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What was the Larry Summers Memo?

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Lawrence, or Larry, Summers is an American economist who was Secretary of the Treasury under Bill Clinton. In 2008 he joined President Elect Barack Obama’s Transition Economic Advisory Board. In 1991 Larry Summers joined the World Bank to serve as Chief Economist. During his time there, he penned the now infamous Larry Summers memo, discussing pollution and its implications in the developing world.

The Larry Summers memo is the name given to both a memo written by a staffer, and an aside added to that memo. The Larry Summers memo itself has never been made public, but the author, Lant Pritchett, has discussed it in public a bit. It appears to have mostly discussed the fact that the free trade policies at that time aggressively pursued by the World Bank would likely have a negative impact on the environment of many of the developing countries they were being applied to. Larry Summers signed this memo, but the real story was in an aside tacked on.

The aside on the Larry Summers memo caused a huge uproar throughout the development world. It noted, without mincing words, that in fact it made strict economic sense to be exporting more pollution to the developing world. The Larry Summers memo suggests that “dirty industries” should be exported to “LDCs [Less Developed Countries]” for three main reasons:

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Firstly, the measurement of health costs employed looks at the lost earnings suffered as a result of potential workers being sick or less able to work. Given this measurement, the Larry Summers memo notes that one would want a nation with low wages to suffer the health costs. Since nations with high wages would lose a large amount of economic power for each worker incapacitated by illness, the Larry Summers memo argues that industries that can cause such illness should be moved to low wage countries. It encapsulates this neatly as, “ 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.”

Secondly, the Larry Summers memo states that many developing nations are in fact under polluted when compared to developed nations. Since, it argues, the costs of pollution become exponentially greater at higher levels, it makes sense to push large amounts of pollution into areas where there is little or none, and where the cost is therefore negligible. It mentions Los Angeles and Mexico City as regions so saturated by pollution that adding more would damage them immensely.

Lastly, the Larry Summers memo argues that the desire for a clean environment is related to the income of the populace. A lower-income populace, it notes, has a lower chance of surviving to an age when certain diseases, such as prostate cancer, can occur, and so people in the developed world will suffer more from industries that raise the chance of prostate cancer. At the same time, it notes, a great deal of opposition to pollution is on aesthetic grounds, and the desire for aesthetically attractive air will be less important to members of impoverished populations than those of wealthy populations.

After the Larry Summers memo was leaked in 1992, there was a strong outcry against it. The Secretary of the Environment of Brazil at the time wrote a scathing letter to Summers, requesting he step down from his post at the World Bank, and pointing to the logic of the letter as indicative of a destructive way of thinking among certain economists, noting, “ Your reasoning is perfectly logical but totally insane.”

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