World Bank Economist Takes a Different Tack

When Harvard economics professor Lawrence H. Summers was tapped to be the World Bank’s chief economist early last fall, conservatives grimaced and liberals smiled with joy.

Summers had been chief economic adviser to Democratic presidential candidate Michael S. Dukakis in 1988 and is a nephew of liberal economist Paul Samuelson. The assumption was that he would advocate changes to slow the bank’s push toward more free-market economic policies.

But after six months of helping to shape the bank’s prescriptions for curing ailing Third World economies, Summers has surprised them all.

He has unabashedly urged developing countries to follow the aggressive, market-oriented economies of East Asia, declaring that “they have to realize that governments can’t be omniscient enough to get things right in every market.”

He has pointedly sidestepped the demands of traditionally Democratic special-interest groups--such as environmentalists and organized labor--that the bank subordinate some of its economic objectives to their goals.

And he has become a virtual tent-preacher, touting free-market economics to developing countries.

“The rules that apply in Latin America or Eastern Europe apply in India as well, and are as likely to work there as well as in the other places,” he contends. “(Third World governments) need to understand that there is no longer such a thing as a separate and distinct Indian economics--there is just economics.”

As a result, it’s the conservatives who are smiling now.

“The bank sent a very interesting signal when it picked a man who had distinguished himself as a mainstream economist and specifically not as a development economist,” says Nicholas Eberstadt, a policy analyst at the American Enterprise Institute, a conservative Washington-based research organization.

“The separation of development economics from mainstream economics (in the past) has been very unhealthy--as though separate rules of economics apply exclusively to poor countries and low-income people.”

In truth, however, no one should have been caught off guard. Although the brainy, slightly rumpled-looking Summers is not likely to be seen in public with an Adam Smith necktie--the hallmark of free-market economists--he’s hardly leftist, even by U.S. standards.

During the Dukakis campaign, the 36-year-old economist was clearly to the right of other Democratic economic advisers--such as Harvard colleague Robert Reich, who advocated broadening the government’s role in supporting U.S. industry.

And, despite his liberal pedigree, Summers had worked briefly for Ronald Reagan--on the President’s Council of Economic Advisers--when his mentor, Harvard professor Martin S. Feldstein, brought him to Washington for a stint on the council staff.

Something of a prodigy when he joined the Harvard faculty in 1983, Summers, who grew up in suburban Penn Valley, Pa., on Philadelphia’s Main Line, won tenure at the tender age of 28 and has earned a reputation as a maverick--and politically savvy--economist.

During the Dukakis campaign, Summers raised hopes in Latin America--and drew a wary eye from many conservatives--by suggesting that a new Democratic Administration would seek to give “a jump-start” to Central and South America by easing the region’s debt burden.

He also suggested that the United States may have to allow the dollar’s value to fall further in order to bring the U.S. trade deficit closer to balance.

Ironically, Summers’ experience during the 1988 U.S. presidential campaign pitted him directly against another outspoken young economist who since has become more nationally known--Michael J. Boskin, now President Bush’s chief economic adviser.

The onetime political opponents actually had a lot in common. Both favored easier money and credit policies, incentives to encourage savings and a push to balance the federal budget gradually.

“I don’t believe you can permanently expand the economy just by running expansionary politics,” Summers told an interviewer during the campaign.

It’s too early to tell how big an impact Summers ultimately will have on the World Bank’s slowly changing development policies.

He has been quietly ensconced in the bank’s sprawling, ever-expanding headquarters since mid-January, and only recently has he become visible publicly.

And the bank is about to change leadership again: Current President Barber B. Conable Jr., a former New York congressman, will be replaced by Lewis Preston, former chairman of the J. P. Morgan banking operation. It’s unknown what policies, if any, Preston wants to change.

Conable is retiring to spend more time with his family.

So far, Summers’ pronouncements have not proved particularly satisfying to Dukakis’ 1988 constituency.

Despite strong opposition by environmentalists and organized labor, he enthusiastically endorses the Bush Administration’s controversial proposal to negotiate a free-trade arrangement with Mexico, which he says should serve as a model for other developing countries.

“You can understand the position of labor here, in that you know that some of their people are going to be hurt, even though more jobs will be created elsewhere,” Summers explains. “But the Greens (environmentalists) are nuts. Their position makes no sense, even in their terms.

“The United States should regard this as a moral imperative,” he argues. “At our urging, Mexico has put itself through the equivalent of four Gramm-Rudmans. I shudder to think of the impact on the rest of the developing world if we don’t open our markets to Mexico.” (Gramm-Rudman is the federal law that has required the government to meet specific deficit-reduction targets or face automatic across-the-board budget cuts.)

And Summers sees the effort to persuade other Third World countries to follow the example of such East Asian countries as Hong Kong, South Korea and Taiwan as the World Bank’s biggest challenge through the rest of the century.

“It is clear enough what can happen once you get government out of the way, but we still don’t know what are the sufficient conditions for economic growth once those obstacles are out of the way,” he says. “That is our agenda for the ‘90s.”