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The Costs of Doing Business
Foreign Firms Paying Workers a Premium to Work in Smoggy China

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:

Panasonic has become the first international company to declare it will pay employees it sends to China a premium to compensate them for the dangerous levels of pollution in the country. […]

Other companies have been quietly increasing the benefits they offer to expat staff over the past year but Panasonic is the first to publicly acknowledge the problem and offer an allowance to compensate employees who agree to relocate to China.

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.

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  • Doug

    Of course, carbon emissions have nothing to do with pollution, whether in Beijing, Shanghai or the United States. Carbon dioxide emissions may or may not have an effect on climate, but except for that speculative effect they pose no threat of any kind to human health. Thus, carbon taxes would do nothing about the air pollution problems in China or anywhere else.

    • Enemy Leopard

      This is true only if you isolate carbon dioxide from all of the other, decidedly more harmful pollutants that are often emitted along with it. Coal power plants are among the worst contributors to the smog around China. They also emit massive amounts of carbon dioxide. Ergo, a carbon tax, absent some carbon-capturing technology at the point of emission, would decrease the number of coal power plants in operation, improving the overall air quality.

      • Rick Johnson

        CO2 is a harmless, odourless gas that you breath out with every breath. IT IS NOT A POLLUTANT. Calling it a pollutant is Green BS. A CO2 tax will DO NOTHING to reduce pollutants.

        • Enemy Leopard

          I did not call carbon dioxide a pollutant, and, for the reason I wrote, a carbon dioxide tax would almost certainly reduce air pollution.

          • rhadagastt

            It would reduce air pollution b/c it would shut down the factories you half wit. The whole point of a carbon tax is b/c they can’t filter out CO2 as an emssion, but pretty much everything else they can (well, most of the stuff). So the carbon tax is to offset the carbon emissions. Not that I buy into any of this crap, mind you, but apparently you need to have your own dogma explained to you. Instead of a carbon tax you non-thinking leftst, how about imposing pollution controls on the level of the Western world or Japan? Only a fool living in the liberal bubble could not see this obvious solution. Group think anyone?

          • Enemy Leopard

            I haven’t advocated any policy here. All I wrote is that a carbon tax would reduce air pollution by, exactly as you’ve said, shutting down coal power plants and the like. Thank you for repeating my point, but not for your mindless insults.

  • free_agent

    In the US, the war on pollution started during Nixon’s term. In Japan and Korea, it started just after their first Olympics. (About 1964, there were vending machines on the streets of Tokyo that sold breaths of oxygen!) By this standard, China should have started working on pollution six years ago…

  • Jacksonian_Libertarian

    I don’t see this lasting very long, before the companies just leave China for greener pastures as it were. At one time it made sense to invest in China to get low cost labor, but labor isn’t cheap anymore, and other costs like energy, pollution, and government corruption are making it a better idea to build elsewhere, in particular energy cheap America with the most efficient work force in the world. New highly roboticized factories don’t need unskilled labor so much as cheap power, technicians to maintain and improve the robotic systems, and a mature transportation network.

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