Economic Growth is Good for Environmental Protection

Apple Daily, Hong Kong
December 13, 1999


By Matthew Brown

As increasing pressure from visiting business leaders and local citizens attests, Hong Kong, like all wealthy countries, is encountering fears over air quality, clean water, and waste disposal. To meet these challenges Hong Kong Chief Executive CH Tung has embraced the idea of "sustainable development." In his words this requires"a fundamental change of mindset," in the way Hong Kong businesses and government operate.

Around the world policies of "sustainable development" rest on the assumption that current economic systems are bad for the environment and that only through more government control will environmental quality be improved. Enacting this policy could prove costly not only for Hong Kong's environment but also for its celebrated economic success.

The good news for Mr. Tung and all of Hong Kong is that the twin goals of environmental protection and increased prosperity are not as contradictory as many environmentalists would have the public believe.

A recent study by Princeton University economists Gene Grossman and Alan Krueger found that "economic growth brings an initial phase of deterioration followed by a subsequent phase of improvement." They found, for instance, that light particulates, a pervasive form of air pollution, tend to increase until a country reaches per capita income levels of around $9,000. After that air pollution declines as countries become wealthier.

According to Grossman and Krueger "contrary to the alarmist cries of some environmental groups, we find no evidence that economic growth does unavoidable harm to the natural habitat." This relationship between economic growth and environmental quality, which resembles an inverted-U, has been found for many other environmental indices such as water quality and waste disposal-- both important concerns for a city such as Hong Kong.

Perhaps more relevant to Hong Kong's future is a recent finding that government efforts to regulate environmental quality, a cornerstone of many "sustainable development" proposals, can have a substantial negative impact on economic growth. Another team of economists found that American air and water regulations had a total cost of about $320 billion and decreased American gross domestic product (GDP) by 5.8%. Even well intentioned regulations can have a negative impact on economic growth and thus unintentionally on desired improvements in environmental quality.

A policy of sustainable development can also be harmful in its prescription to forgo economic growth in the name of preserving resources for the future. Forcing the current generation to conserve resources for the future is like taxing the poor to give money to the rich. Imagine how different Hong Kong would look today if fifty years ago its imperial rulers had decreed that Hong Kong must not use natural resources so that they would be available for future generations. In that case Hong Kong, then with per capita incomes lower than many Third World countries today, would never have been able to achieve the remarkable economic growth that has made it one of the richest places on Earth, with individual incomes as high as those in the United States and higher than in most parts of Europe.

If Hong Kong only grows at a modest pace in the future, forthcoming generations will be much wealthier than even today's residents. Such wealth will allow them to achieve standards of living and environmental quality unknown to us today. Asking current residents of Hong Kong to sacrifice economic growth and opportunity for the sake of future generations would be like the United States and Hong Kong of today asking poor African nations to turn over their resources for our enjoyment, with no compensation.

In addition to asking Hong Kong to give up growth for the sake of future generations, a policy of "sustainable development" involves reducing the environmental burden Hong Kong's economy places on its neighbors. Here Hong Kong's great success is truly in evidence. Hong Kong is much wealthier than mainland China and indeed most of the rest of Asia. As such it is in a position to worry more about the impact its neighbors have on Hong Kong's environment than vice versa. By continuing the liberal trade and economic policies that have made Hong Kong the envy and model for much of Asia, and indeed the rest of the world, it will help promote economic growth in the region and thus improved environmental quality for its neighbors and itself.

As Hong Kong moves into the new millennium it has many advantages over most of its neighbors. Its economic freedom and consequent wealth will not only allow it to enjoy increased prosperity in the future but also increasing environmental quality. Avoiding the temptation to impose new layers of government regulation on a system that has worked so well will be the main challenge standing in its way.

Matthew Brown is an economist at the Political Economy Research Center in Bozeman, Montana, USA.

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