Harvard Rules by Richard Bradley

“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