Back in 1991, Larry Summers upset a lot of people as Chief Economist at the World Bank. His memo has been viewed as morally reprehensible, was cited in the second chapter of this book as indicative of the way economists ignore moral values, and was used as a key example in a philosophy class I sat in of the untenable nature of economic arguments.
But, as a description of what would happen if people in LDC’s (least developed countries) had the choice, was he actually correct?
Over the past 20 years, significant numbers of people have been moved out of absolute poverty by a strong push to industrialise in countries such as China. By taking on these manufactured industries, there has been a change in the relative price of different types of goods and services – such that developed countries have focused on services (and New Zealand, as always, on agriculture – but with a climbing terms of trade). In the same way the ‘centre of manufacturing’ has shifted towards developing Asia, so has pollution.
By ramping up manufacturing activity and pollution, these countries have effectively said “we think we were relatively under polluted (given the benefit of the output that occurs during the pollution process), as a result we’ve decided to switch to a situation with higher material standards of living and higher pollution.
By creating “import competition” (ht awesome post on the Economist) and having manufacturing output and ‘jobs’ go from the US to China, we are essentially going through the very process Summers was discussing – the process that he suggested would be in the LDC’s interest. The “morally reprehensible” arguments of Summers actually represent the situation and what is favoured by groups within those countries.
Does this suggest that everyone has given Summers a bit of a hard time?