Economics and the Environment: Analyzing Various Perspectives

The question of sustainable living goes much deeper than the daily changes we make in our lives to save water and energy and resources. It means confronting our individual, local, and global paradigms, it means deciding what we value in the world, how we imagine our future, and what our relationship to each other and the earth is.

Embarking on a journey of sustainable living requires a deep confrontation, analysis, and development of our ethics. This semester I am taking an Environmental Ethics course that is dramatically reshaping my perspectives and I would like to open a conversation with all of our readers about these themes. Today, I’d like to talk about an email by Lawrence Summer. He was the Chief Economist of the World Bank and signed this memo in 1991:

DATE: December 12, 1991
TO: Distribution
FR: Lawrence H. Summers
Subject: GEP

‘Dirty’ Industries: Just between you and me, shouldn’t the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Least Developed Countries]? I can think of three reasons:

1) The measurements 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 under-populated 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 an agent that causes a one in a million change in the odds of prostrate[sic] cancer is obviously going to be much higher in a country where people survive to get prostrate[sic] cancer than in a country where under 5 mortality is 200 per thousand. Also, much of the concern over industrial atmosphere 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.

— Lawrence Summers

At first glance, this email appears grossly classist, racist, environmentally damaging, and a serious breach of human rights and equality. How could one justify the mass exportation of pollution to poor populations? How is that fair? Why can’t we address pollution itself instead? How could anyone believe the detrimental health effects from dirty industry are justifiable for any population? When I first read this letter in my Environmental Sociology course, I thought all of these things and I was absolutely horrified. Now, I am taking my environmental ethics course and we took a deeper look at some aspects of what was put forth in this memo.

In my environmental ethics class, we read a source discussing the meanings behind what Summers is saying. According to this, and our discussion in class, Summers is raising the point that in these poor countries, the benefit of wages outweighs the benefit of a clean environment – it is a question of suffering from death by starvation or pollution. He essentially argues that due to poverty, the demand for industry and jobs is higher than the need for a clean environment because of survival needs, that the demand for a clean environment is a function of rising income. Bringing in industry, even if it is polluting, means economic growth, which environmental controls would slow.

Akin to this argument is the discussion of sustainable development in poorer nations. Some environmentalists argue that richer nations should invest in sustainable development in undeveloped nations as reparations for the environmental destruction they have caused and as a means to alleviate poverty sustainably. But, there are arguments against this from people in these countries because many rich nations raised their standard of living through the use of cheap fossil fuels. They argue that a plan of sustainable development denies them the same opportunity to raise quality of life cheaply and quickly. So, the same could be said for those arguing to keep polluting industries out of poor countries. Does this deny them much needed economic opportunity to which the cost of pollution is something they are willing to pay? If demand for clean environments increases with income, couldn’t it be possible for polluting industry to come in and provide jobs, increase income, and down the line lead to a higher demand for a clean environment and thus the institution of environmental controls can be implemented once the control is there? Maybe, maybe not.

The the capitalist system relies on market forces, and working within this context, maybe Summer’s perspective makes sense. In the richer nations, there is demand for cleaner environments. In poorer nations, there is demand for economic opportunity, even if it has negative environmental impact (and thus negative impact on human health). In terms of supply and demand, it would make sense for polluting industries to go to those countries. The demand for the products that have a polluting production process exists, and thus either these products need to not be produced, or their going to have to be produced somewhere – who is willing to produce it?

I think overall though, Summers argument still leaves much to be desired in terms of environmental protection and human safety. But, how do we balance environmental and economic needs? I believe an important part of the solution is using market mechanisms to force industry to be less polluting and pay fair wages in all countries. A cultural shift in the consumer consciousness of rich countries may be the best approach. We must internalize the externalitites – both of the environment and labor. If the demand for ethically produced goods, being the least environmentally damaging and produced with fair wages, is present, then industry will have to modify its practices. This would mean higher costs for Americas and other rich nations, but this would reduce the gross over-consumption by requiring smarter and less purchasing due to the higher cost. Wages in rich nations could also be raised to account for the high costs. The issue would be that this greatly decreases profit for industry. While profit is the main goal of capitalism, shifting how profit can be made is necessary to have a more equitable global society. Corporations should not be making billions of dollars if they are destroying the environment and paying people unlivable wages. This kind of solution may slow growth, but it would equalize standards of living more fairly. In the long term, capitalism is an unsustainable system, but it can not be overhauled in a night. We must use the power of demand to change it for the better, and slowly transition into an overall more equitable, sustainable system.

We want to hear what you think! How do we balance economic and environmental needs? Does Summers present a valid argument or is it wholly unfair? Is providing jobs or protecting the environment more important? What responsibilities do we have towards future generations? We want to hear what you think!