Economic Growth is Good…or is it?


“Only by maintaining Hong Kong’s stability can we sustain our economic prosperity. Only by sustaining Hong Kong’s prosperity can we improve people’s livelihood.” CY Leung July 1, 2014

This quote encapsulates the argument of the pro-China business groups in Hong Kong.  Their argument is two-fold: (1) that transitioning to a legitimate form of democratically elected government will cause instability and thus reduce economic growth, and (2) that economic growth is necessary to improve peoples lives. While we disagree with both, it is the second assertion that is relevant to the environment. It forms the justification for our most environmentally damaging behaviour.

This is the myth that we are setting out to debunk with some thought experiments. Thought experiments are favoured by scientist and philosophers, while complex models that are to a shocking extent unsubstantiated by empirical evidence are favoured by economists. (Disclosure: your author studied both economics and philosophy at the University of Toronto).

Look at the picture above. What do you see? Local residents sitting under a tree on a hot day? Wrong! That is a potential source of economic growth. Arborist’ could be employed to cut down the tree, drivers to transport it and factory workers to turn it into furniture or paper. It would then be transported back to a store to be sold by a clerk. At every stage of this “value creation” process, people are employed and income is earned resulting in economic growth. We could go even further, the people that had been enjoying the shade of the tree would now need to find another way of staying cool. They would need to occupy air-conditioned buildings. Coal would need to be mined and transported, and power plants operated closer to their maximum capacity. Again creating economic growth albeit without improving peoples lives (except for Li Ka Shing’s). We have not only eliminated a source of enjoyment for people, but made their lives worse off through increased air pollution.

Lets look at a more common good. Bottled water. We know that the most efficient way to transport water is through pipes and that Hong Kong’s water quality is world class. But drinking tap water has one huge drawback. It generates almost no economic activity. On the other hand, bottle water from the tap (which coincidentally is the source for most bottled water) and viola! We have economic growth. People are employed to extract oil, to manufacture plastic bottles, to run bottling factories, to drive trucks to transport it and to stand behind counters to sell it. Every step again generates employment and economic growth. However, we can see that most of the jobs created are low skill and low paying. Not a great way to make a livelihood. So who benefits from this form of economic growth? The investors and brand owners of course. Who might that be? What a coincidence, Li Ka Shing again. And who bears the environmental cost of our ever expanding landfills when these bottles are thrown away? Not the residents of the Peak.

Based on our thought experiments we can conclude that economic growth often does not improve peoples lives (or livelihood), especially when the costs and benefits are inequitably distributed. And that the pursuit of it can result in perverse incentives, and outcomes that can be profoundly damaging to environment and humans. Stay tuned for our next article, when we’ll examine one of the pillars of the Hong Kong economy. Real estate. And you can guess who our protagonist will be.

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