Thomas Kruse wrote: >Lawrence Summers wrote, as you all know, a little memo on the logic of >dumping toxics on poor people. Does anyone have the original citation, or >report on the memo (I believe a write-up apperaed in the Economist)? ....and The Nation. See also excerpts from the memo tacked onto the end of this post. A New Yorker profile of Summers published sometime last year said the memo was actually written by Lant Pritchett, but Summers took the heat for it, since it appeared under his name. Doug ---- Title: Toxic banking. (World Bank's environmental and global policies) (Editorial) Authors: Henwood, Doug Citation: The Nation, March 2, 1992 v254 n8 p257(1) ------------------------------------------------------------------------ Subjects: Hazardous waste sites_International aspects Developing countries_Finance World Bank_Economic policy Reference #: A11881332 ======================================================================== Abstract: The World Bank's chief economist Lawrence Summers believes in dumping toxic waste loads into the lowest wage countries. The bank is lending more money to economically deprived countries, but still retains an enviable surplus. ======================================================================== Full Text COPYRIGHT The Nation Company Inc. 1992 "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." The publication of these words, from a leaked internal memo, cause a rush of bad publicity for their author, World Bank chief economist Lawrence Summers, who now claims he was being ironic and provocative. There were calls for his resignation. But Summers was expressing honestly the logic of his discipline and his employer. Summers -- whose salary is 225 times the per-person income of the bank's Third World clientele -- is a whiz-bang Harvard econocrat, a class that believes religiously that money is the final measure of value. Happiness is a growing G.D.P. Legal issues can be resolved as competing economic claims, and ethical decisions can be translated into dollar terms, with the cheaper alternative always preferable. In his memo, which criticized a draft of the bank's World Development Report, Summers was applying cost-benefit analysis, which measures the value of a human life by the stream of wages remaining to it. Say it will cost Global Megatoxics $1 million to install a state-of-the-art scrubber in its chimney. If Global determines that not spending this sum will shorten the lives of five people by ten years apiece, all that would be lost would be the present value of these fifty years of wages. At a wage of $1,000 a year, the cost of the five lives can be figured at $41,000, thanks to the magic of compound interest; at $30,000 a year, they're worth $1.2 million. As Summers said in his memo, "health-impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages." Since the costs of pollution -- always priced in dollars or their equivalent -- rise with development, Summers argued, it makes sense costwise to dump in Africa. If a pollutant is going to cause "prostrate" [sic] cancer, a disease of old age, why not locate it in countries where people aren't likely to live long enough to get it? He concluded this section by saying that disagreement with this logic suggests the belief that things like "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." Exactly; as they should be. It makes no sense for Summers to resign; he expressed the bank's logic perfectly. It's a bank, and acts like one. It may preside over a steady erosion of Third World incomes relative to First World ones, but it makes big money. Last year, after paying $7 billion in interest and fees to its investors and bankers, it had a $1.2 billion surplus and a rate of return that commercial banks would envy. What's a public institution to do with that kind of surplus? The bank's executive board spends a lot of time working that question over. In 1991 it decided to contribute $267 million to its soft-loan affiliate, which lends to very poor countries at concessional rates, $29 million to the Global Environment Trust Fund and stuff the remaining $904 million into its hoard of "retained earnings"' which now stands at $11.9 billion. According to Unicef, preventing vitamin-A-deficiency blindness would cost $6 million. Preventing "the great majority" of childhood malnutrition deaths would cost $2.5 billion. But adding to the World Bank's surplus is a higher priority. In recent years, the bank has moved away from project-oriented lending-power plants and dams-and toward structural adjustment lending, in which credit is conditional on adoption of a standard austerity/deregulation package. Not surprisingly, these schemes have savage effects, to which the bank has a ready answer-more loans. The bank is lending its clients more money to treat the poverty, social dislocation and environmental damage that earlier loans helped create. The bank funds greenhouse-gas reduction schemes in countries where the greenhouse-gas producers were initially financed by the World Bank. Bank publicity makes much of a new environmental consciousness, but actions tell a different story. The bank exempted structural adjustment programs from environmental review even though their point is to work human and physical resources harder, which can't be friendly to people or their environment. It has redlined its environment department, leaving it little power. World Bank claims to a larger role in global environmental politics -- to be pressed, for example, at this spring's United Nations Conference on the Environment and Development -- should be beaten back with heavy sticks. Whether or not Summers returns to Harvard, waste export will be a growth industry for these sluggish times. The practice of shifting dirty industries to poor countries is well established. Greenpeace follows the routine stuff all over the world-German (per capita income: $20,440) plastic to Argentina ($2,160), U.S. ($20,910) mercury to South Africa ($2,470), car batteries from everywhere to Brazil ($2,540). Plastic dropped into recycling bins is likely to be shipped to Malaysia ($2,160). The logic is impeccable. --DOUG HENWOOD --------------- _Nuggets_ [excerpts from the Summers/Pritchett memo] 3. _"Dirty" industries_ Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs? I can think of three reasons: 1) The measurement 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 underpopulated 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 adds of prostrate [sic] cancer is obviously going to be much higher in a country where people survive to got prostrate cancer than in a country where under 5 mortality is 200 per thousand. Also, much of the concern over industrial atmospheric 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.