Sunday, January 25, 2009
The Summers Memo:
DATE: December 12, 1991
FR: Lawrence H. Summers
'Dirty' Industries: Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]? I can think of three reasons:
1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.
Translation from Neoclassical Cost-Benefit Economics: The only "real cost" of pollution that kills is lost wages and incomes. Thus if you pollute and kill people in areas with low wages, the costs, in terms of lost or foregone wages is less than if you kill rich people who lose high incomes and great wealth with their deaths from pollution.
2) The costs of pollution are likely to be non-linear as the initial increments of pollution probably have very low cost. I've always though[t] that under-populated countries in Africa are vastly UNDER-polluted, their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City. Only the lamentable facts that so much pollution is generated by non-tradable industries (transport, electrical generation) and that the unit transport costs of solid waste are so high prevent world welfare enhancing trade in air pollution and waste.
Translation: The costs of pollution are largely unknown but are likely to escalate from initially relatively low costs to exponentially or non-linear escalating higher costs. Since nature abhors a vacuum, or large differentials between high pollution areas and low pollution areas, it makes sense to regard areas of low pollution, with a lot of poor people, as "under polluted", and thus places where they, the poor and "under polluted" nations, and the rich and polluted countries, can "gain from trade": rich countries generate and dump the pollution, poor people get it dumped on them with some "trickle down" and chump change (better than nothing) to pay them off for taking, storing and living with the pollution dumped on them. But, potentially high costs and risks of transport of trash and polluting agents from rich to poor nations over long distances, are a bit problematic, and thus may prevent "world welfare enhancing trade" (meaning in net terms the world gains when negatives and positives are calculated within the narrow framework of cost-benefit analysis). Note: in the late 1980s, on one U.S. EPA report on 73 potential toxic waste sites, 72 were Indian Reservations.-
3) The demand for a clean environment for aesthetic and health reasons is likely to have very high income elasticity. The concern over an agent that causes a one in a million change in the odds of prostrate[sic] cancer is obviously going to be much higher in a country where people survive to get prostrate[sic] cancer than in a country where under 5 mortality is is 200 per thousand. Also, much of the concern over industrial atmosphere discharge is about visibility impairing particulates. These discharges may have very little direct health impact. Clearly trade in goods that embody aesthetic pollution concerns could be welfare enhancing. While production is mobile the consumption of pretty air is a non-tradable.
Translation: First of all Larry, it is prostate not "prostrate" cancer [same mistake twice thus not a typo]. Prostrate is the position you have assumed to those in power to get the jobs you have held including your present position as Obama's Chief Economic Advisor. Income elasticity of demand refers to by what percentage does demand for something change with each one percent change in income. So Larry is saying here that rich people have a higher demand for clean environments and more sense of aesthetics (beauty and need for clean air that looks nicer than dirty air) than poor people. Also, since may of these forms of pollution wind up killing people slowly over time, and do not fully show up until people are in their seventies, why not pollute and kill people who will never make it to seventy--for other reasons also--anyway?-
The problem with the arguments against all of these proposals for more pollution in LDCs (intrinsic rights to certain goods, moral reasons, social concerns, lack of adequate markets, etc.) could be turned around and used more or less effectively against every Bank proposal for liberalization.
Translation: The problem is that when we get into all sorts of stuff that has no place in the cold calculus of economics and profitability--stuff like morality, genocide, intrinsic worth of human beings difficult to measure or give a market price to, etc-- these arguments may make us look like a bunch of Nazis, like the ones that were at the Wannsee Conference that planned the "Final Solution to the Jewish Problem" (only here instead of taking people to the gas chambers, these neo-liberal types propose a kind of curb or delivery service and taking the gas chambers to the poor), and these arguments can be used against us in every neo-liberal (read neo-imperialism) proposal we make.-
After the memo became public in February 1992, Brazil's then-Secretary of the Environment Jose Lutzenburger wrote back to Summers: "Your reasoning is perfectly logical but totally insane... Your thoughts [provide] a concrete example of the unbelievable alienation, reductionist thinking, social ruthlessness and the arrogant ignorance of many conventional 'economists' concerning the nature of the world we live in... If the World Bank keeps you as vice president it will lose all credibility. To me it would confirm what I often said... the best thing that could happen would be for the Bank to disappear." Sadly, Mr. Lutzenburger was fired shortly after writing this letter.
Mr. Summers, on the other hand, was appointed the U.S. Treasury Secretary on July 2, 1999, and served through the remainder of the Clinton Administration. Afterwards, he was named president of Harvard University until being fired for more offensive remarks and a faculty revolt. Summers is now chief economic advisor to Obama.