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INTERVIEWER: What was that something? |
LAWRENCE SUMMERS: It's not altogether clear. My guess is it's just a greater availability of information, which encourages the empowerment of people lower and lower in [the] decision-making chain and makes the losses from trying to centralize the information and decision-making authority much greater than they once wer... |
INTERVIEWER: During much of that 15-year period you were in high levels of government service. Did you know what was going on at the time? |
LAWRENCE SUMMERS: I sensed with increasing force as time went on that the world was changing very rapidly. When we came in in 1992, the dominant concern was that the United States was going to fall behind Germany, Europe, and Japan. There was a sense that those societies that were more investment-oriented, more oriente... |
INTERVIEWER: Let me just back up on Friedman before we carry on with that. Why was he such a devil figure in your youth? |
LAWRENCE SUMMERS: Because he seemed, with his emphasis on individualism, freedom, and markets, to be so unconcerned with fairness and with the needs of the collective. I think what people came to appreciate is that there is a kind of ethic of "finders keepers" which says the people are entitled to what they produce, wh... |
INTERVIEWER: So have those concerns gone away? And if you admire some of what Friedman's done, what's happened to those concerns? How do you reconcile those concerns about Friedman's lack of concern? |
LAWRENCE SUMMERS: I think we've come to find that market-oriented mechanisms can do things to increase equity. The availability of private insurance provides tremendous insulation for millions of individuals. But I think we've also come to see that an excessive emphasis on equity can result in a leveling down rather th... |
INTERVIEWER: So when you were in the Clinton administration you began to sense that there was something big going on. How did you translate that sense into policy? |
LAWRENCE SUMMERS: I think it shaped many aspects of our approach. It shaped our emphasis on physical discipline. If the returns to private investment were steadily increasing and were greater than they'd ever been before, that made it all the more important to the government not to crowd out private investment. If the ... |
INTERVIEWER: Generally how important was the [Clinton] administration's decision to stand by NAFTA? |
LAWRENCE SUMMERS: I think the decision to support NAFTA was a crucial one because it was really a watershed as to whether America was going to stand for larger markets, was going to stand for forward defense of our interests by trying to have a more integrated global economy [in] which countries were growing. So [a] wa... |
INTERVIEWER: But was it difficult to sell NAFTA politically in certain parts in the Democratic Party and to the public in general? |
LAWRENCE SUMMERS: It certainly was difficult to sell NAFTA because it's always difficult to sell open markets. There's a basic cost of open markets, [such as] somebody losing a job, [which is] particular or very obvious, [but] the benefits are much less clear. Who said on Christmas Day, "Gosh, thanks, without open mark... |
INTERVIEWER: One of the more dramatic moments for an outsider was the pace of crisis and how you all dealt with that. When did you first become aware [of] what was going on, [and] what did you do? |
LAWRENCE SUMMERS: It was an unfolding tragedy beginning in late December of 1994 but culminating in early January of 1995, when it appeared that without a substantial commitment from the United States, Mexico would go into default on all its debt, be forced to impose comprehensive exchange controls, and really shut dow... |
LAWRENCE SUMMERS: There is a vision as to how financial crises should be managed which says that outsiders shouldn't take on any role. As Calvin Coolidge famously said, "They hired the money, didn't they?" That kind of thinking was tried in Europe and in the United States in the late 1920s in the early 1930s, most famo... |
INTERVIEWER: Was that knowledge of history in your mind at the time? |
LAWRENCE SUMMERS: Absolutely. Ultimately sometimes you know it, sometimes you don't, but I think that it is examples and past practice that have an enormous influence on policy makers, just as I expect the response to the Mexican crisis and the successful response to the Korean crisis will be influential in the future. |
INTERVIEWER: And when you were Deputy Secretary there, knowing that [Mexican] crisis happened, that you would face [another] one sometime from somewhere, you thought, "When it comes, this is what I might do"? |
LAWRENCE SUMMERS: In some ways. But Tolstoy famously said that every happy family is the same and every unhappy family is miserable in it's own way. There's a sense in which every successful economy is the same, and every economic crisis has its own characteristics, so there's a limit to the capacity for prior planning... |
INTERVIEWER: About that next [crisis] with contagion, when did you get a sense of what was going on, and, as it unfolded, what was your [thinking about it]? |
LAWRENCE SUMMERS: Contagion has become very much a phenomenon, and it's a phenomenon of globalization. Contagion is very much a feature of this new world. It's a reflection of globalization, it's a reflection of information technology. When bad things happen in one place it affects other places for any number of reason... |
INTERVIEWER: When you had a sense that Thailand was in trouble, what did you do? |
LAWRENCE SUMMERS: We convened with other countries and were part of working out a large IMF support program and an extensive dialogue between Thailand and its creditors to ensure that Thailand was able to maintain its financial solvency. |
INTERVIEWER: And as the crisis began to spread elsewhere, was it of a different nature to other crises? |
LAWRENCE SUMMERS: I think the global and pervasive nature of the 1997-98 crisis was something new, and it was not something that we fully foresaw. I think it is a reflection of technology and globalization that the crisis happened in the way that it did. |
INTERVIEWER: As you were living through it, did you have a sense that you were seeing something? |
LAWRENCE SUMMERS: We had a sense that this was a new phenomenon, [that] this was probably the way the world was going to be, with markets increasingly interlinked, even if it had not been the way markets had always been. That was one of the things that encouraged us to take bolder kinds of responses, of not being prepa... |
INTERVIEWER: What would have happened had you not have been there, say, for Korea? What were the stakes involved for the global economy? |
LAWRENCE SUMMERS: Oh, I think the stakes could well have been an enormous erosion in capital flows to all of the Third World, very substantial consequences for financial institutions in the major countries, substantial interference in the pattern of global growth, not to mention the security consequences for the United... |
INTERVIEWER: And as it spread to Russia and ultimately [elsewhere], was it a sense that it was moving faster and quicker and around the world in a way that we've never really seen before? Did that catch you by surprise at the time? |
LAWRENCE SUMMERS: I think the virulence of the crisis was a surprise and was not something that observers expected, but it was something that we came to deal with. And it was part of what shaped our decisions to pursue more aggressive rather than less aggressive approaches. |
INTERVIEWER: Was technology affecting the speed of contagion? |
LAWRENCE SUMMERS: Certainly technology and globalization makes that possible. For example, because they both had currency boards, there were close connections between what happened in the markets in Argentina and what happened in the markets in Hong Kong -- two markets that would have been completely separate 20 years ... |
INTERVIEWER: Just on the contagion, we interviewed William McDonough [president of the Federal Reserve Bank of New York], and he said that he didn't think we'd seen the final effects of that. What's your sense of the long-term impact of that crisis? |
LAWRENCE SUMMERS: I think that the history of Indonesia 15 years from now will be very much affected by the tragedies of that crisis. I think that that crisis may well represent an important change in direction and a beneficial direction for Brazil. So I think those events are going to cast a very, very long forward sh... |
INTERVIEWER: I was reading one of the speeches that you gave in Hong Kong a few weeks ago where you were saying that we're going to see more financial crises in the future, possibly happening more quickly than some in the past. What's your sense of where that's going? |
LAWRENCE SUMMERS: I think it's very hard to say. There are some favorable indications. Countries have more reserves than they used to. Floating exchange rates allow market forces to operate more than governments trying to arbitrarily fix exchange rates. But it does seem to me that the incidence of financial crises may ... |
INTERVIEWER: And are the rules of the game up to date? Do we need new rules? |
LAWRENCE SUMMERS: I think we're getting there. If you look at the history of the American capital market, there's probably no innovation more important than the idea of generally accepted accountancy principles. Transparency is good because it avoids surprises and shocks that cause crisis. Transparency is good because,... |
INTERVIEWER: How should the rules be written, who writes them and what institutions oversee them? |
LAWRENCE SUMMERS: The idea of general accepted accounting principles is a good one. There's no formal government legal institution that oversees that. There are groups in the private sector who are supported in various ways by the SEC who bring that about, but there's no single organization that enforces those rules. I... |
INTERVIEWER: As Treasury secretary, were you working to try to accomplish this? |
LAWRENCE SUMMERS: We worked very hard on the objectives of transparency. We worked very hard on the objectives of modernizing regulation. We worked very hard on the objectives of changing the procedures of the IMF so that it was in a position to respond to this new kind of financial crisis based on confidence and large... |
INTERVIEWER: When the Seattle demonstrations hit, do you think that the contagion crisis somehow fed a sense of anxiety that brought that about? |
LAWRENCE SUMMERS: I don't know that the Seattle protest against globalization, how linked [those demonstrations] are with some of the financial questions. I find them very sad because it seems to me that there's an enormous amount of very valuable moral energy that is being very, very badly misplaced. People in many, m... |
INTERVIEWER: It's a very important point, one that we're going to explore in the film. You talk about best available alternative. What does that actually mean for those people? What are the alternatives, and why is it the best? |
LAWRENCE SUMMERS: There are children who are working in textile businesses in Asia who would be prostitutes on the streets if they did not have those jobs. There are children and there are adults working in different parts of the world in cities who would be forced to go back to land that doesn't have the capacity to g... |
INTERVIEWER: With respect to China, you often hear the argument that trade engagement in the long run not only improves people's lives, but has a political impact as well. |
LAWRENCE SUMMERS: I think it's probably right. My guess is the most powerful force liberalizing China will be the Internet. When I was there I asked about e-mail messages and censorship and so forth and they basically told me everybody under 30 knew how to evade all the censorship. [With] the passage of time, that will... |
INTERVIEWER: With respect to Seattle, when it happened, did it catch you by surprise? |
LAWRENCE SUMMERS: A little bit, but I think there were ample warnings that there was this very strong current of opinion, and to think it's misguided is not to think that it's not strong. |
INTERVIEWER: What did you advise the president to do politically, or what did he do politically in response to that? |
LAWRENCE SUMMERS: What's very important is to make clear that this is not about helping rich people at the expense of poor people, and to emphasize that we share the concern as much as the people that demonstrated in Seattle that the air be cleaner, that workers be treated decently. Their concerns are our concerns. The... |
INTERVIEWER: Could you just give us a summary of the administration's approach to China, particularly with regard to trade issues? |
LAWRENCE SUMMERS: We believe that China represents a large commercial opportunity for the United States. We believe that no global economic system can be complete without one-fifth of humanity. We believe any country that enters the global economic system has to do so respecting the rules of the road, and therefore tha... |
INTERVIEWER: The stakes are that high? |
LAWRENCE SUMMERS: The stakes are. Probably no issue is more important for global stability and chances that our children will be drawn into conflict than the relations between United States and China. |
INTERVIEWER: So that political relationship has an enormous economic consequences. |
LAWRENCE SUMMERS: There are enormous both political and economic consequences, and I think that what many people fail to appreciate is how much a sound economic relationship can do not just to the economic areas, but also in the political arena. |
INTERVIEWER: It goes back to the power of ideas. |
LAWRENCE SUMMERS: It goes back to the power of ideas, it goes back to the benefits of posterity. Almost every country in the world with a proactive income above $10,000 is democratic, and the vast majority of poor countries are not democratic. When we create the conditions for more rapid economic growth, we also create... |
INTERVIEWER: I want to get your sense of where the Bush administration might be heading, and whether you feel like there is a danger of some kind of disengagement or less emphasis on global economic issues and what the consequence of that would be. |
LAWRENCE SUMMERS: I think economic internationalism is the best possible forward defense of our interests, whether it's combating infectious diseases in the countries where they first start to spread, whether it is encouraging countries to reduce their contribution of global pollution, whether it is containing financia... |
INTERVIEWER: We don't know what's going to happen with the economy, but do you sense that there might be a danger of that kind of disengagement? |
LAWRENCE SUMMERS: I hope that the United States is able to avoid the mistakes of turning inwards that are very common among great powers after great conflicts. And now, after the Cold War, the United States' challenge is to avoid that turn inwards. We met that challenge after the Second World War, but in many ways we m... |
INTERVIEWER: Let me just finally ask you a question about a story that I've heard, the first time you used a cell phone when you were river rafting in Africa [and] talked to Secretary Rubin. |
LAWRENCE SUMMERS: In 1997 I took a trip to Africa to work on debt relief. We visited a village three hours outside of Abidjan [in Cote 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... |
INTERVIEWER: What is the role today of Keynes and Hayek? |
LAWRENCE SUMMERS: Keynes was a profoundly important economic thinker, and his notion that the right public policies created the environment in which markets could work and markets could flourish remains a valid one and a powerful one to this day. The particular concerns that Keynes focused on as he wrote the general th... |
INTERVIEWER: The reactions of those opposed to or in support of his ideas? |
LAWRENCE SUMMERS: The opposing reactions that he stimulated. Without Keynes there wouldn't have been Milton Friedman. In the same way, without the Keynesian point to oppose, I suppose Hayek's writings would have played out very, very differently. |
INTERVIEWER: Do you want to say a word about the influence of Hayek in general? |
LAWRENCE SUMMERS: Hayek's ideas that the price system is a consolidator of information and a distributor of knowledge, as well as simply a way of assuring efficiency and exchange, is probably as penetrating and original an idea as microeconomics produced in the 20th century. He is a man who is very much ahead of his ti... |
INTERVIEWER: Who were some of his big disciples? |
LAWRENCE SUMMERS: Friedman, George Stigler, the Chicago School of Economics was very much influenced by Hayek. Certainly Thatcher, and [Anatolii] Chubais in Russia, Vaclav Klaus in the Czech Republic. Hayek has probably the best book expressing the critique of communism as an economic system because it assumed benign m... |
INTERVIEWER: What do you think of the left parities -- Democrat, Labour -- what does it mean that they've moved to accept the market? |
LAWRENCE SUMMERS: I think in many ways truly progressive parties have moved beyond some of the old debates. The old debates were about what the role of the market was, what was the role of the state. I think it's now generally appreciated that it's the market that harnesses people's initiative best, it's the market tha... |
INTERVIEWER: In political layman's terms, describe the rest of the contagion crisis. |
LAWRENCE SUMMERS: You could have seen perhaps as serious an economic downturn as we'd seen any time since the Great Depression if that situation had been allowed to get out of control. You could have seen a breaking down of traditional security structures between North and South Korea, within Latin America, in Southeas... |
Cultures worldwide tackle the winter blahs with nibbles that bring cheer during the coldest, darkest time of year. Instead of your usual go-to winter desserts, why not whip up something a little different this year? |
Any of these treats from the corners of the globe should sweeten your family’s day considerably. |
With their centuries-old baking traditions and great artisanal ingredients, the French know how to do cake. Indulge in your own Gallic celebration with a classic bûche de Noël, or Yule log, a snow-dusted confection that will enchant children and adults alike. |
While many French families buy their bûches de Noël at market, others stay home and cook together, creating lasting holiday memories. You can, too. Find an easy, family-friendly recipe, and get down to some very satisfying business. |
Tip: Seek out real French butter when you hit the supermarket. It’s cultured and has a higher fat content, so it has a richer, slightly tangier taste. |
And when you and your loved ones find yourselves slathering it on any available bread before you even start making your bûche, remember to save some for the frosting. |
Kwanzaa, a seven-day winter holiday, was created to honor the ancestry and history of Americans of African descent. Each day, families ask each other, Habari gani? (Swahili for What’s the news?) and share meaningful news together, often over meals combining Southern soul food influences with ingredients that have Afric... |
Habari gani? For one thing, a scrumptious sweet potato pie with pecans and coconut whipped cream, that’s what. No need to limit serving this Kwanzaa dish to your vegan guests — it’s luscious enough to please the most discerning palate. |
Tip: For a slightly different take on your pie crust, try using sustainable red palm oil in place of shortening in your usual recipe. |
With their sparkling jam topping and sprinkling of powdered sugar, Mexico’s Galletas de Navidad look gorgeous on a platter. |
These sheet cookies are also easy to make, so they’re perfect for the holiday rush. If the kids don’t eat them all, you’ll have plenty ready when guests drop in. |
Tip: Enlist the little ones for simpler tasks like sifting the sugar onto the prepared cookie base. They’ll never forget how they helped. |
On the longest night of the year, many residents of Iran celebrate Shab-e Yalda, a winter solstice tradition that has endured over centuries and across faiths. |
Celebrants eat brightly colored foods like pomegranate and watermelon, which symbolize the light of dawn. |
They also tuck into warm, sweet delicacies such as the saffron- and rosewater-scented Persian doughnuts known as bamieh. |
Bring a little extra glow into your family’s holiday with these rich, golden pillows of goodness. |
Tip: Rosewater is widely used in Indian cuisine as well, so try an Asian or Middle Eastern market if your local grocer doesn’t sell this global staple. |
In a pinch, sub in vanilla. |
Ready-made plum puddings are everywhere on English store shelves come the holiday season. Try any one of the appealing ready-made versions — or make your own, chock-full of spiced fruit and drenched in buttery sauce. |
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