Keynote Speech by Jack Hou (California State University, Long Beach) at the 1st International Workshop on the Chinese Development Model organized at IQS School of Management, Universitat Ramon Llull in Barcelona on July 7th, 2022

1. Jack W. Hou, CSULB
Jack W. Hou, CSULB
China’s Success and Current Obstacles:
History, Policies, and Future
Jack W. Hou
CaliforniaState University, Long Beach
& HUST, China
Prepared for presentation at the
International Workshop on the Chinese Development Model
Universitat Ramon Llull, July 7-8, 2022
1

2. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o China’s economic success since 1978 is well
documented
• 1978 per capita GDP
• Quadruple of 1980 GDP
• Poverty alleviation
o As early as the mid/late 1990s, the comparison
between China and Russia became a hot topic
o Soon after, the Beijing Consensus (China Model)
emerged:
• a more prominent State hand on the levers of capitalism
• absence of political liberalization
• dominant role of ruling political party
• population control
2

3. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o A more detailed Chinese characterization :
1. down-to-earth pragmatic concern with serving the people
2. constant trial and error experimentation
3. gradual reform rather than neo-liberal economic shock
therapy
4. a strong and pro-development State
5. "selective cultural borrowing" of foreign ideas
6. a pattern of implementing easy reforms first, difficult ones
later
o #1 and #2 are reflective of Deng’s “black cat, white cat” and
“crossing the river by feeling for the stones”
o #4 is perhaps what Justin Lin refers to as the New
Structural Economics
o What is "selective cultural borrowing”?
o #6 was why I feel sorry for Xi when he took office!
3

4. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o In this presentation, I will mainly share my thoughts on
points 3 and 6, with some reference to #4.
o I will look back into history
o Perhaps a bit deeper back than most of those in attendance
today would expect
o And I will also attempt to look forward, and propose what I
think can be beneficial for both China and the world
o Now let’s dive in:
o As stated earlier, the comparison between China and
Russia’s reform became a hot topic in the late 1990s
o The discussion was not just which route was “correct”
o But also whether Russia could have faired better if they
took the route of gradualism
4

5. Jack W. Hou, CSULB
Jack W. Hou, CSULB
5

6. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o This is an illogical question as we cannot re-run the
experiment, but nevertheless an intriguing one, much like
o What Western civilization would look like if Socrates died at the
Battle of Delium?
o Or more appropriate for this Workshop on China,
o What if Confucius starved to death when he was besieged
at Chen-Xia for 7 days without food or water?
o But before we even get into that (my answer is NO, by the
way), first
• Big Bang; really?
• Agrarian vs. Industrialized
• Length of time matters, i.e. 70 years vs. 30 (technically,
20) years of planned economy
6

7. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o I presume most in the audience have heard of (and
hopefully seen) the 1998 Disney animated movie Mulan
o In case you are unfamiliar, here is an executive summary
o China’s landownership and taxation was formally
established as early as 1,000 BCE
o Take the Tang dynasty (5th century) for example
• Men at 15 receives 40 mu (1.1 hectare or 2.7 acres)
• Women at 14 receives 20 mu
o By the Song Dynasty (10th century), population exceeded
the land capacity, as such,
• Privatization of land ownership
• Taxes are levied in monetary units
7

8. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o Consequence:
• Agriculture productivity
• Taxes
• Commerce/transportation
• Industrialization (mass production, technology-movablepress,
1045 AD, etc.)
• Banking (comparison with the KnightsTemplar)
• Education (N. Song 37, S. Song +136, Ming 1,200+, printed books)
• Entrepreneurship
• Commercial (rather than Industrial) Revolution?
o Chinese Characteristics
• Market- oriented, profit-seeking peasant-entrepreneurs
• Broad based (semi-intellectual) merchant class
8

9. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o Could the Russia have faired better?
o Probably not, but maybe with lesser problems
• Peasant farmers
• Merchant entrepreneurs
• 20 vs. 70 years of central planning
• Reform origin rooted in Agriculture
• Grabbing hand vs. Assisting hand
o One can perhaps summarize the two main strands of
theory regarding China’s economic success:
• New Structural Economics (Justin Lin)
#4 a strong and pro-development State
• Market-preserving Feudalism (Yingyi Qian)
#1 & 2 (??): M-hierarchy regional competition
9

10. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 New Structural Economics (Justin Lin):
o the lack of viabilitywas the initial condition and the
main constraint facing all transition economies
o the success of China lies in the gradualism of its
reform, with incremental steps in specific reform
policies based on comparative advantage
o this is precisely the fatal negligence of the Russian
government that led to the gap between reform
intentions and actual developments
o the key factor is the “correct” integrated strategy of
government
10

11. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 Market Federalism Theory (Yingyi Qian):
o the success of China’s economic transition is
inseparablytied to the politicaldecentralization
o the power-sharing between different levels of
government and the unique M-form hierarchy of
China had significanteffect on China’s economic
growth
o decentralization created strong incentive effectson
micro agents within the economy
o the “M” hierarchy led to regional competition and
conducive to market developments
11

12. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o In my opinion, BOTH are more “superstructure”,
and lack a base or substructure (using Marx’s
terminology)
o I personally place China’s economic success on the
widespread “rent-seeking” behavior (which is
highly correlated to “corruption”)
o Rent-seeking behavior is an indisputable fact of
life in both China and Russia, yet
o The economic growth paths cannot be more
different.
o Again, Why?
12

13. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 In his seminal paper, Tullock (1967) points out the social
losses from the attempt to influence political decisions
regarding distribution
 Along with Kreuger (1974) and others, the inefficiency of
rent-seeking became an integral part of our understanding
of the operation of the political economy.
 Under the traditional theory, when scarce resources are
used on directly unproductive profit-seeking activities
(DUP), economic growth will be reduced because:
• opportunitycost, as the resources used on rent-seeking could have
been used to produce
• lead tocounteractivities,further draining resources and reducing the
growth potential
• rent-seekingactivitieswill lead to the chain reaction of rent
establishment, rentcompetition, and rent division, resulting tofurther
diversion of resources
13

14. Jack W. Hou, CSULB
Jack W. Hou, CSULB
For developing and transitional economies, the rent-
seeking is even more detrimental, because:
 it is an infringement on the property rights of
resources such as labor, physical capital, and
human capital (Murphy, Shleifer and Vishny, 1993);
 it absorbs substantial amount of talent and
resources into this non-productive section of the
economy, and is a fundamental reason why
numerous developing and transitional economies
fail to industrialize (North 2005).
14

15. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 Tullock (1989) commented on the slow
growth of traditional or old China as a direct
result of the rent-seeking behavior
entrenched in the political system, as all the
energy of the elite class were spent on
acquiring and/or preserving power.
 In modern China, this entrenchment of
rent-seeking incentives is at least as strong
as before, yet China is experiencing a growth
miracle that is unparalleled in modern
history.
15

16. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 If the consensus regarding the effect of rent-
seeking is a negative impact on economic
growth, then one has to wonder how to
reconcile this with the rapid growth of
China in the past four decades (and
counting).
 If anything, rent-seeking behavior in China
seems to be a stimulus to growth, presenting
us with a rent-seeking “paradox” in
contemporary China.
16

17. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 Even the ardent scholar who believes the overall
negative role of rent-seeking would acknowledge
that under certain circumstances it does have a
marginally positive effect in the form of a
“lubricant” or a “stimulus.” (Liu, He, Shen, and
Hou, 2022)
 These are mostly rent-seeking activity is to correct
an existing distortion, such as operational brides
in an “over-regulation” economy, under-the-table
bidding for management rights of nationalized
industries, and the fees paid to expedite the
processing of business licenses, etc.
17

18. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 However, all of these are under the implicit
assumption of a fully developed market economy.
In other words, the rent is subordinate to the price
mechanism, and serves a supplemental role at
most.
 If the creation of rent is a dominate motivation in
the microeconomic infrastructure, it will
contradict the price mechanism and cannot
coexist.
 And, if this rent-creation is spread throughout the
entire macro economy, then economic stagnation
and poverty would be inevitable.
18

19. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 Thus, from the standard theory point of view, if
rapid growth is present in a transitional
economy, it must be because they have
successfully suppressed the rent-seeking
behavior (Buchanan, 1980, Anderson, Rowley,
and Tollison, 1998, Hoff and Stiglitz, 2004).
 This is precisely why Blanchard and Shleifer
(2001) concluded that the lack-luster Russian
growth was because the local government was
taken hostage by the rent-seekers, and became
the “grabbing” hand.
19

20. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 What is the fundamental difference between
China and Russia?
 There has been many propositions in the
literature.
 But, as North pointed out, the success of a market
economy must be built on a set of basic
institutions, which form the incentive structure
that provide the dynamic engine for continued
growth
 Thus, the economic success of China must have its
roots in such a set of “hidden” institutions, and
that is the key to understanding the fundamental
source of China’s success.
20

21. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 The standard rent-seeking theory is based on the implicit
assumption of a fully developed market economy. In other
words, the rent is subordinate to the price mechanism, and
serves a supplemental role at most.
 In transitional China, markets are not fully developed, even
today.
 One only needs to look at the financial sector and clearly
see this fact.
 However, interest groups have little influence on the
officials who are basically at the will of the upper-level
government and the Party.
 This government-centric system is the second key.
21

22. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 Government (officials) create the institutions (rules),
controls the resources, how they are used, and who
gets to use them (often their family/friends,or even
themselves)
 The entrepreneurs (the micro economic agents)
engage in rent-seeking activities to obtain the
“permission to play” and to acquire the “usage” rights
of the government controlled resources
 Can you imagine if the owners of FC Barcelona (Barça)
set the “rules”, their children are the players, and
relatives are referees of the games, then Barça would
have won every Supercopade España
22

23. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 The gradualism of China’s reform, in contrast to
the “shock” treatment of Russia, is perhaps the
third and ultimate key
 Under the Big Bang of Russia, things moved so
quickly, those with connections and “know how”
were able to take the local government as hostage
 Leading to the “grabbing” hand of government
officials (Blanchard and Shleifer, 2001)
 The oligarchy structure that persists in Russia is
clearly a result of this Big Bang.
23

24. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 The pragmatic gradualism of China’s reform resulted in
government (officials) to have vested interest in the
development of the “market” as it will enhance the “value”
of the resources and political power they wield.
 This induced or allowed the government (officials) to act as
an “assisting” hand; rather than the grabbing hand
observed in the Russian reform
 This is certainly not the first best option, but given the
imperfect market mechanism, this is perhaps a natural and
acceptable second-best.
 The gradualism and “a pattern of implementing easy
reforms first, difficult ones later”, also contributed to the
current conundrum facing China.
24

25. Jack W. Hou, CSULB
Jack W. Hou, CSULB
In another paper, my coauthor and I examined the
TFP growth of Chinese firms. We used the Olley
and Pakes decomposition of TFT:
Thus
25
( )( ) cov( , )
t t it t it t t it it
i
s s s
ϕ ϕ ϕ ϕ ϕ
Φ = + − − = +
∑
cov
ϕ
∆Φ = ∆ + ∆

26. Jack W. Hou, CSULB
Prob.

27. Jack W. Hou, CSULB
Jack W. Hou, CSULB
27
Dynamic OP Decomposition: log productivityvariation

changes in distribution of productivity changes in market shares
surviving firms
2 2
2 2 2 2
changes in distribution of productivity change
cov
+ ( ) (cov cov )
S S
E S
E E E S
s s
ϕ
ϕ ϕ
∆Φ ∆ + ∆
− + −











s in market shares
entering firms
1 1
1 1 1 1
changes in distribution of productivity changes in market shares
exiting firms
( ) (cov cov )
S X
X X S X
s s
ϕ ϕ
+ − + −











 








28. Jack W. Hou, CSULB
Jack W. Hou, CSULB
Table 6. Melitz and Polanec: Slovenia
28
Aggregate Productivity Change Relative to 1995
TFP (in logs) —Value-Added Share Weights
Surviving Firms Entering Firms Exiting Firms All Firms
Year
1996 0.1002 0.0178 0.0021 0.0077 0.1279
1997 0.1958 0.0426 0.0028 0.0206 0.2618
1998 0.2145 0.0242 -0.0089 0.0295 0.2593
1999 0.2671 0.0626 0.017 0.0250 0.3565
2000 0.2758 0.0995 0.0021 0.0279 0.4016
S
ϕ
∆ covS
∆ 2 2 2
( )
E E S
s Φ Φ
— 1 1 1
( )
X S X
s Φ − Φ 2 1
Φ − Φ

29. Jack W. Hou, CSULB
Jack W. Hou, CSULB
29
Table 7. Dynamic OP Decomposition:
Full Sample
Surviving firms Entry firms Exiting firms
All firms
DShift MShare DShift MShare DShift MShare
2001 0.1492 -0.2112 -0.0774 -0.0904 0.1948 -0.0438 -0.0789
2002 0.3847 -0.2891 -0.0214 -0.1289 0.1795 -0.0404 0.0845
2003 0.5619 -0.2888 -0.0096 -0.1043 0.1608 -0.0362 0.284
2005 0.8232 -0.6197 -0.0304 -0.1139 0.1696 -0.0381 0.1906
2006 0.9165 -0.5227 -0.0075 -0.0767 0.1477 -0.0332 0.424
2007 1.0452 -0.6233 -0.007 -0.0742 0.145 -0.0326 0.453

30. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 There is a symbiotic relationship of the rent
seeking and market mechanisms in transition
China
 It has an undeniable stimulant contribution, but is
“sub-optimal” at best
 As the economic gains diminish, and the
acceleration of social and political costs of the
rent-seeking activities over the past 30+ years
 The “reform dividend” inevitably diminishes.
Then what?
 Now let me turn towards the final portion of my
presentation
30

31. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o China’s economic success since 1978 is well
documented, but so is her current struggles
• the Sub-prime crises
• the New Normal
• COVID
o Though not entirely her own fault, but undeniable
the majority of the current economic dilemma is
China’s past catching up with her
o For the purpose of leading into the designed
objective of this study, let us outline some of the
past sins:
• One-child policy
• Over expansion of labor-intensive export oriented
manufacturing
• Rent seeking
31

32. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o There can be no doubt that China has long
passed the Lewisian turning point
o Upon joining the WTO in 2001, China’s export-
oriented, labor-intensive manufacturing
expanded unchecked
o Signs of labor shortage emerged as early as 2003
o The subprime crisis may have caused pain for
China, but in the longer run it may have saved
China,
o As China was (perhaps unbeknown to them)
facing a cliff imposed by the impending
Lewisian Turning point
32

33. Jack W. Hou, CSULB
Changes in Labor Force (10k)
530
608
-500
0
500
1000
1500
2000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
劳动年龄人口增量（万人）
33

34. Jack W. Hou, CSULB
Jack W. Hou, CSULB
Population Pyramid: China
34

35. Jack W. Hou, CSULB
Jack W. Hou, CSULB
Population Pyramid: China
35

36. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o In his Southern Tour (1992), Deng made the
famous “White Cat, Black Cat” speech, which
implied the acceptance of corruption.
o Initially, one could even view some corruption
with a silver-lining: proof of existence of profit
and provide economic incentive
o In his keynote speech at the 2008 CES
conference, T.N. Srinivasan was asked by the
host (Nankai U.) to compare India and China:
• China is behind in institution reform
• Comparable,but different forms of Corruption
36

37. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o The one-child policy and related demographic
issues puts a natural limit on China’s ability to
grow through perspiration, but
o when Xi Jinping took office in 2013, he
immediately announced:
• Discontinuation of using GDP as a measure of local
government performance
• Aggressiveanti-corruption campaign
• Commitment to improving the environment
o The first two has led to what Xi called China’s
New Normal,
37

38. Jack W. Hou, CSULB
Jack W. Hou, CSULB
38

39. Jack W. Hou, CSULB
Jack W. Hou, CSULB
39
E1 E2
E’3
C1
C2
C3
C3’
J
H
X1
X’
C3’’
X’’
X0
E3

40. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 The “New Normal” is to be expected as we have
• Tighter environmental regulations
• Aggressiveanti-corruption campaign
• Discontinuation of using GDP as the measurefor performance
 The BRI is truly a stroke of genius, as it has the
“potential” of alleviating many aspects of the economic
slowdown
 It is not without problems and controversies
 And not just the concern over China’s Geopolitical
ambitions
 In the early stages, the BRI was mostly government or
SOE led, and mistakes were made
Hou and Sun (2019)
 It is under this backdrop (cause) that China’s “going out”
morphed into “going global”
40

41. Jack W. Hou, CSULB
Jack W. Hou, CSULB
Industry distribution for the CB M&A cases by Chinese firms (SIC 2- digits)
41
36: Electrical equipmentand components (other than computer equipment)
28: Chemical and related products
35: Industrial and business machinery,and computer equipment
38: Imaging, medical and optical productsand clocks

42. Jack W. Hou, CSULB
Jack W. Hou, CSULB
 It is well established that the Chinese government
controls most of the business financing channels,
and participationof government “endorsed” projects
are rewarded with access to these long-term
financing
Liu, Yi, and Hou (2021)
Liu, Xiao, and Hou (2022)
Qi, Yang, Yang, and Hou (2022)
 This raises the question to the long-term viabilityof
China’s cross-border mergers and acquisitions
 This flourish of CBM&A activities,combined with
intellectual property right concerns and increased
geopoliticalsensitivity have all contributed to the
frictions between China and the West.
42

43. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o As much as these are of concern to us and of research
interest, it is not the primary objectiveof this
presentation
o We asked earlier, can General Secretary Xi hold the
line of his stated policy directives?
o We certainly are not suggesting that he should back
down
o Especiallywith regards to anti-corruption or the
environment, and
o Neither are we suggesting that he should go back on
his word and use GDP as a measure of performance.
o What we are proposing is a way for Xi to continue his
policiesand also provide a healthy boost to the
economy: why not use
GREEN GDP as a measure of performance
43

44. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o This allows General Secretary Xi a plausible “deniability”
that he is not returning to “business as usual” in terms of
using GDP as a measure of performance, but rather to
establish formal incentives for local government officials
to earnestly pursue environmental improvements
o To accomplish this, we need to (Sun, Ding, & Hou 2022):
• Establish a green GDP measure that is suitable for
China
• Demonstrate the viability of such said measure
o The first formal attempt at measuring green GDP could
be traced back to Nordhaus and Tobin (1972)
o I will dispense with the detailed discussion of the
evolution of green GDP in the literature
44

45. Jack W. Hou, CSULB
Jack W. Hou, CSULB
What are the factors influencing green GDP
growth?
o Openness: transfer of environmental cost from the
industrialized countries towards the less
developed countries
• Cole et al. (1998), Talberth and Bohara（2006), Wu and
Wu (2007)
o Technological change: improvements can increase
TFP while lowering the stress on the environment
• Grossman and Krueger (1995) , Acemoglu et al. (2012)
o Industrial structure:
• Grossman and Krueger (1995) study, Kambara and Howe（2007）
showed that the development of service industry had obvious
influence on reducing energy use per unit of output
• Niu et al. (2012) showed that this may with a cost of reduced
growth
45

46. Jack W. Hou, CSULB
Jack W. Hou, CSULB
46
0
2
4
6
8
10
12
0 500 1000 1500 2000 2500 3000 3500 4000 4500
West Central
East
GDP per capita (unit: RMB)
2005
2010
2010
2010
2005
2005
2000
2000
2000
Pollution per capita (unit: ton)

47. Jack W. Hou, CSULB
Jack W. Hou, CSULB
47

48. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o Direct measures of green GDP is far and few in
between; in addition
o whatever that exists, be it direct or indirect
measures of green GDP, are all at the
aggregated national level
o In this study, not only do we construct a green
GDP index for China, we do so at the
prefecture-city level (272/287)
• Furthermore, we will distinguish between Coastal/Eastern
region, the Central hinterland, and the Western region
• so as to capture a spatial distribution effects as China's reform
continues to move from the coastal East towards the West
• The methodology we use to construct the green index is
practical and feasible for most nations to adopt, and
depending on the availability of their data, it can be
constructed for the national provincial or even city level
48

49. Jack W. Hou, CSULB
Jack W. Hou, CSULB
49
Table 4 Regression Result on the Basis of Prefecture-level Cities
(1) (2) (3) (4) (5) (6)
Post=1 * Target*
SO2
0.8208**
(0.3232)
0.9508***
(0.3480)
0.9275***
(0.3525)
0.9406***
(0.3520)
1.0667***
(0.3556)
0.9952***
(0.3570)
SO2 -0.5147***
(0.0678)
-0.5778***
(0.0683)
-0.5791***
(0.0683)
-0.5752***
(0.0683)
-0.5667***
(0.0683)
-0.5707***
(0.0683)
ln(K) 0.1810***
(0.0320)
0.1799***
(0.0321)
0.1732***
(0.0322)
0.1877***
(0.0327)
0.1755***
(0.0332)
ln(L) -0.0147
(0.0353)
-0.0115
(0.0353)
-0.0132
(0.0353)
-0.0161
(0.0353)
TFP 0.2650**
(0.1035)
0.2663**
(0.1034)
0.2578**
(0.1034)
THIRD 0.4456**
(0.1861)
0.4541**
(0.1860)
OPEN -0.7726**
(0.3776)
City-fixed Effect Yes Yes Yes Yes Yes Yes
Year-fixed Effect Yes Yes Yes Yes Yes Yes
Note：*,**,*** denote significance at the 0.10, 0.05 and 0.01 levels, respectively.
Standard deviation in parenthesis.

50. Jack W. Hou, CSULB
Jack W. Hou, CSULB
Table 5 Regression Result on the Basis of Different Regions
East Central West
ln(GGDP) ln(GGDP) ln(GGDP)
Post=1 * Target* SO2 1.2196***
(0.4421)
16.5923***
(2.9961)
0.2608
(0.8530)
SO2 -0.9671***
(0.1167)
-0.7076***
(0.1348)
-0.4573***
(0.1181)
ln(K) 0.2283***
(0.0538)
0.1137***
(0.0415)
0.1767***
(0.0331)
ln(L) -0.0032
(0.0633)
0.0104
(0.0449)
0.0248
(0.0738)
TFP 0.5104*
(0.2644)
0.3516*
(0.1966)
0.0911
(0.1418)
THIRD 1.1395*
(0.6122)
-0.9476*
(0.5557)
0.3178
(0.2521)
OPEN -0.3964
(0.5694)
-1.6340***
(0.5393)
-4.7028***
(1.1268)
City-fixed Effect Yes Yes Yes
Year-Fixed Effect Yes Yes Yes
Note：*,**,*** denote significance at the 0.10, 0.05 and 0.01 levels, respectively.
Standard deviation in parentheses.
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51. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o In a recent paper, Julian Kirchherr (Circular
Economy and Sustainability, 2022) argued that
up to 50% of published articles on
sustainability are “scholarly bullshit”,
contributing little to the knowledge.
o Now let me turn to what I hope is a slightly
significant contribution, and fall on the
positive side of the 50%
o The vast majority of Green GDP uses the
deduction approach introduced by Nordhaus
and Tobin (1972), but
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52. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o We use a multiplicative approach, i.e.
GDP = GEI*GDP
o Why?
o Though out of necessity, this approach has two
major advantages
• though less refined, its beauty is in its simplicity
• the multiplicative also adds flexibility
o Case in point, with a log transformation
%∆GDP = %∆GEI + %∆GDP
o Then, and improved GDP can be achieved via
environmental channel or traditional GDP
52

53. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o Examples:
• +8% = 0% + 8%
• +8% = 2% + 6%
• +8% = -4% + 12%
o If this (-4%) is to be discouraged, then why not
GDP = GEI2*GDP
o Hence DOUBLING the weight of environment
effects in the computation of GDP.
o This policy flexibility is something that the
traditional green GDP lacks
o Now some additional thoughts
53

54. Jack W. Hou, CSULB
Jack W. Hou, CSULB
54

55. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o The world is moving towards a consensus on Global
Warming
o A tremendous amount of literature has accumulated
on this subject across disciplines, not withstanding
economics
o Perhaps we should advocate a “Global Environmental
Responsibility(GER)”, much similar to CSR
o I propose that each nation compute both GDP and
GDP
o As a way to show their economic growth (GDP)
o and their efforts regarding Global Environmental
Responsibility(GDP)
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56. Jack W. Hou, CSULB
Jack W. Hou, CSULB
o The key is how do we definea globallyacceptable GEI
o The top greenhouse gases are:
• carbon dioxide (CO2)
• methane
• nitrousoxide
• fluorinatedgases
o United Nation’s IPCC (Intergovernmental Panel on
Climate Change), or
o The Climate Change Science Institute (CCSI) at Oak
Ridge National Laboratory
o Paraphrasing the great philosopher, NEO, in the movie
Matrix:
o And Dr. Martin Luther King, Jr.:
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57. Jack W. Hou, CSULB
Jack W. Hou, CSULB
Go Green
Thank You
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