TO IMPROVE HUMAN WELFARE, POISON THE POOR: THE LOGIC OF A FREE MARKET ECONOMIST

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 duty.

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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