Harvard Rules (7 page)

He could also be a difficult boss. “If you're in a meeting, whatever you say, he will make you feel like you're an idiot,” said one ex-Treasury aide who worked for both Summers and Rubin. Summers believed that his style would inspire debate on the issues, but more often it only inspired debate about his style. “What was fascinating was to watch how people just shut down after a couple of meetings with him,” said another Treasury official. “No matter what people said, he would take them on or demean them in some way. Eventually people would just have nothing to say.”

At one point the above-mentioned aide was drafting a relatively minor speech for Rubin. “The Secretary was okay with it,” the aide remembered. “But Summers came in and said, ‘I just read the draft, and we can't give this speech; this would embarrass the administration!' Just going apeshit. It came down to changing about three words and deleting a paragraph. But he made me feel like I had written a manifesto for the Shining Path.”

With people on his level or higher, Summers was more deferential; he recognized that in politics he was the odd man out. “When Larry came to Washington, he started off thinking that he was smarter than everybody else, and soon realized that he was smarter than everybody else at things that weren't always useful in Washington,” said one Clinton adviser who worked regularly with Summers. “We had a lot of eggheads in the Clinton White House, and a lot of them just kept banging their heads against the wall until they gave up. Larry looked at it as a learning process, and he kept banging his head against the wall until he began to understand the game. It was kind of Spock-like. He never quite fit in, but he was able to gather enough data that he could get by pretty well. He didn't always make a great first impression, but the more we got to know him and the more comfortable he began to feel, the better he did.”

This colleague thought that Summers struggled with the chronic pressure of great expectations. “Al Gore had a similar kind of problem,” the colleague said, “when your parents are going to be disappointed if you don't grow up to be president. Larry seemed like if he didn't win a Nobel Prize, he'd be letting down the side.”

One person who wasn't troubled by Summers' bellicosity was Robert Rubin. The treasury secretary was secure enough not to mind Summers' oversize ego and smart enough to realize that Summers' intellect was an enormous asset to him. “Having an extremely bright and skillful deputy secretary greatly increased Treasury's effectiveness,” Rubin said. “I also thought it made me look good.”

“Summers was obviously smarter, more knowledgeable than Rubin about the economy, but Rubin was never intimidated by that,” said a colleague of both men. Anyway, they did have their intellectual similarities. Before making up his mind on an issue, Rubin liked to hear every point of view, sitting through hours-long meetings and filling yellow legal pads with notes. Summers explained that he and Rubin were intellectually sympatico because of their shared approach to problem-solving. While some people took data as a conclusion, the two of them saw data as an entry point for new questions; Summers and Rubin shared the approach not just to numbers but to all of life's dilemmas.

In other ways, the two men complemented each other. The slender, elegantly tailored Rubin was the money man with the Harvard pedigree—Harvard College, that is—suave, sophisticated, mannered, charming, and at the time worth about $100 million, according to conservative estimates. Summers was a product of the MIT debate team and Harvard graduate school economics, two forums that encouraged an argumentative nature but not the development of social graces. He'd never made any real money, and he had lousy manners. He was loud, overweight, impatient, constantly late, and poorly dressed—seeing him with his tie askew and his shirt half-untucked was routine. A caricature of Summers in the
New Yorker
showed a man with a stubby body, a disproportionately large head, and massive, beagle-like jowls, carrying around packets of money like a stork.

But under Rubin's tutelage, Summers began to evolve. He knew that if he wanted to become more than a deputy secretary, he'd have to conform to the Washington way of doing business, and he worked to smooth his rough edges. “Larry just got sick of being called a bull in a china shop,” one of his colleagues said. Socially, he started to move in high company. He and Victoria bought a 3,300-square-foot house in Bethesda, Maryland, the affluent suburb bordering Washington, from a Washington lobbyist. The couple started attending the Clintonite “Renaissance Weekends.” Summers played tennis with Alan Greenspan and
Washington Post
editor David Ignatius at the tony St. Alban's Tennis Club. Not exactly fleet of foot, Summers wasn't a natural player; his strength was in his strategy, the angles and diversity of his shots, his positioning on the court. “I play a lot better than you'd expect, looking at me,” he said.

Sometimes, the same rule applied to Summers' practice of politics. Former Clinton White House adviser Dick Morris recalled an instance in which Summers felt so strongly about a policy, he went behind Rubin's back to promote it. “In early 1996, I met with Rubin and Summers at the Treasury Department to talk about the tax cuts President Clinton was proposing as part of his long-sought budget deal with the Republicans,” Morris said. “We had a long talk during which Rubin did most of the speaking. At one point, however, he had to duck out of the office to take a call and left Summers and me alone. As soon as Rubin closed the door behind him, Summers leaned over the table and, in a conspiratorial whisper, said that one of the proposals I had been making—cutting the capital gains tax, which Rubin opposed—might be feasible if the cut were applied only to families selling their homes…. Larry told me not to tell Rubin, but he would send me the data. Rubin came back in, and Larry clammed up.”

The following day, according to Morris, Summers did indeed send him information that Morris used to make the case for the tax cut to Clinton. “That was the genesis of the current exemption of capital gains taxes on the first $250,000 of profit on home sales per person.”

Summers could never become humble, but he could at least act it. So he learned to preface his opinions, as Rubin did, with softening phrases such as, “I'm not an expert on this, but…” Or, “It's just one man's opinion, but…” Or, “It seems to me that…” Perhaps remembering the criticism of the Harvard CUE Guide, Summers began to speak more slowly, biting off words in groups of two or three before pausing, sometimes seeming to catch his thoughts after just a single word. But still, he couldn't hide the effort it took to rein in his opinions. The contrast between the often dumbed-down language of politics and Summers' intellectual impatience was too great to disappear entirely. The effect of Summers' makeover was that “he waits till the end of the meeting to tell you your idea is idiotic, instead of interrupting in the middle of it,” said Washington pundit Mara Liasson.

Even as Summers' personal transformation continued, his professional life was increasingly demanding. The Mexico problem, it turned out, was not the end of international financial crises but rather the beginning. Starting in Thailand in 1997, a series of financial panics would sweep Asia, and it would fall to Larry Summers, more than any other individual, to resolve them. At Harvard, few people outside the economics and government departments, the business school, and the Kennedy School were paying much attention to Summers' work. But the deputy secretary was becoming a figure of international renown and controversy, praised as a hero in some parts of the globe, reviled as heartless in others. In fact, Summers may have been better known in Tokyo, São Paolo, and Moscow than he was in Cambridge.

Maybe Harvard wasn't paying full attention, but Summers' experiences with international economics and globalization would shape his attitudes toward the university in ways that the Harvard Corporation might well have understood, but certainly never discussed—not, at least, in public.

 

After he left the Treasury Department, Larry Summers liked to tell a story about what globalization meant to him. The anecdote reflected his optimism about the phenomenon, as well as his criteria for success in globalization's new, ever-more-competitive world.

“In 1997, I took a trip to Africa to work on debt relief,” he said. “We visited a village three hours outside of Abidjan [in Côte d'Ivoire]. We took a kayak there, took a large kayak back. As we were coming back from that village that had just gotten its first water well, somebody stuck a cell phone in my face and said, ‘Bob Rubin has a question for you'…

“All I could think about was that we were in Africa, in the middle of nowhere, three hours from the capital city, and there was this cell phone. Only nine years before I had been in a car with a cell phone in Chicago, and that was a sufficient novelty at that time that I called my family and I called my friends to say, ‘Look, I'm in a car with a telephone.' Nine years later, in the middle of Africa, what does it show? I think it shows a hallmark of a new economy. Globalization—the world is coming together as one. Technology—that's what the cell phone was. And the power of markets, because it wasn't the state-owned telephone company that had put that cell phone service there.

“It seems to me,” Summers concluded, “that the nation, the businesses, the individuals that succeed in the next century will be those that grapple effectively with these three forces of globalization, technology, and the power of markets.”

Referring to the increasing interdependence of national economies and intermingling of cultures, globalization was perhaps the most far-reaching and passionately debated phenomenon of the 1990s. Summers believed that globalization was generally a good thing, that greater connections between countries would promote economic development and higher living standards all over the world. “It seems to me,” he said, “that in the developing world, far more people are poor because of too little globalization rather than too much.”

That view was not universally shared. Skeptics suggested that globalization was code for economic and cultural imperialism—primarily by the United States. Globalization, they argued, would lead to environmental pillaging, the extinction of indigenous cultures, a McDonald's in every village, and American-style capitalism—with American bankers and politicians pulling the strings, controlling all the world's nations. Globalization was great if you were one of the haves, they pointed out, someone with the education and training to take advantage of the changes in the world economy. But the have-nots were finding their traditional ways of life uprooted with no apparent payoff.

Both proponents and critics of globalization pointed to the Asian financial crises of the late 1990s as proof of their arguments. The “Asian flu,” as those crises were known, began in Thailand in the summer of 1997 and followed a similar pattern in South Korea, Japan, Indonesia, Malaysia, and non-Asian countries such as Russia and Brazil. In a sense, the crises were a consequence of globalization: improvements in communications and computer technology, combined with changes in domestic law, led to massive influxes of foreign capital into these countries, which in turn led to investment bubbles, particularly in real estate. When the bubbles burst, the holders of the loans—often American hedge funds and investment banks—rushed to call them in, trying to get their money out of the countries before the money ran out. The resulting capital flight inevitably drained the coffers of banks and governments (the distinction between the two wasn't always clear), forcing bank closures and threatening government solvency. As with Mexico, if just one nation defaulted on its loan payments, the aftershocks could throw the rest of the region—and possibly the world—into an economic depression. The result, especially in the developing world, would be higher rates of unemployment, greater poverty, and more disease. In sum, more human misery.

The organization designed to monitor the international economy, the International Monetary Fund, was unprepared for this string of imploding economies. Like the World Bank, the IMF was a product of the Breton Woods Conference, but its mission was slightly different. Whereas the Bank was essentially a fund for international development, the job of the IMF was to monitor the stability of the international economy. Like the Bank, the IMF is dominated by the United States, which has the largest voting percentage at the Fund and dominates IMF policymaking. The government agency that represents American interests at the IMF is the Treasury Department, and the man at the Treasury who told the IMF what to do was Larry Summers. “More than any other single person, Larry [drove] the substance of the U.S. policy response to the Asia crisis,” Rubin said.

Summers crafted solutions based on the Mexico model, but using IMF and World Bank funds instead of exclusively American money. He would proffer multibillion-dollar loans, but only with strings attached. Each country had to agree to raise its central interest rate; Summers reasoned that foreign investors could be coaxed back into a country only if they received high rates of return on their investments. Higher interest rates reduced the money supply and lowered inflation. That was bad for debtors, making it harder for them to pay off their loans, leading to economic slowdowns and higher unemployment. But creditors were repaid in currency that wasn't constantly plummeting in value.

Summers also wanted foreign governments to open their capital markets to foreign investors, lower their trade barriers, restructure the relationships between governments and banks, and even make specific personnel appointments. According to Strobe Talbott, Summers was so deeply immersed in Russian policy, for example, that he controlled the appointments of ministers in the Russian government. “Conditionality in IMF lending was the economic equivalent of the spinach treatment,” Talbott wrote in his 2002 memoir,
The Russia Hand,
“and the master chef was Larry Summers.”