[PEN-L:1807] Re: Fwd: RE summers makes sense

[Doug Henwood <dhenwood@xxxxxxxxx>]

Nativejmc@xxxxxxx wrote:

>Could someone put out the infamous Summers Memo on pen-l.

Here's the relevant portion. At the end of that is an excerpt on the
revolution in production I found rather interesting. And I've tacked on a
piece I wrote for The Nation on the memo, too.

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.

------------------------------------------------------------------------------

What's new? Throughout the outline I struggle with the evidence showing
what exactly the proclaimed revolution [in production] has revolutionized.
FDI has always existed and many of the world's largest firms have been
transnational from birth. The "globalization" of production has happened
sure, but has the telecommunications revolution really had a major impact?
I would guess the invention of relatively simple things, like steamship
transport, did more for world trade than digitalized data transmission
through fiber optic cables. How exactly has the nature of manufacturing
been "fundamentally altered"? Aren't people just incrementally better at
doing things they've always done, like locate production in the lowest cost
location for delivery to markets (now "globalization of production"), like
manage inventories in a least cost way (now "just-in-time inventory
management"), like choose the appropriate level of vertical integration
depending on the production process (now "critical buyer-seller links"),
like match production to demand (now "short product cycles"). Is a
"revolution" really the appropriate metaphor for these changes? I think the
detailed evidence from the US about the very small impact on productivity
from the large investment in information technology should convince us to
hold off on the breathless tone about technology.

==============================================================================

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