Mr Lawrence Summers's Memo Analysis

On February 8, 1992, portion of Mr Lawrence Summers’s internal memorandum of his viewpoint on the environment that was published in The Economist, a British publication, created a huge debate in the print media and disapprovals from the environmentalists. Three main reasons were given by Mr Summers in the encouragement for migration of the toxic wastes to the less developed countries. Hence, we shall now look in depth into these reasons given.

According to Mr Summers’s first point, the costs for being sick and dead due to pollution can be easily computed by the earnings forgone. From this point of view, the opportunity cost of a sick or dead individual is the wage he or she receives from working. As such, the opportunity costs will be lower in countries with lower wages, which are the less developed countries. With lower opportunity costs, the costs of pollution will thus be reduced. On the developing and developed countries side of argument, higher standards of living and technological advances lead to much higher opportunity costs, as their wages are much higher. This thus, results in higher costs of pollution. In comparison, if were to inject certain quantity to the environment, it will be more cost-effective to pollute in the less developed countries. Hence, a certain quantity of pollution should be created in the country with the lowest cost, in terms of lowest wage. Therefore, in the economic point, it is acceptable to dump loads of harmful waste in the lowest wage country.

In his second point, the equation for the costs of pollution is expected to be non-linear due to the likelihood of extremely low cost for the initial increment. With pollution in the environment usually at above satisfactory level in the short-run, there is no need to control it at high incremental cost. However, pollution in the environment eventually reaches an unsatisfactory high level with the increase in amount of toxic wastes produced in the long-run due to the flexibility of input costs and economies of scales; high incremental cost will then need to be incurred to cease more pollutions. Consequently, it leads to the expected non-linearity nature of the equation. In addition, Mr Summer has always referred the less developed countries in Africa as vastly under-polluted with their air pollution at “inefficiently low” levels as compared to the heavily polluted cities like Los Angeles and Mexico City. The lack of skilled labour resources and advance technologies reduces the levels of productions as well as the level of toxic wastes productions in the less developed countries. So using the pollution costs equation, the less developed countries’ pollutions are at above satisfactory levels, in other words, under-polluted. As such, they are far from the efficiency level with marginal social cost of pollution way below the marginal social benefit of pollution. In comparison with the heavily polluted cities, their air quality is hence at “inefficiently low” levels in terms of pollution. As a result, there are still “rooms” available for more amounts of pollutants before reaching the “efficiency” level. Therefore, it will then be ideal in improving the world’s welfare, if waste and air pollution are tradable by exporting out the wastes to the less developed countries and thus reduces the air pollution in the developing and developed countries. However, with much of the pollution produced by non-tradable industries, which are services industries, and the high cost per unit transportation of solid waste, such trade seems easier said than done.

Lastly in his third point, Mr Summers proposed the demand for a clean environment as a luxury item pursued by the richer countries with very high income elasticity, due to aesthetic and health reasons. For richer countries like the developing and developed countries, the life expectancies are higher thus a cleaner environment will ensure them a better living standard till old age. As such, with higher income, there will be higher demand for a clean environment. Also, because of the higher life expectancies, people in richer countries have higher chances of contracting prostrate cancer as compared to the less developed countries where infant mortalities are high. Consequently, people in richer countries are more concern about pollution than people in the less developed countries who have more urgent issues to deal with like decreasing the high infant mortality rate. Moreover, most concerns over industrial atmosphere release are about visibility damaging particulates which may have minor direct effects on health. Particulates include solid and liquid aerosols hovering in the atmosphere coming from the combustion process of coal from industrial processes. These particulates disperse and absorb sunlight, thus reducing visibility. Besides, they are also able to weaken the light from objects and illuminate the air, which then reduces the contrast between the objects and their surroundings. As such, these particulates have a higher effect on visibility. Additionally, since clean air is non-tradable, to reduce pollution in richer countries, production firms should be shifted instead to the less polluted countries.
Also, arguments against the proposals of such world trade in wastes are brought up by many. This may be due to the resistance of changes and a higher weightages given to the negative portions by people. As these arguments can be used against the proposals of capitalist development as well, giving them too much weightages will then impede progressions. Therefore, they can be ignored as mentioned by Mr Summers in his conclusion of his memorandum.

However, weaknesses can be seen in Mr Summers’s memorandum in conveying his viewpoints. In Mr Summers’s arguments, the choice of words like “forgone earnings”, “under-polluted” and “inefficiently low” as well as “world welfare enhancing”, may sound logical when used in the economic point but offensive and absurd in environmental point to many environmentalists.

To many environmentalists, it seems that human’s worthiness is determined by the earnings they earned with the used of the words “forgone earnings”. As such, millions of poor people in the less developed countries which include babies, children and housewives who are non-earners, in Mr Summers’s sense of term are considered to worthless. Their values of worth are either near zero or equal to it. On the other hand, people in the richer countries which include wealthy people and high earners have values of worth at the top of the scale. Therefore, they deserve the clean environment more than people of the less developed countries.

Moreover, referring the less developed countries with words of “under-polluted” and “inefficiently low”, it seems to be meaning that the air need to be polluted in order to be considered as being normal.

Furthermore, for the reference of trade in toxic waste as “world welfare enhancing”, these words only have the effect of glamorizing the trading of toxic waste to the less developed countries, thus disguising its essence in the views of many environmentalists. To the environmentalists, this type of trading should not be deemed as “world welfare enhancing” for the receiving end, which are the less developed countries.

With the same words used, it may have different meaning to different groups of people. As such, Mr Summers need to be careful in the choice of words in order to convey his viewpoint to every reader clearly.

Lastly is that Mr Summers failed to have a stronger argument in the environmental point of view, which then brought about huge disagreements. Though the discharges mentioned may have very minor direct health effects, this is not convincing enough. The direct health effects may be minor, however the accumulation of these minor effects may be problematic in the long run. The problems of pollution will then be migrated to the less developed countries, thus a stronger stand is needed to convince such concerns is avoidable or can be reduced to the minimal.

In conclusion, Mr Summers’s reasoning in his memorandum does make a point in the economical point of view. However, as this issue involves the environmental side as well, he needs to be careful in addressing it.