A short business case on growth and associated negative externalities. We used the example of Shenzhen as a production center of electronic goods and extended it to the problem of negative externalities worldwide. This is for teaching purposes only, all the cases are a simplified representation of reality.

1. Shenzhen’s mirror of « eValley » and eWaste
December 12, 2018Université Paris IX Dauphine

2. Olivier Coispeau
Page 2
Resume
• Founder of Maverlinn Strategic Finance,
vice-chairman of Netspring
• Strategy (Roland Berger) and Finance
(JP Morgan, Schroders, Clinvest)
• Former economics professor at Paris-
Sorbonne university
• Frequently invited guest speaker to
international finance forums
• Education: Stanford University, Paris
Dauphine University and Sciences Po Paris
Disclaimer : This short presentation is supporting the Shenzhen eValley – eWaste case, it is only a piece of teaching material. It is a
simplification of economic and political reality and must not be shared with third parties without the written prior consent of
Maverlinn. This presentation is not fully understandable, complete and reliable without further analyses and oral explanations.

3. Shenzhen is home of China eValley and the miracle city of
the Guangdong province closely connected to HKG
Source : IMF, 2017
Key facts on China :
• Population : 1.41 Bn people
• Government : CPC, sole governing party
• GDP 2017 : USD 25.2 Tn (+6.9%, PPP)
• GDP / Capita : USD 18,066 (PPP)
• Gini : 46.2
• Trade balance : USD 45 Bn (Nov. 2018)
• Forex reserves : USD 3 Tn (est. Nov. 2018)
China GDP historical growth rate
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4. Shenzhen development is the symbol the Chinese Silicon
Valley in the Pearl Delta Megalopolis
Source : Oxford economics
Key facts :
• 90 percent of the world’s electronics are
made in Shenzhen
• Shenzhen home to 20% of China’s P.h.Ds
• Highest rate of business owners, has
produced more billionaires in China and n°8
worldwide
• More than half of the world’s mobile phones
are made in China
• Foxconn, Apple’s contract manufacturer,
employs 250,000 people in SHZ
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5. There is a dark face to the Shenzhen economic miracle, but
eWaste is a problem much broader than China itself
Source : The Global eWaste Monitor 2017
Key facts :
• eWaste represents an annual production of
50 Mn tonnes, equivalent to 5,000 Eiffel
towers
• eWaste is 15% of total waste, but 70% of
the most toxic(for humans and animals)
• 80% of the world’s obsolete electronics are
discarted in landfills or illegally recycled
• This cost to society is unaccounted for, this
is what economist call “ a free ride”
• Mining eWaste is essential but there are
currently “accounting limitations”
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6. Industrial risks including unaccounted for liabilities
accumulating over time have been poorly accounted for
Comments :
• Unaccounted for environmental liabilities
have a tendency to create “side bubbles”,
creating serious damage if they explode
• Pollution is exportable at a large scale
and becomes a transnational issue,
testing the limits of sovereignty e.g. haze
in Singapore
• Environmental degradation may become
a social harmony issue, creating a
social divide between exposed and
shielded citizens
• All remediation costs add-up to public
debt in order to provide an accurate
picture of the price of growth
« Assets »
« Liabilities »
« Unaccounted
for liabilities »
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7. The problem is that dealing with negative externalities is
politically very delicate at the face value of GDP growth
Comments :
• There are conflicts of interest between the
various levels and agencies involved, not to
mention SOEs
• Environmental governance is complex, many
administrative overlaps and high management
cost
• Goals and priorities of the different agencies
often diverge when it comes to policy
• Political leaders are evaluated on the basis of
GDP growth, not environmental compliance
• For example, when EPB enforces severe
penalties, local governments may mitigate them
on the basis of employment or tax collection
Multiplicity
Multiplicity
Complexity
Complexity
Priorities
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8. The respect of common good and the corporate interest
does not align when it comes to good practices
Comments :
• At a given state of society, there is a
minimum level of pollution (P’0) : the
poorest have no choice, the wealthiest
no risk
• The poorest acceptance of pollution
declines as they realize that have more
to loose (Band A)
• The wealthier acceptance of pollution
increases as the benefits allow them to
acquire substitution good (Band B)
• What they don’t realize is that they are
both rolling dices in the Pompeii tavern
(Sen), before the Vesuvius eruptsPower / Wealth +
Acceptanceofpollution+
The Pollution Reward
No choice
No risk
P’0
Band A Band B
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9. The respect of common good and the corporate interest
does not align when it comes to good practices (cont’d)
Comments :
• At another state of society, there is a
maximum acceptable level of pollution
(P’1), enforced by the State
• Creates wealth transfers to the
poorest in the form of better living
conditions (e.g. pollution related
disease)
• The poorest and the wealthiest
acceptance of pollution level equalize
• This replenishes the value of the
nation’s common good, but the price to
pay may be slower GDP growth
Power / Wealth +
Acceptanceofpollution+
Breaking Pollution
Asymetry
P’0
Band A Band B
P’1
Regulatory push
Pollution ceiling
Forced
Transfers
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10. Obsessive individual monetary optimization may create
tunnel vision leading to problems for the whole community
Comments :
• The importance we place on money
only affects our life individually and as
a community
• Money can be addictive, in both an
economic and pathological sense
• Money is a sign of competence and
worth, and that makes it addictive
• Taxation is the ultimate government
weapon to disincentive obsessive
behavior, but not the root cure
Source: Pr. Jeffrey Pfeffer, Stanford University, Organizational
behavior, Stanford Business, Spring 2015
« The strange thing is the more I make, the more I get preoccupied with
money » Daniel L. Vassela, former chairman of Novartis (Fortune, 2002)
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11. This results in a « gap » that needs to be funded as
unaccounted for liabilities related to growth are (re)surfacing
Comments :
• CEOs of industry leaders realize the
importance for their firms to establish
a strong footprint beyond the classic
economic
• One of their priority is to better position
the corporate brand in the extended
economy
• Prudence is to “sacrifice current
pleasure for future pleasure” is not
encouraged by GDP only indicators
• Direct impact on environment quality
but national accounting systems still
have difficulty to capture it
Quant power:
- GDP growth
- GDP per capita
- Total national debt
Soft power –
externalities :
culture, environment,
justice, excellence
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12. In the 21st century, will the purpose of business be to act as
a dynamic storage system to prepare for a better future?
Comments :
• Individual optimization leads
to impact / shock at the
macro economic level
• Shocks in particular are not
always properly accounted
for and considered a
« freerider ’s» risk
• There is a catch: the
feedback loop at the
individual level
• Common attitude is to ignore
it and consider it is someone
else’s problem … until it
hurts
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Talents
Wealth
Common good
Individual satisfaction
FuturePresent
L0 K Q (is)

13. Thank you !
Leading a world of change, together