The Summers memo: a story of intellectual cowardice

The Summers memo was written by Lant Pritchett and signed by Lawrence Summers when the latter held the position of Chief Economist at the World Bank. While intended for internal consumption, it was leaked to the media and sparked a fury of protest amongst environmentalists and the general public; the then Brazilian Secretary of the Environment Jose Lutzenberger labelled it a 'concrete example' of 'the arrogant ignorance of many conventional 'economists' concerning the nature of the world we live in'. Summers himself discounted it as an 'ironic aside', and claimed that the published excerpt was taken out of context.

DATE: December 12, 1991
TO: Distribution
FR: Lawrence H. Summers
Subject: GEP

'Dirty' Industries: Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Least 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.

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 thought 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.

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 prostate cancer is obviously going to be much higher in a country where people survive to get prostate cancer than in a country where under 5 mortality 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.

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.

Let's have a look at the individual points. As an empirical matter, people in poor countries do care less about their health than their luckier cousins in developed countries - and Emily Oster can testify to that (here's a popular account of her research on AIDS published in Esquire, and here is a recent academic paper). It makes sense too: if you are struggling to survive, life is so much less enjoyable. I would gladly accept a bit more pollution if that meant I could now put food on the table and send my children to school.

The validity of the second point should also be easy to see. If you have to bury toxic waste, you might as well do it in the middle of the Sahara rather than Manhattan. What's also true is that developing cancer is not a particular concern for the average African: destitution and lack of the absolute basics means that few get old enough to worry about dying from 'rich-man's disease'.

As for the third point, you only have to look at the history of developed nations. During the industrial revolution, British cities were amongst the most polluted and unsanitary places on earth. As economic growth pushed the masses out of the abject poverty that that had been the norm since the beginnings of time, the urban environment started improving rapidly. Air quality in London has increased dramatically since the 1950s. With strong economic growth allowing Londoners the luxury of demanding ever stricter environmental standards, things can only get better.

The real irony of it all is that Summers' suggestion need not even be made - what he is proposing is happening already. Pollution is being traded from rich to poor countries, and rightly so, despite the moralising. Just have a look at the environmental standards of the US and the EU and compare them with those of China, India and Nigeria. Whether we like it or not, poor countries have more important things than pretty air to worry about.

Let me make clear that I am not suggesting there is an unambiguous case for further promoting trade in pollution. Corrupt governments that capture the gains from trade for a small 'elite', coupled with the inability of even democratic regimes to fully take into account the interests of future generations, mean that we cannot a priori determine whether poor countries will be better off. In principle, however, and if we make sure the right institutions are in place, the idea expressed in the Summers memo is sound; pursuing it further can make everyone better off.

The moral of the story is different. I am disappointed that sloppy thinking and ideology get in the way of making life better for everyone. I am appalled that good-meaning people are so quick to be explode in self-righteous anger while not finding a second to think and question whether they are hurting the same people they are purporting to help. Natural disasters aside, ignorance and moral posturing have been behind every tragedy that has ever befell the human race. It's a shame that people who should know better remain silent when the mob starts screaming.