Summers famous memo

[Doug Henwood]

[There was some talk of this famous Larry Summers memo, now said to have
been written for Summers by Lant Pritchett, here recently. I scanned the
juicy bit for a Russian economist who wants to use it in a column, so I
thought I'd share the fruits of the effort with the list. It's from a memo
commenting on a draft of the World Bank's annual Global Economic Prospects
for the Developing Countries, and was dated December 12, 1991. Summers was
chief economist of the World Bank when Pritchett wrote this in his name. -
Doug]

_Nuggets_

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 ab 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
prosttrate 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.