In terms of /historic/ emissions (of CO2(e)), the UK and the US are right up there in terms of blame. ‘s what you get for running an empire based on coal, I guess.

China’s not doing terribly, all things considered.

Interesting. I Did Not Know about TFP.

Duncan Green uses a ‘Mad Max’ analogy when discussing the tensions between cutting carbon emissions and encouraging development. Either developed western economies accept that developing countries need to go through a relatively ‘dirty’, carbon-intensive phase of development, and reduce their own carbon use to account for this; or, in [unspecified] years, when the carbon drawbridge has perforce been drawn up, we will have rich, developed countries sitting relatively pretty, while everyone else is effectively barred from industrial development.

That said, I remain to be convinced that China is playing a constructive part in the IPCC process, and to that extent it remains a big part of the problem.

Until now China has grown through the accumulation of labour and capital. The efficiency with which labour and capital have been used to give total factor productivity (TFP) has been of secondary importance in the China story. Just accumulating factors is enough for a developing economy to grow until they reach the ‘ Lewis Turning Point ‘.
http://en.wikipedia.org/wiki/Arthur_Lewis_%28economist%29

China are now probably at or near the Lewis Turning Point. They grew and made the large leap forward by squeezing the labour income share of GDP. In 1991 the labour share of national income was around 62%, in 2007 it was around 47%.

When an economy is industrialising, it operates in parallel with a low productivity agricultural sector. The industrial sector attracts labour because with higher productivity they can offer higher wages than the low productivity traditional sector. Effectively the pool of labour is infinite, until the LTP. The non-traditional i.e. capitalist sector can continuously raise its demand for labour without raising real wages or at least raise them below the productivity growth in the new capitalist sector. However, there comes a time when the pool of labour becomes smaller than the demand for labour, the Lewis Turning Point and real wages start to rise. This is what happens when any economy industrialises and China will be no different. We reached our LTP around 1840. There are signs that the supply of young workers entering the workforce is already slowing and it is due to drop by 30% over the next dozen years.

If they are at their LTP they will need to move from growing through accumulating factors to growth through productivity, which will give them TFP gains. This will mean Chinese consumption will grow considerably over the next decades. Therefore, consumption of energy in China will definitely grow. How that energy is produced will determine how much of a threat to the environment China pose.

Oh, go on LO…tell them the other fascinating thing you get from that paper.

That planned economies don’t seem to be able to increase TFP while market ones do it just fine…..

Very true about the Lewis Turning Point. I think we will be seeing it soon, I think many discussions of it underestimate how capitalist the interior of China is. [1]

However, even as countries approach the LTP it does not follow that they will enjoy TFP growth in the superlative way China has.

China has used a lot of resources but it has released a lot more out of poverty than other countries would have for that amount of input. If we want to lift people out of poverty then China have gotten the most from what it has used. The LTP is important, but not entirely relevant for that fact.

I have to disagree when you say that China has merely grown through the accumulation of Labour and Capital, TFP hasp played a big role. Of course it could play a larger role, but China has already been y done the best in that respect of any country.

The Soviet Union reached its LTP in the way you described and its economy has not grown as fast or as consistently as China’s, nor did it reduce poverty as effectively, however, it did pollute more per given unit of output.

[1] What I mean is that some people have crossed the Lewis Frontier without leaving their rural homes, but have entered the rural proletariat or petit bourgeois.

There was an article in the Wall street journal yesterday saying that the American rich no longer need the rest of the American people, except to fight their wars for them. It seems the rich now out source all their jobs to China and so have no need for the average American.

“Late last year, the U.S. economy experienced a surprising decoupling. As stocks boomed, the wealthy bounced back. And while the Main Street economy was wracked by high unemployment and the real-estate crash, the wealthy–whose financial fates were more tied to capital markets than jobs and houses– picked themselves up, brushed themselves off and started buying luxury goods again.

[Michael Lind] says the wealthy increasingly earn their fortunes with overseas labor, selling to overseas consumers and managing financial transactions that have little to do with the rest of the U.S. “A member of the elite can make money from factories in China that sell to consumers in India, while relying entirely or almost entirely on immigrant servants at one of several homes around the country.”

China has given the rich the delight of returning to the 19 th century. Their workers have no say, and no democracy, and their environment is going up in smoke. How nice for global elite them.

Tim’s here; I suppose the lack of a direct snark implies… perhaps… maybe… he and I agree!

Anyway Tim, about not mentioning TFP and markets, I thought I did, where I discussed the Soviet Union and our economy:

“There are lots of ways to produce wealth. The Soviet Union used lots of resources – more coal, more steel, more blood, more sweat, more tears, more everything – and for a while grew at an impressive pace, before running out of steam .

Other countries have found better ways to become rich, and it involves getting more output from a given amount of input. These are increases in Total Factor Productivity (TFP) and these are what make you and I rich, at least by historical or global standards.”

I didn’t spell it out, but its implied and I, you know, linked to the Krugman paper. [1]

That isn’t exactly what the post is about, although its certainly an important thing for people recommending Stalinist development models (If only Nehru had known what we know, India wouldn’t have been condemned to the Hindu rate of growth for decades).

You know where you and I differ on Development and it is on the extent of markets not their existence, the liberalisation of finance and the role of industrial policy and tariffs; I’m hardly an advocate of soviet-planning.

[1] And, in fact, I quoted much of the relevant stuff from Krugman on my blog yesterday which prompted Duncan to link to the blog post which prompted this post in the comments. You mean you don’t follow my blog?! I’m getting jealous of Paul Sagar.

“I quoted much of the relevant stuff from Krugman on my blog yesterday”

No, sorry, didn’t see it. Too busy using that essay which I found a few months back as the basis of a chapter in a book….

Ah, well if you come across anything on TFP in China ~1950 to 1990 then I’d appreciate it.

You doing a while book or just a chapter? Publishing it with the ASI?

Krugman is a wonderful communicator and a great thinker, just don’t screw up and your chapter should be good.

LO,

I don’t want to sound like a knob, but a googling “china estimates TFP” pulls up some good papers (Hsieh, Klenow, Lee)

also, I don’t think the observation that TFP is rising rapidly quite demonstrates that China is lifting people out of poverty “in the most environmentally friendly way possible”. As far as I know, China’s environmental record is mixed but in parts pretty shocking, industry often pollutes with abandon, and while spending more on environmental protection might lower measured TFP (data it a calculated from prob does not include environmental degradation). I know it’s facile, but good do better, should do better, is probably still a fair assessment of China w.r.t environment.

Whole book, out in October, through Stacey International (Bishop Hill’s publishers).

On the economics of climate change….you already know most of my views on this.

Absolutely not technical, very much trying to explain things to those with no technical knowledge at all. Also at least trying to be amusing….I tell the story of how John Prescott came to be the Google “I’m feeling lucky” result for the word “fuckwit” in my little bit about why planning might not be the best way of going about things.

@Tim

Cool, I might buy it, but I’m not sure of my opinions on IP, so maybe I’ll just download it…

@Luis

In a way you are correct. In another way I am correct (Give me an economist with only one hand!).

TFP doesn’t just look at inputs of things that give off carbon emissions, so perhaps China is inefficient in its use of things which give off carbon but doubly efficient in its use of wheat and rubber.

Given that China relies heavily on coal, and not other less polluting fuels like gas, I think there is a lot of strength in this caveat. China’s energy may be used efficiently, but it is still dirtier energy that that used in other counties.

Furthermore, GDP is gross, not net, so environmental degradation doesn’t show up in it as other things would. Pigou taxes in China are essential just to switch them off coal, more than anything else.

So yes, I’ve overegged this somewhat. However, I think it needs to be emphasised that the normal reaction to China from environmentalists and the obstructionists of environmentalists that China is an evil bogey man which makes all environmental action useless is a massive misreading of the situation.

I did my dissertation on China and had a look at its environmental woes. It is catastrophic on a scale I hadn’t expected and which is still difficult to imagine. This photo of Beijing before and after rain kinda exemplifies it for me, but there are more photos of dead rivers and the ravaged countryside.

There is a lot more which needs to be done to improve the environment in China, but I still think that per person raised out of poverty, and per unit of output, China has undergone an amount of environmental damage which is relatively smaller than it would have been elsewhere. Its just more concentrated. This is good, because less people are poor and a concentrated problem is normally easier to address. But it is hell for those effected.

Thanks for commenting by the way Luis, you were someone who I especially hoped would respond to this post.

hey, my pleasure,

one obv problem is that environmental costs simply aren’t properly accounted for, either in input or output data, as you say … but (and I’m not sure about this) maybe TFP isn’t a very helpful guide here …. what I mean is:

Consider two economies. for sake of simplicity I’ll use a linear “production function”

output=TFP*(Labour + Capital)

one country might look like
200=20*(5L+5K)
and another
200=10*(19L+1K)

my point being that TFP is a separate question from choice of inputs. Maybe here interpret capital to include inputs like Coal, Oil, Ores. The first economy I have written down is relatively capital intensive, and hence more damaging to the environment, and the second economy is lower TFP but only using 1K and using up fewer environmental resources. The numbers are of course silly, but I think the point is that the efficiency with which inputs are being used doesn’t tell us much about what inputs are being used, and it may be choice of inputs that matters from an environmental point of view.

Of course even if true that China has relatively much more environmentally harmful input mix, that’s prob just because we’re paying it to do all our dirty manufacturing.

I don’t actually think China have done anything unique, Left Outside. They achieved their growth by squeezing labour and directing the labour share of national income to investment in infrastructure and by de facto subsidising the export sector by holding down the Renminbi.

There was a large growth in Chinese savings in the last decade until reaching absurd levels in 2009. Two Chinese economists Bai Chong’en and Qian Zhengjie analysing flow of funds data and detailed provincial data found that it was all down to corporate and government savings. Household savings remained roughly constant both as a share of GDP and of household income. But household consumption plummeted, from 46% of GDP in 2000 to 35% in 2008. If household saving was constant but the household consumption share of GDP fell, the only possible explanation is that household income’s share of GDP also fell. They estimate that the labor income share of GDP fell by 7 percentage points from 1997 to 2007.

This says less about TFP and more about that they had not yet reached their Lewis Turning Point. The pressure on wages along the coast at Honda, Foxconn, etc suggests this period is over and there will be a structural shift. The Chinese stock market also suggests the structural shift is occurring with consumption stocks above the August 2009 market high. Financials, steel, cement, mining, oil & gas, real estate are all underperforming.

China clearly have developed better than the Soviet Union, but the next decade will tell us more than the last.

“one obv problem is that environmental costs simply aren’t properly accounted for, either in input or output data, as you say”

Of course….Stern’s (and others’) point. ‘Coz they is externalities, see?

The game is to make such external effects internal to market prices.

Carbon tax/cap and trade, your choice.

Interesting piece here

http://climateprogress.org/2010/07/08/the-food-energy-water-nexus-in-china/

…or even here

http://climateprogress.org/2010/07/08/the-food%E2%80%93energy%E2%80%93water-nexus-in-china/

A thought provoking article and some interesting discussion going on so far. I’m not going to try and pretend I understand the more complex economics behind this but just want to say a few things about China’s willingness to invest in alternative energy production technology. Whether you look at it from the climate change angle, the dwindling resources angle, or a purely business angle, most now agree that alternative energy production technology is important. I feel that here in the UK we should be making more of the opportunities presented by it.

I’ve heard that China is doing a lot in terms of research, development and manufacture in renewable and clean energy production technologies. I’m no expert and couldn’t tell you whether the government or business is the main force behind this (probably a good working relationship between the two, although i’m not naïve to China’s governance, which like other countries has its own forms of corruption) however I do feel that the UK Government needs to be more active in its procurement and investment in alternative energy. Apparently we have already fallen behind other European countries such as Germany, the Netherlands and parts of Scandinavia. Aside from issues of sustainability, this puts us at a competitive disadvantage to other countries on the global marketplace.

I’ve recently come across a new generation of ‘clean’ electricity production technology which includes alkaline fuel cells which use hydrogen produced during underground coal gasification to generate electricity. They are low cost and are suitable for large scale energy production. The CO2 released in the process is captured, stored and can be returned to aquifers beneath the sea or potentially, with future development, pumped back into the gasified coal chamber.

Have a look at this video if you are interested by the sound of this – http://www.youtube.com/watch?v=uTlZ5-cSnJI – I find this very exciting and am hopeful that technology like this will help us in a transition to an economy where our electricity is produced in a completely sustainable way; if we embrace it. If the UK wants to be both the great entrepreneur and the green standard setter it sometimes claims it is then I think they should be investing in this sort of technology.

Any thoughts?

@19 mr d-more on China developing alternative energy systems: From what I have read, this appears to be about China “consuming its own dog food”. Some people in China appear to be impressed by existing technology and to manufacture it in sufficient volume for local consumption to perform cost benefit analysis. Or to do the same for emerging technology.

Thanks to LO for the analysis. Off the top of your head, do the same rules apply to India or wherever?

There are two challenges facing mankind. One is poverty, something as old as time and which we only started beating 200 years ago, the other is Climate Change which is new and almost as big a threat.

Actually I would disagree with you there. There is a third huge challenge facing manking, that few people have yet addressed….Peak oil.

And it is probably going to be of much more immediate concern than most people realise.

Here is a good website with lots of links and articles for anyone willing to educate themselves http://www.energybulletin.net/

“I’m not going to try and pretend I understand the more complex economics behind this”

It’s not particularly complex economics it’s just dressed up in jargon like total factor productivity to make economists look big and clever.

What’s really underlying all of this is that we can see that we can grow the economy in two rather different ways.

Firstly, we measure the size of the economy by GDP (there are others, but lets keep this simple) which is the total value at market prices of all goods and services created.

So, again just to keep things simple, we’ll say our economy only produces computers (just because this is an example I know something about).

So, to make our computers we’ve got to put in a certain amount of sand (to make silicon), copper to make wires and boards, gold to plate connectors, steel to make the frame, aluminium to make the case and so on. Labour as well of course, and capital.

We’d like to grow our economy….make more computers. So, we can do this through higher resource use. We can import some Poles to build the computers, push housewives out of the home and into the factories. We can borrow capital to build more factories. Dig up more gold, sand, iron ore, bauxite, to make more silicon, steel and aluminium. We now produce more computers and GDP is larger.

Excellent.

However, there is another way of doing this. Instead of getting more resources to use the same amount of resources to build each computer, what if we can use fewer resources to build each computer and thus get more computers out of the same resources we were using?

Maybe we make everything to clip together instead of needing to be screwed together. This would mean we need less labour to build each computer….so the same workforce could make more computers. This would be an increase in the productivity of labour. Maybe we move to just in time stocking of parts. So we don’t have to use capital to maintain a warehouse full of stuff…we just get delivered today what we need today and tomorrow for tomorrow. We would thus be using less capital on stock…we’ve increased the productivity of capital and we can make more computers with the same amount of capital.

And it goes on….instead of 200 nm gold plating on connectors (where it was in 1990 ish) we’re going to have 20 nm plating (umm, about 2005 I think)….we can now make ten times more computers from 1 kg of gold. We’ve raised the productivity of gold. And so on and so on with each different resource that we’re using.

Each different resource can also be known as a factor, we’re improving the productivity of use of each of these factors and in the process increasing….total factor productivity.

What Krugman’s essay is pointing to is that planned or authoritarian economies can manage the economic growth in the first sense rather well, by increasing the production and use of resources.

However, they’re very bad at (to the point that the Soviets might not have managed any at all in their entire 70 odd years) increasing the productivity of the use of those resources. Market systems however are good at that productivity thing.

One number in that essay is that perhaps 80% of the 20 th century’s rise in living standards was from TFP, not the use of more resources (which accounts for the other 20%).

All of which leads to the, to my mind quite delicious, policy prescription. If you’re really Green, you know, worried about resources running out, then you really should be arguing for market based systems. For they’re the only ones that can continue to increase output without devouring more resources.

But of course, that’s not the way it usually happens, is it, greens arguing for markets?

not only China, i think all countries are threatening the enviroments, especially USA countries. too many cars there…

Those USB driver is very creative and interesting. some of those i have seen in our market, but most of it i haven’t seen it.

Until now China has grown through the accumulation of labour and capital. The efficiency with which labour and capital have been used to give total factor productivity (TFP) has been of secondary importance in the China story. Just accumulating factors is enough for a developing economy to grow until they reach the ‘ Lewis Turning Point ‘.
http://www.priceangels.com/usb-gadgets-t35.html

electricity device developing are the most impact to the invironment

http://www.sencart.com