From demonetisation to inequality, how he would manage ‘Brexit’, and the different leadership styles of Bill Clinton and Barack Obama: Lawrence H. Summers good-naturedly answered an extraordinarily wide range of questions posed by Dean Peter Tufano and Oxford Saïd students when he visited Oxford on 16 March 2017.
On India’s demonetisation
Summers has long been an advocate of abolishing high-denomination bank notes, such as the $100 bill in the US and the 500 euro note, ‘because they facilitate crime and not exchange’. He said that he had occasionally had one or two $100 bills in his wallet, but mostly simply did not come across them. Given that there are in circulation between 30 and 50 $100 bills for each US citizen, it is easy to conclude that ‘they are not mainly being used for good purposes’.
However, he was surprised by the actions of Indian Prime Minister Narendra Modi, who dramatically decided to demonetise the existing 500 and 1000 rupee notes by declaring that they would suddenly stop being legal tender. These notes are worth about $15 and account for roughly 80% of all tender.
‘The big money corruption in India is not happening amongst people holding money in the equivalent of $15 bills,’ said Summers, saying that he found it even more bizarre that Modi should follow this announcement with the introduction of a new high-denomination note. It suggested that the action was ‘political theatre rather than an appropriate means of supporting law enforcement’.
Long term, he thought it may turn out to be less damaging than expected, but it was, he said, ‘ill-advised’.
On income inequality
Income inequality is going down on a global basis, but in-country it is going up. Globalisation means that ‘it is now possible to combine rich country thinking and creativity with poor country labour in a way that was not possible before,’ said Summers.
This, of course, is ‘good’ for rich-country creativity: innovations such as the iPhone could be conceived in the US but manufactured at relatively low cost in Asia. This prompts an upwards growth of wages in Asia, but what’s left behind in the rich countries is ‘a large number of people not capable of levering globalisation but who don’t want to have their lives torn asunder by the need to compete with cheap labour and robots’. As a result, they are impoverished.
How to deal with this is ‘the challenge for our time,’ he said, ‘because the world won’t work unless there are successful middle classes’. He certainly did not think that an effective approach would be to ‘take this situation and layer on it regressive tax cuts that disproportionately favour those at the top’. There was, instead, a need to work internationally and to make investment in local infrastructure. This would be a source of jobs for the middle classes, a source of pride, and an investment in future productivity – and a ‘more productive strategy than simply trying to stop technology or stop the success of developing countries’.
On voting for Brexit and Trump
Summers saw both the vote for Brexit in the UK and the election of Donald Trump as US President as a ‘revolt against the cosmopolitan elite who regard themselves as citizens of Davos, with more feeling for the global poor than the local middle class’.
He pointed out that ‘there are people in London who care more for New York and Kolkata than for Newcastle’. For things to change, ‘rebuilding Newcastle has to be as important as rebuilding the Middle East’. In other words, we need to develop a ‘responsible nationalism’, which is certainly better than ‘heedless internationalism’. And priorities need to change. Summers asked why ‘negotiating trade agreements that protect the Mickey Mouse trademark in the Philippines … are a higher order concern in the G20 than tax evasion by oligarchs.’ We need, he said, to recognise the importance of people who ‘work hard and play by the rules’.
On the implementation of Brexit
Asked by Dean Tufano how he would go about implementing Brexit, if he had that responsibility, Summers started by assessing the key issues. Most importantly, he felt, the UK would want trade in goods and services to feel like a single market, and to keep economic rights for financial services to operate in London. But ‘we have to live with the perception that British people want to control access to who’s a British person’.
He felt that maintaining market access would be dependent on paying an annual fee, and that there might be a way of positioning an agreement of financial flows so that it looked like a victory for both sides. Controlling the borders would not necessarily mean closing the borders, but it would mean that there was no automatic right for EU citizens to settle and work in the UK.
No deal or a minimalist deal would be ‘an extravagant disaster, resulting in lower living standards for British people and a lower standing of Britain in the world’. In the best deal he could envisage, ‘Britain will have lost much of her political power; the single market will stay – at a cost – and the UK will have control of its own borders (which won’t mean very much). Essentially, it will have paid a lot of money for something not very important and at the price of loss of political power’.
Summers named Barack Obama and Bill Clinton as two of the most impressive leaders he had worked for, though they were very different.
With Obama, ‘If you had a meeting with him at 9.15am, you’d better be in your office at 9.10 because there was a good chance the meeting might start early,’ he said. ‘This was not a risk with Bill Clinton.’
Obama was strategic, disciplined, and focused. ‘If you sent him a memo before the meeting, he would have read it and you wouldn’t need to go through it again. He provided strategic guidance only on questions that he needed to as President.’
Clinton, he said, might or might not have read your memo. If he had not, he would ‘master it in front of you in about two minutes … He wanted to do your job as well as everyone else’s, and would have a story about everyone … Whatever the subject was he had something to say’. He was much less disciplined than Obama, ‘but because of all that intellectual energy, was also very inspiring’.
Which, as Summers said, just shows that there’s no single right way to lead: ‘You have to do it in a way that is true to yourself and your personality’.
His most interesting point about leadership was that both Obama and Clinton understood that if you didn’t like politics, you probably shouldn’t be President. ‘Both compromised all the time,’ he said. ‘Both often chose the easy course, not because they were craven or wanted to win the next election, but because they understood that goodwill is like capital – you can’t function without it.’
For example, in 1995 Bill Clinton used his executive power to authorise a $20 billion loan to Mexico to stabilise the peso. Congress had previously refused a similar loan, but Clinton ‘thought it was important and the right thing to do.’ Similarly, Obama propped up the banks after the financial crisis. ‘You have to choose your spots and build up goodwill for the most important moments,’ concluded Summers. ‘It’s on those that leaders are judged.’