Is All Growth Good? The Case of China

Sara Hsu

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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