Was Summers right in saying “pollute the LDCs”?

By Matt Nolan 10/10/2013 6


Back in 1991, Larry Summers upset a lot of people as Chief Economist at the World Bank.  His memo has been viewed as morally reprehensible, was cited in the second chapter of this book as indicative of the way economists ignore moral values, and was used as a key example in a philosophy class I sat in of the untenable nature of economic arguments.

But, as a description of what would happen if people in LDC’s (least developed countries) had the choice, was he actually correct?

Over the past 20 years, significant numbers of people have been moved out of absolute poverty by a strong push to industrialise in countries such as China.  By taking on these manufactured industries, there has been a change in the relative price of different types of goods and services – such that developed countries have focused on services (and New Zealand, as always, on agriculture – but with a climbing terms of trade).  In the same way the ‘centre of manufacturing’ has shifted towards developing Asia, so has pollution.

By ramping up manufacturing activity and pollution, these countries have effectively said “we think we were relatively under polluted (given the benefit of the output that occurs during the pollution process), as a result we’ve decided to switch to a situation with higher material standards of living and higher pollution.

By creating “import competition” (ht awesome post on the Economist) and having manufacturing output and ‘jobs’ go from the US to China, we are essentially going through the very process Summers was discussing – the process that he suggested would be in the LDC’s interest.  The “morally reprehensible” arguments of Summers actually represent the situation and what is favoured by groups within those countries.

Does this suggest that everyone has given Summers a bit of a hard time?


6 Responses to “Was Summers right in saying “pollute the LDCs”?”

  • One of useful antidotes and mitigation of pollution is this:

    The intake for a city’s water supply is downstream of the waste pipe from the city.

    Summers suggest that the poor take their water downstream of the waste pipe while we drink from the (well) upstream sourced dihydrogen oxide.

    It’s fascinating to think that an economist – who searches history fanatically for data – wants to propagate the idea that pollution is an economic good. It reeks.

    This link at the bottom of the Wiki page says it all:

    http://livingeconomiesforum.org/1992/29korten

    Now. About that dairy farm……

  • Even The Economist caveated its approval with ” As it sometimes will” Stress the sometimes. Pollution is not only morally wrong – it demonstrates waste of materials and energy. Industrial development happens despite pollution not because pollution has been allowed. There’s an irony in that the people most likely to say allow pollution are most likely to drive German cars – made under the tightest antipollution regs there are. And speaking of Germany: the situation about a waste pipe being built upstream of the drinking water intake really did actually happen in Hamburg. The resulting epidemic prompted rapid alterations.

    • This probably most succinctly illustrates the difference between economists and others.

      1. Pollution is bad, but morality is something else entirely. “Bad” just means “something we’d pay at least some bit of money to be rid of”.
      2. So long as it costs more than zero to reduce the amount of pollution, the optimal amount of pollution will not be zero.
      3. Zero pollution more likely represents waste of materials and energy than does positive pollution where it costs time, materials, and energy to reduce pollution.
      4. Note too that there’s something of a J-curve in pollution and economic development. Environmental quality worsens over the early stages of development, where people value increases in income pretty strongly relative to environmental quality. When people get rich enough, they demand tighter regs on pollution. This is really rather well documented.

  • the real and larger economic problem with pollution being of course that in general terms the benefits arising from the ability to pollute accrue to the individual, while the disbenefits are socialised.

    A current example would be the proposed water storage in the Hawkes Bay. Agricultural businesses will accrue the benefit, the river (effectively a public asset) will, according to the science, come as close to dying as makes no difference.

    In general then its pretty obvious that in many cases pollution pays – the cost to an entity of polluting is often as close to zero as makes no difference, while the cost of pollution avoidance or mitigation is quite real. Any rational economic entity would pollute in this situation.

    So they do.

    • Ashton has this one: externalities matter. While we can’t rule out that the scheme noted (about which I know nothing) would pass cost-benefit anyway, we would need the analysis to be able to tell. Where the acting party gets the benefit but doesn’t bear the cost, bad outcomes are possible.

  • “So they do”

    History suggests that those who embark on the exploitation of low labour costing countries will inevitably pollute then (reluctantly) mitigate only if they are forced to. Mitigation of pollution is rarely (never?) a starting point. As Ashton suggests. It is now the polluted country’s problem.

    And the Hamburg story is here. Not quite Aston’s take but.

    http://books.google.co.nz/books?id=Scxo50Qxy7cC&pg=PA5&lpg=PA5&dq=water+upstream+waste+downstream+hamburg&source=bl&ots=Ai7XY2bZBQ&sig=g9MRJy1BLqhrYPL9Lw2njcOwSWQ&hl=en&sa=X&ei=1zhbUp2EPM_slAXmtICACA&ved=0CEgQ6AEwBA#v=onepage&q=water%20upstream%20waste%20downstream%20hamburg&f=false

    If the link fails it is:
    “The Global Environment: Securing a Sustainable Future”
    By Penelope ReVelle, Charles ReVelle

    Page 5.