China’s toxic smog isn’t just choking the lungs of its millions of urbanites; it’s also hitting the country’s economy. Some of the effects of the extraordinarily hazardous air pollution problem are obvious: health care costs, material damages, and premature deaths, all of which are estimated to cost China more than 5 percent of its GDP every year. But others are less so. For instance, as the FT reports, multinationals are now paying their China-based employees an air pollution premium to compensate for the deleterious living conditions under which they work there:
Environmental externalities—costs to the natural world not included in the price of goods or services—are the chief complaint many greens have against capitalism. To the extent that markets aren’t accountable for damage wreaked on natural resources, whether that be the air we breathe, the water we drink, or the climate in which we live, they’re essentially running up a bill that other actors or future generations will have to pay. That’s one of the reasons (there are many others) a revenue-neutral carbon tax—one that could replace the payroll tax and cut corporate tax rates—makes a great deal of sense. Unfortunately, carbon taxes are as toxic to politicians as Beijing’s smog is to its residents.But the bill run up by rampant, growth-at-all-costs industrialization is already coming due in China. Panasonic is the first firm to explicitly acknowledge a smog-related pay bump, but this kind of incentive is becoming necessary to attract and retain the best talent in China-based offices. Foreign investment has been a critical component of China’s rapid development, and the country’s endemic pollution problem is becoming a real threat to it. It gives Beijing yet another reason to wage an all-out war on pollution, as if it needed one.