PCDForum Column #29,  Release Date March 1, 1992

by David C. Korten

In a recent internal memo, the World Bank’s Chief Economist, Lawrence
Summers, made a forthright proposal: "Just between you and me, shouldn’t
the World Bank be encouraging more migration of the dirty industries to the
LDCs?" The memo was leaked to the press and within a few days it become
possibly one of the most notorious documents in the Bank’s history.

The three arguments Summers put forward in support of his proposal provide
valuable insights into the thinking of the economists who shape World Bank
policy. Eliminating the jargon, Summers’ essential arguments were:

  • The forgone earnings of people who die prematurely or fall ill from toxic
    wastes and pollution are less in low-wage than in high-wage countries and the
    poor have short lives anyway.
  • Some countries, particularly "…in Africa are vastly
    under-polluted…." Consequently, the high air quality in these countries
    is "inefficiently low compared to Los Angeles or Mexico City."
  • Because of their greater aesthetic sensitivity, rich people value clean air
    and water more than the poor.

Therefore, by the logic of free market economics, human welfare would be
maximized by exporting the polluting industries and toxic wastes of rich
countries to poor countries. In Summer’s words, "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." Summers noted that though there were moral
and technical counter arguments, these could be used with equal effect "against
every Bank proposal for liberalisation."

Having published Summers’ memo under the title "Let them eat pollution,"
The Economist, an unabashed defender of the unregulated market, correctly
chastised Summers in its next issue for suggesting that the life of a wealthy
man is more valuable than that of a poor man. It went on, however, to agree with
Summers’ basic argument. "If clean growth means slower growth, as it
sometimes will, its human cost will be lives blighted by a poverty that would
otherwise have been mitigated." It then accused any environmentalist who
questions Summers’ recommendation of "causing great, if well-intentioned
harm to the world’s poorest people." In effect, poisoning the poor with the
rich man’s pollution is not only economically correct, it is a solemn moral

The underlying arguments are deeply flawed and offensive. Consider the
assertion that the poor care less about their health than do the rich. For many
poor their physical strength is their only economic asset. Without medical or
disability insurance, if their health fails they have nothing. Summers would
have been on stronger ground to argue that the net deprivation suffered from
disability is far greater for the poor than for the wealthy. Thus polluting
industries and toxic dumps should be moved to the backyards of the rich.

Behind most such free market economic logic, lies a deeper, more accepted,
but equally flawed argument about economic growth. Summers, The Economist, and
many well-intentioned people, have accepted, as a self-evident truth, that
growth any kind of growth benefits the poor.

The case example of Philippine Associated Smelting and Refining Corporation
(PASAR) reported in Kabalikat, a Philippine NGO journal is all too typical of
experience with the export of high polluting industry. PASAR is a Japanese
financed and built copper smelting plant located near Isabel, in Leyte Province,
Philippines. It produces high grade copper cathodes and ships them to Japan for
processing. Japanese foreign aid built the supporting infrastructure with loan
funds the Philippine government must repay in foreign exchange.

The 15,000 residents of Isabel, a poor rural farming and fishing community,
were promised development including jobs in the smelting plant and cheap
electricity from the related geothermal power project. Four hundred acres of
land were acquired for the project from local residents by the Philippine
government at give away prices through deceit and coercion depriving the
displaced of both their homes and means of livelihood. The jobs offered local
people turned out to be mainly part-time or contractual to do the dangerous and
dirty jobs.

The geothermal plant did provide cheap electricity for the smelter, but the
rates to local residents increased. Gas and waste water emissions from the new
facilities containing high concentrations of boron, arsenic, heavy metals, and
sulfur compounds contaminated rivers and the local bay, reduced rice yields,
damaged the forests, threatened the local water supply, reduced fishing yields,
and increased upper respiratory disease.

The company has prospered. The local economy has grown. Isabel’s poor, the
project’s professed beneficiaries, have organized in angry protest.

David C. Korten is a fellow of the People-Centered Development Forum.
Referenced articles are from The Economist, February 8 and 15, 1992, and
Kabalikat, September 1990.

David C. Korten

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