Mr Lawrence Summers's Memo Analysis

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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...
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