Harvard Rules (8 page)

His opponents said that Summers was taking advantage of the situation to force countries to open their markets to American business on disadvantageous terms. Summers' response was simple: If the IMF was to lend your country billions of dollars—money that might not get repaid—didn't it have the right to dictate the terms? He argued that countries that agreed to the IMF's conditions would be more likely to get their economy back on track, the most powerful means of helping poor people. Yes, IMF conditions would lead to higher unemployment in the short term, but there was no way around that. “Battlefield medicine,” Summers would argue repeatedly, “is never perfect.”

Summers' approach, known as the “Washington Consensus,” was attacked from both the right and the left. Conservatives didn't like the Washington Consensus because it meant using American money to intervene in the internal affairs of other nations. “If it were up to me,” said former GOP congressman Jack Kemp in 1998, when Congress was voting on the U.S. share of IMF funding, “I would not give one dime, one nickel, one cent to the IMF, which is asking our taxpayers for [billions]—until it changes its policies and top personnel, without Mr. Summers in the running to lead it.”

But perhaps the most vociferous criticism came from liberals who argued that the Washington Consensus was unduly punitive. Ensuring the payback of loans punished the world's poor while rewarding wealthy and irresponsible investors, they said. Why should the IMF bail out Wall Street banks who'd made reckless loans or hedge funds who'd invested in a bubble? “I think it's a mistake to blame the doctor instead of the disease,” Summers responded, and, besides, there were no perfect solutions. In the long term, the countries in question would benefit from greater “transparency” in their financial affairs and less “crony capitalism,” the dispensing of sweetheart deals to intimates of powerful people.

Perhaps the toughest criticism of Summers came from an unexpected source: the chief economist at the World Bank, an American named Joseph Stiglitz. Unlike most of the anti-globalization activists who still criticized Summers over the World Bank memo, Stiglitz had the academic credentials to take Summers on as an intellectual peer—or perhaps even from an elevated position. A graduate of Amherst who'd gotten his Ph.D. in economics at MIT, Stiglitz began his teaching career at Yale, where he received tenure at age twenty-seven—one year younger than Summers was when he received tenure at Harvard. In 1979, at the age of thirty-five, Stiglitz won the John Bates Clark Medal, the same award that Summers would win at thirty-eight. Stiglitz was a member of the Council of Economic Advisers from 1993 to 1995—the period when Summers had hoped to head the CEA—and then became its chair until 1997, when he moved to the World Bank.

Stiglitz did something that was virtually unheard of for an insider at the World Bank: he criticized it—in public. The Washington Consensus, Stiglitz argued, was a one-size-fits-all program that caused more misery than it alleviated. The Treasury was pushing policies for other countries that the Clinton administration would never tolerate at home. Neither Summers, the World Bank, nor the IMF “wanted to think that their policies were failures,” Stiglitz would later explain. “They stuck to their positions, in spite of what I viewed as overwhelming evidence of their failure.”

To Stiglitz, Treasury, the World Bank, and the IMF had all become tools of Wall Street, a means of extending American financial interests masquerading as economic benevolence. Summers, once a skeptic of the free market, had become one of its more ardent defenders, and Stiglitz believed that the former was tailoring his positions to please Wall Street, one of Treasury's most important constituencies, so that the Street would support Summers' eventual nomination as Treasury secretary.

Summers bristled at the criticism, but did not respond in public until after he'd left Treasury. “Given the circumstances, I think the advice that we gave…was right,” Summers said. “Stiglitz would always like there to be a larger audience for his papers, but I think it's not serious to suggest that officials at the IMF or the U.S. Treasury were unaware of the field of microeconomics or unaware of research on credit rationing.” In other words, Summers knew that IMF conditionality would hurt the poor. But he still thought it was the best solution for dire circumstances.

There were those, including Stiglitz, who suspected that Summers had actually responded to Stiglitz's criticisms more directly: by forcing Stiglitz out of his position as the World Bank's chief economist. In 2000, when Stiglitz's term was up, he was due to be reappointed by World Bank president James Wolfensohn. But Wolfensohn informed him that the appointment would come only if he promised to silence his criticism, a condition Stiglitz declined to meet.

Stiglitz left the Bank to teach at Columbia University and write an influential bestseller called
Globalization and Its Discontents.
In 2001 he would win the Nobel Prize for his work on “information asymmetries”—the idea that markets are imperfect because their participants have unequal access to information. “Even small degrees of information imperfections can have large economic consequences,” Stiglitz explained. As developed by him, it was the kind of big idea that had eluded Summers.

But the memory of his ouster still stung, and Stiglitz blamed Larry Summers. Summers couldn't handle criticism, especially from another economist, Stiglitz thought. He didn't believe in dissent or the public airing of conflicting opinions. Stiglitz believed with all his heart that Summers, with his power over the World Bank, had forced Wolfensohn either to neuter or to exile Stiglitz, but he'd never be able to prove that. Summers, Stiglitz would tell associates, had been careful “not to leave his fingerprints” on the episode.

For the most part, however, Summers received positive press during his Washington years. Reporters appreciated him. He had made himself an excellent source of background information for the beat reporters covering Treasury, and he had a gift for explaining complicated situations lucidly and colorfully. When he did speak on the record, he showed a well-honed flair for the sound bite, as when he compared modern capital markets to the invention of the jet. “On the one hand, it's faster and gets you where you're going more comfortably and more rapidly,” he said. “On the other hand, crashes are that much more spectacular.” True, Summers tended to repeat his best lines, but they were still more interesting than the usual government monotone.

Anyway, the U.S. economy was roaring along, largely unaffected by the crises abroad. The IMF remedies may have inflicted painful consequences overseas, but the reporters in Washington paid little heed to what was going on in Malaysia or Moscow, and they wrote glowingly about the Clinton economic team. The most egregious example came in February 1999, when
Time
put Rubin, Greenspan, and Summers on its cover, calling them the “Three Marketeers” and “the committee to save the world.” In a breathy, you-are-there style, the article's lead portrayed a moment of crisis at which Rubin happened to be bonefishing and Greenspan playing tennis. Of Summers,
Time
said, “You really should calm down about this phone-ringing stuff, but you are the Deputy Secretary of the Treasury, and this past year, for all its chaos and tumult, has been about the most exciting you could imagine. It's the holiday season, and you are eager to get to your family and all that, but boy, this holding the world economy by the hand is even better than advertised.”

Summers' presence on the magazine cover raised some eyebrows at the White House, where not everyone thought a deputy cabinet secretary deserved equal billing with Bob Rubin and Alan Greenspan. In the Washington pecking order, deputies were supposed to be anonymous. But the photo did reflect how influential Summers had become and the closeness of his relationships with the other two men. Rubin, Greenspan, and Summers dined together weekly, and their disagreements were as collegial as they were rare.

Summers' presence on the cover of
Time
was also a sign that Bob Rubin was grooming his successor. Though Rubin would not talk about it until seven years later, in 1996 he and Summers had cut a deal. Summers agreed to turn down other job offers and stay at Treasury after Bill Clinton's reelection. In return, Rubin would ask the president to agree to nominate Summers to replace Rubin when he stepped down, which he expected to do in 1998. Clinton agreed to go along with the plan.

As it turned out, Rubin stayed until mid-1999, not wanting to look like he was abandoning the president during the Monica Lewinsky scandal. But the secret arrangement stayed in effect for two and a half years, unknown to anyone except the three men and a handful of their closest staff members. Just as he would five years later with the Harvard Corporation, Rubin had secretly helped Larry Summers acquire a powerful position. When Summers and Rubin dealt with foreign governments, they pushed for transparency. But when it came to their own fortunes, different standards applied.

And Rubin didn't just promote Summers internally; he worked to polish Summers' public image. Both men agreed to cooperate with the
New Yorker
and
Time
in part to promote the perception that Summers was the inevitable heir apparent. So, whereas Rubin used to affectionately tease Summers in public, he now began to refer to his deputy as “Dr. Summers,” and conspicuously deferred to Summers at public events. And even before he'd announced his resignation, he suggested to the
New Yorker
that Summers “would make a very good Treasury secretary.” The pre-emptive strategy was calculated to defuse resistance to Summers' ascension.

Rubin announced his resignation on May 12, and the Dow Jones instantly dropped 213 points. President Clinton promptly nominated Summers to take Rubin's place, and by the end of the day the market regained all but twenty-five of those points. To the financial community in New York, Summers' appointment meant continuity, competence, and a reliably pro-business treasury secretary. The Street probably wouldn't have felt comfortable with the Larry Summers who had advised Mike Dukakis on industrial policy, but it had no problem with the Larry Summers whom Bob Rubin had groomed.

The Senate Finance Committee held a hearing on Summers' nomination on June 22, and Summers showed how much he'd learned about politics during his years in the nation's capital. He brought Vicki and their three children, twin girls named Ruth and Pamela and a younger son, Harry. “Is it not encouraging that Larry can have such beautiful children?” committee chairman William Roth said from behind his microphone. “Some apples fall far from trees,” Summers demurred. When Florida Republican Connie Mack asked Summers if he still felt that “efforts to cut the estate tax are selfish,” Summers ate the requisite crow: “No, I do not, Senator Mack,” he confessed. “What I said was wrong.” Concluded Iowa senator Charles Grassley, “You seem more relaxed now than when I first got acquainted with you, and you smile occasionally.” All the smiling, whether it was in a Senate office building or on the cover of
Time,
paid off. The full Senate approved Summers' nomination by a vote of 97–2.

On July 2, President Clinton swore in Summers as treasury secretary at a ceremony in the White House Rose Garden. “I felt ready,” Summers said. Nonetheless, it was an emotional moment. As he thanked his parents, his family, and Robert Rubin, Summers was on the verge of tears. “I can't begin to describe how much I have learned from Bob Rubin,” he said.

Seventeen months later, the United States Supreme Court would rule on the matter of
George W. Bush v. Albert Gore, Jr.
The decision was heartbreaking for Gore, of course, but it also had a negative impact on Summers. The vice-president, who had once blocked Summers from a White House post, had come to appreciate Summers and was prepared to reappoint him. But now Summers' tenure as treasury secretary would always have the anti-climactic quality of stewardship. There was only so much you could do in the last year and a half of a lame duck administration.

When the Republicans moved in, Larry Summers retreated to a sinecure at Washington's Brookings Institution, a liberal think tank. But his heart wasn't in it; Brookings, a rather dreary building of long, uneventful corridors, is full of public policy wonks grinding away behind closed doors. Worse still, Summers' marriage was falling apart, a victim, some said, of his hectic schedule and obsession with work.

“There are trade-offs in life,” Summers said some years later. “You can't be negotiating through the night to prevent Mexico from going bankrupt
and
tucking your kids into bed that night. And you can't get in a position to do that without having worked many long nights at the office…. Have I gotten that balance right at every point in mylife? There are choices that if I had to do again, I would do differently.”

By all accounts the divorce, which wouldn't be finalized until 2003, was deeply painful for both husband and wife. Victoria Summers received the house in Bethesda, custody of the children, and some $8,000 a month in child support. She also took back her maiden name, becoming Vicki Perry again.

Summers had a hard time talking about the divorce. According to several sources familiar with the Harvard presidential search process, Summers did not tell the Corporation of his divorce while it was considering him. An oft-repeated story has that Harvard did not actually learn of the divorce until it received a phone call from Victoria Perry, who pointed out that it had not been necessary to send her an invitation to her ex-husband's inauguration.

At the end of the Clinton administration, Summers could easily have hopped the Delta shuttle to Manhattan and made millions. That's what Bob Rubin had done, becoming chairman of the executive committee at Citigroup and pulling down a reported $25 million a year. But getting rich wasn't what drove Summers. He was a young man, just forty-six in 2001. His energy was remarkable, his drive undiminished. He missed the immediacy, the prestige, the urgency of Treasury—the knowledge that he, Lawrence Henry Summers, was helping to shape the world of the twenty-first century. He missed the limos and the private jets and the one-on-one meetings with foreign leaders. He missed having a rapt audience for every public utterance he made, the heady realization that with one slip of the tongue, he could move markets, make tens of millions of dollars of wealth vanish just like that. He would never do it, of course, but just the knowledge that he
could
…He missed that adrenaline-boosting sense of being important. Being powerful. Being
alive.