Harvard Rules (5 page)

Over the next years, Summers produced a slew of top-notch papers on issues such as taxes, unemployment, and markets. “Larry was a hive of activity,” said Harvard economics professor Larry Katz, a friend of Summers'. “What was amazing was the breadth of his activity—he could work on twenty problems with twenty different people.” Politically, Summers was left of center; he was skeptical of the unfettered marketplace and believed that the federal tax code should be structured to promote progressive policy goals. Intellectually, he had a talent for bringing real-world data to problems that economists had previously dealt with theoretically. In a provocative 1986 paper on Henry Ford, for example, Summers and co-author Daniel M. G. Raff examined Ford's 1914 decision to double his workers' wages from $2.50 a day, the industry norm, to $5.00. Why did Ford give his employees such a huge increase? Out of altruism? A desire to burnish his reputation? Both were possible, the authors suggested. But a more powerful motivator may have been that by paying his workers more than he had to, Ford could boost worker morale, lessen labor turnover, and increase profits. The implications were clear. If paying more than the market minimum produced such positive results for Ford, how many present-day firms could—or should—do the same?

Summers was an equally energetic professor. He was demanding and challenging. His Harvard graduate students sometimes felt pressured by him, but they also conceded that he frequently coaxed better work out of them than they had thought themselves capable of. Typical was this 1992 review of Summers from the Harvard Committee for Undergraduate Education (CUE) guide, an annual survey of courses filled out by undergraduates (but published by the college; professors can ask that their evaluation not be printed): “Respondents congratulate Professor Lawrence H. Summers on the overall excellence of his lectures,” the entry read. “However, one-fourth of those commenting on his presentations note that he occasionally speaks too quickly.” Also, a “significant number of those polled testify to the course's formidable workload.” Summers' numeric rating of 4.2 out of 5 was better than average, though not in the highest rank of Harvard professors.

Nevertheless, Summers was restless; he wanted more than the life of an academic. In 1988 he signed up with the presidential campaign of Massachusetts governor Michael Dukakis. Along with economist Robert Reich, who would go on to become Bill Clinton's secretary of labor, Summers advised Dukakis on economic policy. The candidate advocated a proactive role for government in the economy, with tax breaks and government subsidies for companies that invested in high-tech or high-unemployment areas. Rather than raise taxes, Dukakis argued (and Summers agreed) that the government could ease the deficit problem simply by collecting unpaid taxes. Summers was never part of Dukakis' inner circle, however, and today Dukakis doesn't remember much of what Summers did on the campaign. “We met a number of times, but I don't want to exaggerate it,” Dukakis says. Nonetheless, Summers made sure to stay on good terms with the former governor. “Every time he gets another important job, Larry writes me a note saying, ‘Without you, this wouldn't have happened,'” Dukakis says. “And it's always handwritten.”

Dukakis lost that race to George H. W. Bush, of course, depriving Summers of the chance to return to Washington. But the campaign was nonetheless a turning point for Summers. For one thing, he learned that he enjoyed politics; he liked to be not just a student of power and policy, but a player. And during the campaign he met two people who would become very important to his future advancement: a wealthy fundraiser from the investment bank Goldman Sachs named Robert Rubin, and a rising-star governor from Arkansas, Bill Clinton.

On the surface, Summers was fulfilling everything that might have been expected of him. In 1987 he won the National Science Foundation's Alan T. Waterman Award, which carried with it a $500,000 grant. The award is given to an outstanding young U.S. scientist or engineer; Summers was the first social scientist ever to win it. In 1993 Summers won the John Bates Clark Medal, given by the American Economic Association to the country's outstanding economist under the age of forty. The Clark Medal is often a precursor to a Nobel; Paul Samuelson won it in 1947, Ken Arrow in 1957.

If there was a knock on Summers, it was that he had, perhaps,
too
many ideas. That his mind was so active, it couldn't linger on one subject long enough to produce the big breakthrough that separates an outstanding economist from a truly great mind. There was no lightning bolt, no eureka moment. Both Paul Samuelson and Ken Arrow had experienced such insights before they were forty, the age by which most economists do their most original and important work. As Larry Summers approached that milestone, he'd compiled a formidable record, shown abundant evidence of an agile and powerful mind, produced important insights and valuable papers—but no paradigm shift.

“In the ballpark Larry grew up in, he's not a first-rate intellect,” said one prominent economist. “He has not made any major contribution to economics. And you have to understand—his two uncles are not just Nobel Prize winners, they are two of the top figures of the century. Anybody who's in academia knows that there are people who make repeated breakthroughs, there are people who make
a
breakthrough, and there are people who do good economics. His two uncles made repeated breakthroughs. Larry has done good economics. It's two steps down from what his uncles did.

“I think,” this economist said, “that Larry knew that.” And may himself have come to doubt that he would ever produce the kind of work that wins a Nobel.

If so, it would be an awkward situation. Public expectations of Summers were so high that if he didn't win a Nobel Prize—an absurdly high standard—he'd be considered a disappointment. Maybe, as he approached middle age, he sensed that the likelihood of the prize was slipping away. Especially because he'd already learned that life could be short.

To be fair, economics, especially at its highest levels, is a viciously competitive field, almost entirely dominated by men, many with rapacious egos and cutthroat instincts. Often they are trained in graduate seminars where aggression is encouraged and survival requires attacking your peer's ideas before he slices and dices yours. Surely some of the doubts about Summers arise from the culture of economics and from a personal antipathy toward him. Elsewhere in the field, Summers has his defenders.

“His critics will tell you that there's no one brilliant path-breaking paper,” said Richard Levin, the president of Yale and an economist himself. And that's true, Levin admits. “You can't say that Larry ever wrote one paper, or had that one great idea, that everybody just carries around.” But, he points out, Nobel Prizes in economics are sometimes awarded for a body of work. “Had Larry stayed an academic, he would have made great contributions to lots of bodies of literature. If Larry had written ten more years of articles of the quality he was writing, I think he would have won the Nobel.”

But Summers would not spend the next ten years of his life writing more papers in economics. Instead, at the age of thirty-six, he was headed to Washington again, and this time he would stay for a decade. The economist and professor was on the verge of a profound personal and professional transformation. He was leaving behind the world of the university for, well, the world itself. And in just a few short years, he would become an international figure of enormous importance. Larry Summers—grandson of a druggist and an office manager, child of academia, ivory tower economist—would hold in his hands the fates of nations.

 

In January of 1991, Summers started a job as vice-president of development economics and chief economist at the World Bank. He took a leave from Harvard and moved with Vicki to Washington, D.C., the home of the Bank.

The World Bank was founded in July 1944 at a meeting of representatives from forty-five countries in Bretton Woods, New Hampshire. Financed by contributions from member nations, the Bank was intended to help fund the postwar reconstruction of Europe. A second, though less explicit agenda was to use financial aid to promote democracy worldwide. The Bank would help pay for public works projects such as highways, hospitals, and dams, facilitating economic growth and fostering political stability.

In its six decades of existence, the World Bank has never been well understood by those most affected by its decisions—usually the world's poorest and least educated people. Some development workers and international policymakers around the world view it as a well-meaning organization doing its best to eradicate poverty. Others, suspicious of its anonymous, bureaucratic culture, think it an avatar for the business and ideological imperialism of the United States. Most Americans, unaffected by its works, don't even know of its existence. But the Bank is an enormously powerful institution, and Summers was joining it just as it was poised to become even more so.

His job at the World Bank was to create economic plans for countries that needed aid. It was a weighty task: Summers would help decide how much money countries would get from the Bank and under what conditions. Though it was a new role for him, he did not doubt his ability, and he had strict ideas about why national economies in developing countries went wrong. “Development failures are the result of national policies,” he would argue. “They cannot be blamed on a hostile international environment, or physical limits to growth.” Sounding less optimistic about government's ability to effect social change through industrial policy than he had during his stint with Michael Dukakis, Summers articulated a kind of free-market tough love. “National policies have failed when governments thwarted progress, supplanting markets rather than supporting them,” he said. Using the kind of provocative imagery he would become known for, he added that countries without a strong central government and vigorous private sector were like “a cripple…with no legs, pushing himself around on a crude board with wheels, surviving only with begging and trying to look sympathetic to the potential alms giver.”

But it was something that Summers didn't even write that would define his tenure at the World Bank and haunt him for years to come. In December 1991, he signed and distributed a policy memo written by a young aide named Lant Pritchett—though Pritchett's authorship was not indicated on the document. The memo argued that less-developed countries, or LDCs, could benefit from accepting the pollution generated by developed countries. “Just between you and me,” the memo read, “shouldn't the World Bank be encouraging more migration of the dirty industries to the LDC?” Poor countries could earn needed revenue from trade in pollution without losing much in the costs of increased illness, because people in those countries tended to have a short life-span anyway. “The concern over an agent that causes a one-in-a-million change in the odds of prostate cancer is obviously going to be much higher in a country where people survive to get prostate cancer…” The memo concluded that “the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable.”

Someone at the World Bank leaked the memo to
The Economist
magazine, which in February 1992 ran an article on it titled, “Let Them Eat Pollution.” Though
The Economist
concluded that “on the economics, [Mr. Summers'] points are hard to answer,” the memo provoked a furor. Then, and for years to come, human rights and anti-globalization activists, already skeptical of the World Bank, found in Summers' memo proof of the Bank's hegemonic intentions and callous attitudes toward the world's poor. And the individual who came to personify all of their doubts, fears, and hostility to the economic shifts of the 1990s was Larry Summers.

Summers did his best to explain the memo, claiming that it was simply part of the free-flowing academic discussion he tried to foster among his colleagues. He suggested that it was intended to be “ironic.” He insisted that he hadn't read the whole thing before signing it. Eventually he dispensed with explanations and simply apologized, quoting New York mayor Fiorello LaGuardia and saying, “When I make a mistake, it's a whopper.” For years, however, Summers never denied authorship of the memo, which meant that he was being castigated for something he hadn't actually written. But since the memo sounded like Summers—no-nonsense, aggressively contrarian, cerebral to the point of sounding amoral—few would have believed such a denial anyway.

The episode would teach Summers painful lessons about the differences between politics and academia, and about the limits of public debate. In the field of economics, such a provocative argument was well within the bounds of acceptable discussion. Unsettling conversations challenged the status quo and promoted new ways of thinking. But in Washington, the suggestion that the memo was merely an academic exercise didn't fly. It made no sense to float ideas that you didn't really believe, because special interest groups would inevitably seize upon your words for political advantage. Some debates were so emotionally charged, you couldn't even conduct them—and certainly not in public. And if one insisted on having such discussions, better not to write them down. Indeed, in the years to follow, Summers became conspicuous for never leaving a paper trail.

Summers also learned how tone and diction can shape public reaction to an economic argument. While the language of the memo, as
The Economist
conceded, was “crass,” its content was not as offensive as it appeared at first reading. If you believed that poor countries needed capital to generate economic growth and increase standards of living, then, as paradoxical as it sounded, taking in other countries' pollution might have its positive side. (After all, relatively affluent American states routinely send their garbage to poorer ones, and some environmentalists argue that a marketplace for “pollution credits” would lead to a cleaner environment.) The argument of the memo might have been flawed or even wrong, but it wasn't, as its critics charged, inherently immoral. It was just that, in its clinical language, it sounded that way.