Turning The Tide

SaplingPresident Hu Jintao of China was lauded at the UN climate change summit last week for his bold plans to counter global warming, reports China Daily. His remarks represent a turn-around in China’s attitude and policy.

It is all very reminiscent of the Slave Trade Act of 1807, which banned the international trade of slaves in the British Empire. For fear of becoming economically uncompetitive, the British went on to tirelessly campaign against the practice elsewhere.

A few months ago, the shoots of the green revolution in China were already to be seen and were discussed here. The market forces were creating green technologies to transform the global economy.

As predicted, the dangerous protectionist policies once suggested by Paul Krugman have been shelved. Unfortunately, so have the progressive environmental policies once suggested by President Barack Obama and his administration.

Market skeptics claim that China’s new position arrives in the face of domestic pressure, to reform pollution policy which impose harmful externalities on its citizens.

But this is to confuse the separate issues of pollution (water supply, contaminated crops, etc.) and climate change – It would be possible for the Chinese government to appease its people on a case-by-case basis without retarding economic growth too much.

Unfortunately, the citizens suffering as a result of China’s rapid industrialisation, have no such ability to affect national policy until democracy arrives. The change merely reflects China’s unique ability to think in the long-term – a characteristic also derived directly from the autocratic nature of its government.

It makes sense for China to begin preparations for the green economy now, rather than postpone it. The arguments for getting a head-start are obvious, provided you can afford to do so. They are positioning themselves to make money off the global green revolution.

Now that the government is on board, and not just Chinese firms investing in green technology as observed a few months ago, the international element of the plan will begin. If China is to impose costs on its economy to reverse climate change, it will not suffer alone.

The ability to pollute becomes a competitive advantage in a world fighting climate change. Production and jobs will flow to countries with lighter regulation in a process known as ‘carbon leakage’. Goods can be produced cheaper when the traditional costs aren’t supplemented by an expensive carbon permit.

The Chinese government recognise this, as the British Empire recognised this when popular opinion in that country turned against slavery. It took a while, but eventually slavery was abolished entirely within the British Empire. In the meantime, they went about ensuring that their competitors weren’t enjoying any competitive advantage by employing free labour.

The British navy routinely seized ships belonging to competitors and exerted economic pressure on trading partners to eliminate the practice. Observe now as China similarly goes about eliminating the competitive advantage enjoyed by countries less enthusiastic about carbon emission reduction, through a combination of diplomatic pressure and economic incentives.

It is hoped that the coming months will see formal moves by China to cut down on carbon emissions. If so, this may some day be considered a moment comparable in importance for the fight against climate change, to the Slave Trade Act of 1807 and its impact on the battle to abolish slavery.

China’s policy is no doubt supported by their unfavourable position in the scramble for the world’s remaining resources. Although recent years have seen an explosion in Chinese possessions abroad, increasing energy prices and the finite nature of their domestic coal supply will see money increasingly flow out of China into the hands of energy-exporting nations.

Thus, China desperately wishes to see the global transition to the green economy sooner rather than later. Let’s be grateful to China, and the market forces. They may have succeeded where democracy and people power in the West have failed.

© The Free Marketeer 2009



3 Responses to Turning The Tide

  1. Ed says:

    Nice one Jonathan, almost totally agree. I think the explanation for the focus on climate change as much as on issues that have immediate impact on the Chinese citezenry is their primary methods of power generation – hydro and coal, both of which have serious environmental impacts on the surrounding areas and have been focuses for environmental activism. That’s one of the reasons China is now rapidly moving to huge investment in solar energy. If they can get the rest of the world to go with them they can also lower the technological cost as research is conducted by other nations signing up to agreements resulting from Copenhagen. An interesting piece, especially on how democracy is the problem more than the solution!

  2. Ciarán says:

    How do market forces count for the over-emphasis on carbon-reduction in global climate policy?

    The excerpt from the new freakanomics book, published in the Sunday Times News Review last week, suggests that policy is overly focused on carbon reduction. Link to a readable version of the article here:

  3. thefreemarketeers says:

    you’re conflating the importance of taking steps to tackle climate change with the importance of taking the correct steps to tackle climate change. i wouldn’t go so far as to adopt a position on the latter – conventional wisdom seems to suggest that carbon emissions need to fall, although obviously there are skeptics (some more persuasive and scientific that others who are portrayed by the green lobby).

    but in the west, there is broad at least some consensus on the need for (say) a reduction in carbon emissions. so ignore the whether climate change is happening, and what the best solution is. they think it is happening, and they think they have the latter. but nothing happens, because democracy is preoccupied with the short-term. meanwhile, china is not.

    it might be that they are simply thinking long-term about the environment, or (as ed suggests) that they are appeasing citizens who are suffering the short-term costs of a by-product of a type of power generation which happens to also cause climate change. or maybe (as i think), they are rationally responding to the profit incentive.

    – the first possibility is plausible, but it doesn’t explain the difference between china and the west. short-term profit motives should dominate in china too.
    – i disagree with the second possibility, although i could be proven wrong empirically. are there examples of green technologies which don’t alleviate harm to population that are not being pursued by the chinese government? it’s a pretty enormous country.. i am skeptical that they cannot relocate energy production to reduce pollution or take steps to appease angry farmers rather than reduce carbon emissions in totality.

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