Management

As an assistant to the vice president of environmental affairs at Americhem, Rebecca Wright relished the opportunity to apply her training in public policy analysis to the complex and emotion-laden issues that her company faces.¹³⁸ Rebecca was convinced that cost–benefit analysis, her specialty, provides a rational decision-making tool that cuts through personal feelings and lays bare the hard economic realities. Still, she was startled by the draft of a memo that her boss, Jim Donnelly, shared with her. The logic of Jim’s argument seemed impeccable, but the conclusions were troubling—and Rebecca was sure that the document would create a furor if it were ever made public.

Jim was preparing the memo for an upcoming decision on the location for a new chemical plant. The main problem was that atmospheric pollutants from the plant, although mostly harmless, would produce a persistent haze, and one of the particles that would be released into the atmosphere is also known to cause liver cancer in a very small portion of the people exposed. Sitting down at her desk to write a response, Rebecca read again the section of the memo that she had circled with her pen.

From an environmental point of view, the case for locating the new plant in a Third World country is overwhelming. These reasons are especially compelling in my estimation:

1. The harm of pollution, and hence its cost, increases in proportion to the amount of already existing pollution. Adding pollutants to a highly polluted environment does more harm than the same amount added to a relatively unpolluted environment. For this reason, much of the Third World is not efficiently utilized as a depository of industrial wastes, and only the high cost of transporting wastes prevents a more efficient utilization of this resource.
2. The cost of health-impairing pollution is a function of the forgone earnings of those who are disabled or who die as a result. The cost of pollution will be least, therefore, in the country with the lowest wages. Any transfer of pollution from a high-wage, First World country to a low-wage, Third World country will produce a net benefit.
3. The risk of liver cancer from this plant’s emissions has been estimated at one-in-a-million in the United States, and the resulting cancer deaths would occur mostly among the elderly. The risk posed by the new plant will obviously be much less in a country where people die young from other causes and where few will live long enough to incur liver cancer from any source. Overall, the people of any Third World country might prefer the jobs that our plant will provide if the only drawback is a form of cancer that they are very unlikely to incur.
4. The cost of visibility-impairing pollution will be greater in a country where people are willing to spend more for good visibility. The demand for clear skies—which affects the aesthetics of the environment and not people’s health—has very high-income elasticity, and so the wealthy will pay more than the poor to live away from factory smoke, for example. Because the cost of anything is determined by how much people are willing to pay in a market, the cost of visibility-impairing pollution in a First World country will be higher than the same amount of pollution in a Third World country. Thus, people in the United States might prefer clear skies over the benefits of our plant, but people elsewhere might choose differently.

This case is based on an actual memo that aroused a storm of criticism. What points in the memo might critics consider to be morally objectionable? Should moral criticism be directed only to this particular application of cost–benefit analysis or to the method of cost–benefit itself?