Larry Summers

Larry must have felt right at home. The new President of Harvard was greeted by a noisy demonstration outside the Loeb Hall press conference where his ascendancy was announced earlier this year. Summers’ career has been marked by periodic protest due to his unflagging commitment ‘to letting the market decide’. He might argue that he comes by this honestly as the nephew of the dean of liberal economists, Paul Samuelson. Summers, the former chief economist of the World Bank and most recently Treasury Secretary in the Clinton cabinet, has managed to land on his feet after the Bush coup d’état in Florida. With the reported help of his longtime Wall Streetwise mentor, Robert Rubin, Summers was picked for the Harvard job by a blue-ribbon panel. The demonstration against him was organized by the University’s Progressive Student Labor Movement – the local link to the burgeoning campus movement against sweatshop labour in the global clothing trade.

Summers’ commitment to the free market has outweighed all other values, whatever the rhetoric. He has usually been what singer Jackson Browne describes as ‘one of the men in the shadows’ – making sure from behind the scenes that the free-market orthodoxy of the Washington Consensus held firm. His meteoric rise to the top had him jump from his doctorate year to Reagan’s Council on Economic Advisors. At 28 he was the youngest professor to be granted tenure at Harvard.

But it was when he landed the job at the World Bank that he started to emerge as a major figure shaping policy in the interests of US capital. His one big political mistake at the Bank was when he penned a memo on 12 December 1991 on the impeccable economic logic of locating dirty industries and dumping toxic waste in poor Southern countries. In the memo Summers opined: ‘I think the logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.’ He concluded the memo with the caution that his analysis ‘could be turned around and used more or less effectively against every bank proposal for liberalization.’ He turned out to be prophetic. The memo was leaked and sparked a huge controversy that helped fuel a movement to ban the trade in toxic waste.

However Summers weathered the storm and went on to become a major architect of international policy. As Clinton’s Treasury Secretary since 1997 he is reported to have been the most powerful cabinet member after the President. He has been a stalwart in guarding the economic orthodoxy of the IMF and particularly the World Bank. Since the 1980s the Bank has come under heavy criticism from large portions of the aid-and-development community and governments from the South who have been forced to administer highly unpopular structural-adjustment programmes.

In response the Bank became more pluralistic, incorporating at least the rhetoric of change, adopting screens for ecological impact and gender, for example, and hiring a number of its critics like the environmental economist Herman Daly. While most such critics were marginalized within the Bank – Daly eventually quit in frustration – another critic, Joseph Stiglitz, did assume an important job as the Bank’s chief economist in 1997. In the wake of the meltdown of the Asian economies Stiglitz made a name for himself as an outspoken critic of the structural-adjustment policies of the IMF and by implication the World Bank. Stiglitz felt that these policies increased the vulnerability of Third World economies and of the poor in particular.

Summers was reportedly furious and demanded that Stiglitz be silenced. Gradually pressure began to build from the US Treasury and by November 2000 Stiglitz was forced to resign. The final bit of leverage Summers needed came when World Bank President James Wolfensohn showed interest in a second term. Without the approval of the US Treasury that was never going to happen. Stiglitz paid the price.

But Summers wasn’t through yet. One of Stiglitz’s protégés, Ravi Kanbur, had been put in charge of writing the Bank’s World Development Report 2000 focusing on world poverty. The Report was to be released in September but by June Kanbur felt in all conscience he couldn’t continue. When the report finally appeared, Kanbur’s sections on the necessity of social spending, redistributive tax policies and control of speculative capital were either gone entirely or had been significantly watered down. With the help of pressure from the US Treasury the politics within the Bank remained firmly in favour of the Washington Consensus.

We haven’t seen the last of Larry Summers. With the Republicans in power in DC there is little danger that anyone will stray too far to the Left. But when the time comes again for the Democrats to take over the helm keep your eyes out for Summers. He will be there somewhere, making sure that the interests of major banks and corporations do not take second place to any outburst of populist zeal for social justice.