Accounting for True Costs in China

Last Monday in the Wall Street Journal, there was a great article about how China is starting to measure their phenomenal growth by accounting for the true costs pollution has on their growth. Their study, for example, said that in 2004 pollution cost China about $64 million dollars. Official reports state that China grew by 10% that year. This report, released by the State Environmental Protection Administration and the State Statistics Bureau, says that such a cost would cut about 3 percentage points from the growth rate leaving at a still high 7%. This so-called green gross domestic product figure subtracts the estimated cost of pollution from the official GDP number to "give a more realistic picture of the health of the economy."

The article mentions how the green GDP figure is being embraced by top political leaders including President Hu Jintao. It says that the President has made a number of references to "sustainble development" in his speeches this year.

This study comes at a time when China is dealing with the widespread air and water pollution and acid rain as the country grows so rapidly.

"The Chinese Academy on Environmental Planning estimates that more than 400,000 of China's about 1.3 billion people die from air-pollution-related illness each year. About 300 million Chinese lack access to clean drinking water, partly because of pollution from factories, and the central government pledged to spend $125 billion to address the problem." Reading something like that makes me wonder what the argument is against accounting for 'true' costs. It's mind-boggling, really.

Now how about this from the article?! "While GDP looks at the market value of goods and service produced in a country each year, it ignores the fact that a nation might be fueling its expansion by polluting or burning through natural resources in an unsustainable way. In fact, the usual methods of calculating GDP make destroying the environment look good for the economy. If an industry pollutes in the process of manufacturing products, and the government pays to clean up the mess, both activities add to GDP. China's report estimates it would take a one-time direct investment of about $136 billion -- nearly 7% of GDP -- to clean up all the pollution pumped into the nation's air, water and soil in 2004."

Lastly, take a look at this quote from the article: "This is not some flaky, left-wing offshoot of economics," said Robert Stavins, a professor of business and government at Harvard University and director of the school's growing environmental-economics program. "It is rigorous economics applied to some challenging and important social problems in the environmental domain...If the way a country is growing is by living high on the hog, and spending down its natural capital, you would want that to be reflected in the country's national income accounts -- if those accounts are intended to be a long-term measure of welfare."

I applaud the WSJ for printing such an important article and putting on the 2nd page in their first section.