How did the leadership styles of Presidents Clinton and Obama differ, and how much influence do academics really have on policymaking? Absorbing insights in conversation with Harvard University’s Lawrence Summers
Harvard University’s Lawrence Summers served as Secretary of the Treasury for President Bill Clinton and the Director of the National Economic Council for President Obama.
In this excerpt from When the President Calls: Conversations with Economic Policymakers, Summers talks to the book’s author, Simon Bowmaker, about contrasting leadership styles.
‘Many discussions of leadership talk about the right way to be a leader, but what I learned from working with Presidents Clinton and Obama is the reality that to thine own self one should be true,’ Summer says.
A Full Professor at Harvard at the age of 28, Summers also offers his thoughts on the influence economists wield in the world, recalling an experience with the former Premier of China, Zhu Rongji, and reminding us that, ‘the kind of academic research that economists do turns out to have a very large influence on economic thinking and on economic policy.’
Simon Bowmaker: In the autumn of 1992, you were offered the position of undersecretary of the treasury for international affairs. How did Treasury Secretary Lloyd Bentsen approach you for the role, and what did he, as a non-academic, want you to do for him?
Lawrence Summers: After the election in the autumn of 1992, Lloyd Bentsen asked to meet with me, and he and I had several conversations in which he stressed that a huge amount needed to be done in international economic policy. He wanted to be a successful participant in the G7 [Group of Seven] process, there were large issues to deal with around Japan’s trade surplus, and there was an awareness that major changes were about to happen with respect to Russia. As someone with knowledge and experience from working at the World Bank, he wanted me to take on that responsibility.
During the role, you had to deal with the Mexican peso crisis of 1994 and 1995. What were the main lessons from the Mexican crisis, and would you do the same again?
I had a pretty substantial role in working with Mexico in 1994, and especially after its currency was devalued and the country went into near financial collapse in late December and January of 1995. I think it’s fair to say that I was the leading advocate within the government for a major US support programme in conjunction with the IMF [International Monetary Fund] that would provide Mexico with liquidity, coming from an analytic diagnosis that the country had a liquidity program, not a deep solvency crisis.
That liquidity problem had been caused by the combination of the fixed exchange rate, the issue of tesobonos [short-term obligations of the Mexican government whose peso value was linked to the value of the US dollar], the depletion of reserves, and the mishandled devaluation of the Mexican peso. Battlefield medicine is never perfect, and so one could question whether the mechanism that was ultimately used – the President’s exchange stabilisation fund – should have been employed earlier or not. But I believe a broad judgment has to be that the programme was overwhelmingly successful.
US taxpayers reaped a substantial profit, the money that was lent to Mexico came back early, and the process of economic reform in Mexico was greatly supported. Up until that point, the country had had a major crisis at the end of every presidential term for a full generation. But, since that time, we have had three transitions of power without significant financial dislocation.
Mexico is also much more closely allied with the United States in international affairs than it was prior to that time. I think if we had not acted and Mexico had been forced to go into default and moratorium on payments, and impose capital controls, the likely consequence would have been far greater immigration flows into the United States, far more narco failed state risks in a country with whom we share a 2,000-mile border, and far more anti-Americanism in Mexico and in Latin America. Tom Friedman [political commentator] called it the most successful and most important foreign policy act of the Clinton administration to that point, and I think that in many ways it set a template for things that happened subsequently, such as the broad emphasis on the importance of emerging markets, the formation of the G20 [Group of Twenty], the aggregate provision of liquidity to help contain the Asian financial crisis, and the strengthening of the IMF and World Bank. And so I do feel that our intervention was both a substantial event and a substantial success.
You have said previously that the role of secretary of the treasury turned out to be your favourite position within government. Why was that the case?
Look, I thoroughly enjoyed my eight years in the Clinton administration and my two years in the Obama administration. I felt privileged to serve two presidents whom I thought were both enormously committed to doing the right thing on the large economic issues, who were extremely curious and extremely smart about grasping economic advice, and who were willing to grapple with analysis and with detail.
And so, I think it would be fair to say that all my jobs in government were certainly highlights of my career. Once you have studied and mastered a subject, the chance to put your expertise to use on a broad canvas that affects the lives of a very large number of people both in this country and beyond has to be about the most exciting professional opportunity imaginable. But being the President’s leading economic adviser and the country’s top economic official is something that you dream about as a young economist. When the first dollar bills with my signature came out, I said young actors dream of seeing their name in lights, while young economists dream of seeing their signature on the dollar bill. That’s certainly true in my case.
I’m proud of what we were able to accomplish during my time as secretary of the treasury, such as establishing the index bond programme; forming the G20 group, which carries on to this day as the central global convener on economic issues; repurchasing government debt because of the excess of revenue over expenditures; launching the first major programme that would scale back international institution debt for the poorest countries; and bringing real information technology expertise into the leadership of the IRS [Internal Revenue Service] for the first time.
How would you compare and contrast Presidents Clinton and Obama in terms of their operating styles and approaches to economic questions?
There were enormous similarities between Presidents Clinton and Obama. As I said earlier, they were enormously curious, enormously serious about their jobs, very focused on doing the right thing rather than the expedient thing, and very willing to listen to those with expert opinions.
I think those were great common strengths. But President Clinton had a less disciplined and more wide-ranging style than President Obama did. His meetings were less likely to begin and end on time; were more likely to range into subjects beyond the immediate agenda; and were more likely to bring in experiences that he had had, or things that he had read or seen outside of the prepared materials for those meetings. President Obama was
less wide-ranging and more disciplined about making sure that decisions were reached, and that the decisions that had been reached were effectively implemented. So, they had somewhat rather different personal styles within the broad framework they shared. Many discussions of leadership talk about the right way to be a leader, but what I learned from working with Presidents Clinton and Obama is the reality that to thine own self one should be true. I doubt that President Clinton could have done it President Obama’s way, or that President Obama could have done it President Clinton’s way. They found approaches of leading that were true to themselves and to their personalities, and I think they were both extremely effective.
To what extent can economics research produced in universities help inform policymakers?
To use a famous phrase about monetary policy, I think economics research produced in universities has great influence on policymaking, albeit with long and variable lags – whether it is Keynesian economics, which shapes the way we think about recessions; whether it is the existence of a poverty line, which shapes the way we think about the question of poverty; whether it is the application of cost-benefit analysis, which we apply as a matter of routine to regulation; whether it is the volunteer army that we now take for granted; whether it is the measurement of correlation and covariance, which is central to the evaluation of the safety and health of financial institutions; whether it is the analysis of and structuring of negotiations, which comes out of the development of game theory; whether it is the thinking about lending of last resort, which was integral to the response to the financial crisis. All of those things have roots in economics research that isdone in universities, and so I think it’s something that’s very, very powerful.
If I had any doubt whether it had relevance, then that was dismissed at the height of the Asian financial crisis when, as Deputy Secretary of the Treasury, I was sent on a trip to Asia to understand what was happening and to provide a certain amount of reassurance on behalf of the US.
I had the chance to meet Zhu Rongji, then the Premier of China and the number two person in the country. It was explained to me quite forcefully by the embassy that I was the Deputy Secretary, not a Cabinet member, and he was the Premier of China, and that it would likely be a brief courtesy meeting; meaning that when it was time to go, I had to go.
At the meeting, I read my talking points, and he read his talking points, and I felt that after about 20 or 25 minutes had gone by, we were done. Then he said: ‘Are you the same Larry Summers who used to be a Professor of Economics at Harvard?’ He knew the answer, but I said, ‘yes’. He asked me whether I agreed with [economist] Stanley Fischer that in a country experiencing capital outflows, the first priority should be to raise interest rates to stabilise the currency, or whether I agreed with [economist] Joe Stiglitz that the first priority should be to lower interest rates to provide liquidity to the financial system and let the currency take care of itself.
We debated those two alternatives for 45 minutes to an hour, while the people from the embassy sat vaguely slack jawed. The Premier of China was spending more time with this US visitor than he had with any other US visitor that year. I guess what I learned is that it wasn’t only in the US that the kind of academic research that economists do turns out to have a very large influence on economic thinking and on economic policy.
This is an edited excerpt from When the President Calls: Conversations with Economic Policymakers (MIT Press, 2019) by Simon W Bowmaker.
