This is an excerpt from a memo that went out under the name of Lawrence Summers in December 1991 when he was chief economist of the World Bank and subsequently leaked to the press. It was actually written by Lant Pritchett, a prominent economist at the Bank, though Summers took the heat for these comments. At the time, he claimed he was being ironic and provocative, a claim he still makes.
Summers is now Secretary of the Treasury, which makes him one of the most powerful economic officials on earth - not necessarily at home, but, given his great influence over World Bank and IMF policies, in the poorer countries of the world. Obviously this indiscretion did not hurt his career. As outrageous as it is, Summers and Pritchett did us all a service by revealing the way elite economists and financial machers think. The last paragrph contains a deep truth; Summers & Pritchett are exactly right.
3. "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 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 liberal