Why China's middle class will solve its air pollution problemsNovember 7, 2013: 11:08 AM ET
One economic concept illustrates how local pressure could compel the government to act.
By Pankaj Ghemawat
FORTUNE -- A cloud will hang over the upcoming plenum of the Chinese Communist party in Beijing -- literally. It is late fall, and so pollution levels in China's capital as well as in other of its cities, always high, are going to go through their usual seasonal surge. The NASA Earth Observatory just announced that the northern city of Harbin saw concentrations of fine particulate matter (PM2.5) as high as 1,000 micrograms per cubic meter. For comparison, the NASA report said, the U.S. Environmental Protection Agency's air quality standards say PM2.5 should remain below 35 micrograms per cubic meter.
And now, this pall will soon extend to within the great hall of people: Some China watchers are describing pollution -- along with corruption -- as one of the most significant threats to the legitimacy and continued rule of the Communist party. Pollution in China is a human tragedy on a vast scale: It has been estimated that in some northern Chinese cities, lifespans have already been shortened by several years. Multiply that many millions of time over, and you get a sense of the human toll, above and beyond the degradation of farmland, the economic costs of factory shutdowns, the inconvenience of being able to drive only every other day, and so forth. At the same time, China's new middle class, which is getting increasingly vocal about pollution, wants to enjoy the wealth it has worked so hard for and not being able to let one's kids play outdoors isn't anyone's idea of prosperity.
Will the Chinese government act? What economists call the Kuznets curve -- popularly referred to in environmental circles as the richer-is-greener curve -- suggests Beijing will be forced to by local pressure. This is the empirical observation, first made by Nobel Prize winner Simon Kuznets, that many problems like income inequality and pollution first get worse as a country industrializes. But once a country's citizens reach a certain level of income, the situation starts to get better, producing an inverted-U curve. China's average per capita incomes, now around $6,000, are where environmental Kuznets curves are often supposed to turn down. In other words, China is now rich enough to do something about its pollution.
If China's middle class finally forces its government to act on pollution, the benefits may accrue not only to long-suffering Chinese citizens but also to the rest of us. In particular, local pressures -- if reproduced in other countries such as India -- may be the best path for dealing with not only pollution but also global warming. Because in a world with weak global governance, the alignment of local interests with global interests -- the alignment of China's interests with the rest of the world's -- may represent the only real hope for real change.
Pankaj Ghemawat is the Rubiralta Professor of Global Strategy at IESE and the author of World 3.0.