/non-deflationary China. To avoid this foreseeable disaster requires political reform and the Party still would rather make believe it can just engage in “anti-corruption” drives and reducing “foreign influences” rather than root and branch political reform.
With 100s of reactors slated for construction in China in the coming decades, it’s nearly a given that at some point China will have a nuclear disaster or two or three to add to the toxic brew they’re already exporting to their neighbors and beyond.
An authoritarian government, poorly-educated populace (re this and other issues), and cutthroat capitalist economic system are themselves a toxic brew, the synergies between them all is the real problem.
This is a crucial topic – long-term-sustainable human economies, which subsumes issues like global warming and overpopulation, in fact is THE existential issue facing humankind over which our species has any real control.
On this subject, for NC readers who have may missed it the first time around, I highly recommend (in addition to the article itself, of course) going back and reading the fabulous reader discussion on the profound distinction between economic growth and development in the Ed Harrison article from beginning of the month on Why QE and NIRP will fail. (The title is specifically w.r.to the ECB’s policies for the Eurozone; I link directly to the start of said discussion). The money quote for me in the reader comments is contained in the opener by reader “Saddam Smith” (which handle should bring a small smile to any student, amateur or professional, of economics, and pays homage other Smith-based coinings such as Yves’ own biblical-Genesis-echoing pseudonym), quoting Herman Daley and Kenneth Townsend:
Back to the present article: Prof. Hsu writes, “China’s economy illustrates the problem of growth measured in numbers versus measured in real economic change.” – but leaves out a useful definition of “real economic change”. It is fairly easy to guess what she has in mind in the latter regard, but let me suggest a rephrasing which I think makes things clear:
“China’s economy illustrates the problem of growth measured in numbers versus measured in the quality of life of its citizenry.”
Because improving quality of life of humanity at large – which must needs be a global and transgenerational concept, i.e. implies long-term sustainability, not just for our species but the others we share this finite planet with – is the ONLY truly meaningful measure of human “progress” of any kind, whether economic, technological, medical, what-have-you. By any reasonable reckoning of quality of life, earning a higher salary at your factory job than previously on the family farm but having to share a tiny apartment with a dozen fellow factory-floor drones due to absurdly high rents, and having to wear a respirator just to walk around outside on most days, is negative “progress.”
Years ago, China attempted to account for environmental costs in GDP using a measure called Green GDP. However, after taking into account pollution costs, GDP was substantially reduced; this proved politically unfeasible and the practice was ended.
When trying to assign a cost to the pollution, no one would accept the bill.
About those empty cities where no one lives, in a nation of over a billion people, I don’t blame you.
The builders used Chinese drywall, and it is rotting, moldy and unsafe to live there. Before you can live in those cities, they will need to be rebuilt.
That should add to GDP.
This is all your fault.
In the 1950’s Mao decided the everyone needed to have six kids starting at age 16. Well that didn’t work out so well so he rapidly backpedalled and the overbearing one-family one-child policy was the result. But even so, there this this little thing called ‘demographic momentum’ (look it up) and Mao’s original policy is still responsible for massive population growth in China. So yeah, China needs massive economic growth just to avoid disaster. But without Mao’s original policy, they wouldn’t need ANY economic growth to avoid disaster, a stable population + zero economic growth = a stable society. And anything more than that is pure gravy. Massive population growth means that you need even more massive economic growth just to keep even… Environment be damned.
AND IT’S ALL YOUR FAULT. For being cowards, and refusing ti admit that massive population growth is a bad thing. Until around 1970 the mainstream view was that massive population growth was a bad thing. What changed the pre-1970 view was not logic or new data, but pressure from the rich in service of their desire for cheap labor.
And you have bought into this. This is all your fault, for being so weak and gullible. Yeah, it’s great if everyone has six kids starting at age 16 even if they are dirt poor. Yeah that can’t be bad. Because the rich say so. And my income depends on kowtowing to that view. So if you disagree you are a racist.
IT’S ALL YOUR FAULT. For evil to succeed it is enough for good people to do nothing. Or perhaps, to sell out.
I’m always amazed that economists— those pseudo-scientists who cloak their ideological prostitution in elaborate mathematical models– can’t perform simple mathematics. But as the range of comment this article elicits illustrates, the paradigm they promote serves to define the range of thought fit for discussion. Of course there is a different between “good” growth and bad growth, but neither is sustainable as a simple calculation will demonstrate.
In a finite world sustained growth at any rate inevitably leads to exhaustion of resources or physical space and collapse back into a lower state than previous. Grow babies or smart phones at the rate of 3% per year and within a few centuries the entire surface of the planet would be covered with babies or smart phones. Slow the doubling rate down by only growing a 1% per year and the result will be exactly the same, only delayed a few years.
Sustained exponential growth in a finite universe is mathematically impossible. Good growth leads to the same end as bad growth only with a more even distribution of the spoils along the way.
When I’ve pointed out the mathematics of exponential growth to liberal humanists I often get the response— once we become more rational we’ll grow information rather than consumption… Well, I’ve news for you—- storing and distributing information takes energy. Moore’s “law” is no more immune to the mathematical laws of exponential growth than the process of human reproduction. Grow information at 3% per year for a few thousand years, and it will reach the point where the next doubling would require all the energy in the known universe.
Our species has only two choices: Learn to live in balance with the planet’s life forms co-evolved to exist in a sun-powered oxygen-rich atmosphere or grow and consume until we create the collapse of the biosphere’s ability to sustain the rogue species called homo sapiens. All the history of human social behavior points toward the later outcome.
Well said indeed!
And one area of our economic systems that has to change is the interest-bearing debt money system. As you point out, interest is exponential growth.
Homo sapiens is not a rogue species. Culture-chunk parts of Homo sapiens are rogue communities. Western Civ and its non-Western economic growthist fellow travelers are a threat and a menace. But if they-we auto-collapse so fast and hard as to leave a bio-inhabitable earth behind them-us, tiny groups of non-rogue steady state Homo sapiens ( Ituri pigmies, Titicaca alpaca herders, etc.) will carry the human species forward.
Of course, the “liberal humanists” (and we must ALWAYS remember that FDR notwithstanding, Liberalism is as anti-communist and pro-Ferengi as Fascism) see nothing wrong in destroying abundance in order to create a market. I don’t think they can be brought onside when their entire ideology is built around their indispensability as creditors to the future, or some such.
Justify the stealing any which way you like, but it is stealing just the same.