Bridging the divide: when policy profits from research.

Summers, Lawrence

In an interview with the Public Broadcasting Service (PBS), you said, "If one wants to understand why some countries are more successful and some countries are less successful, the answer lies overwhelmingly in their own policy choices." Is there a correlation between nations' integration of academic research into policymaking and their success in the world economy?

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I would not want to identify successful integration of academic research as the dominant determinant of a country's success. On the other hand, there is no question that US prosperity over the last 50 years has had a great deal to do with research that has come out of universities, whether it is the Massachusetts Institute of Technology (MIT) and Route 128, Stanford and Silicon Valley, or, in a previous period, the land-grant colleges. There is enormous potential for academic research to have a positive impact.

In terms of national policy, countries that have proceeded thoughtfully have done very well: for example, the job that Mervin King, a former economics professor, is doing as the head of the British Central Bank; the crucial role that Domingo Cavallo, an economics professor, played in Argentine economic reform; or the very influential work that Stanley Fisher, a former MIT economics professor, has done at the IMF. All of these are cases where an academic background and academic knowledge contributed very substantially to successful outcomes.

The New York Times credited you as being the principal architect of the Mexican economic recovery following the 1995 Mexican economic crisis. Could the integration of academic theory and policy have prevented the Mexican economic crisis of 1995? Did you use theory to structure Mexico's recovery?

Nobody is going to be able to predict market crises. If a market crisis is easily predictable, somebody can profit by buying or selling. It is in the logic of market crises that they are not going to be completely predictable. Experience with stabilization programs and experience coming from the vocabulary of economic research was an enormously valuable thing for me; for President Ernesto Zedillo, who has a Yale University Ph.D. in economics; and for Mexican Finance Minister Guillermo Ortiz, who has a Stanford University Ph.D. in economics. I think our shared vocabulary of economics and shared set of economic theories were enormously constructive in working through the response to that crisis. We absolutely did use academic theory to address the crisis.

You have stated that economic theory has a particularly strong impact on policymaking. Do you think that other academic fields such as international relations have a similar influence?

There is no question that what US President John F. Kennedy learned at Harvard as he wrote his undergraduate thesis Why England Slept was very important in shaping the approach he took toward Asia and Vietnam. Henry Kissinger was enormously influenced by his study of Metternich and the stable order that was created for 100 years by Metternich's diplomacy. Samantha Power's book A Problem from Hell is serving as a spur to do more--and yet we are still doing too little--with respect to Darfur.

Of the Asian financial crisis, you told PBS, "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. This is one of the things that encouraged us to take bolder kinds of responses." Do new situations and crises lead policymakers to look to academia?

It is always better to be ahead of the curve than to be behind the curve. The kinds of ideas that were being pursued were very much affected by economic research. It was a remarkable commentary that I sat during the Asian financial crisis with Chinese Premier Zhu Rongji in the same room where Mao received Nixon for the first time, where people had been executed hundreds of years ago in China. After we talked for a while, he asked whether I was the same Larry Summers who had been a professor of economics at Harvard. He started talking in great detail about the respective views of Professor Joseph Stiglitz of Columbia University and of Stanley Fisher, Governor of the Bank of Israel, on movements of interest rates in response to capital outflows. That was a demonstration that these ideas make a difference.

Another example is the idea that there should be a price for pollution. It is an idea that was an outrage 35 years ago. Liberals thought it was a license to pollute, and conservatives thought it was a fine on good businesses. Today it is accepted as a generally wise thing to do. The idea of congestion tolls in major cities was once a crazy idea, and now it is making a very real and large difference in London in reducing traffic and making it easier for people to get around. In a daily, weekly or monthly time frame, policy is usually motivated by a variety of political forces. Over the mid and long term, policymaking has a great deal to do with ideas.

What is your perspective on the divide between academia and policymaking?

Much of what academics do is positive analysis. They try to describe what is, not what should be done. Policymakers have the challenge of acting. The two fill different roles, but I think they very much interact with one another.

As US Secretary of the Treasury and chief economist at the World Bank, did you feel you were either an academic or a policymaker, that you could not be both?

My primary responsibilities, particularly at the Treasury, were as a policymaker, but as a policymaker I was very much influenced by what academics were saying. I worked very hard to try to keep up with the best thinking.

In your time with the US Treasury and the World Bank, what did you observe to be the primary factors affecting how academic theory was incorporated into policy?

Every once in a while, there is an opening. When there is an opening, people look for the set of ideas that can fill that opening. The opening can be created in the issue of global warming because the temperature goes way up one summer; the opening can be created in foreign policy because of a crisis in a particular country; the opening can be created because of a particularly forceful expression of an idea. Most of the time, I do not think research is having an effect, but research is always there.

At a certain moment the world is ready, and research can make a very big difference. Sometimes--not always, not often--the transition from inconceivable to inevitable can be very rapid.

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Has there been a memorable instance in which your own theories or academic suggestions were or were not implemented?

Something I had been concerned with as an academic was the idea of the inflation of fixed bonds. The idea that there would be bonds that would preserve purchasing power seemed to be a powerful idea in that it would give insurance to savers trying to save for their retirement, and they would not lose out because of inflation. It also seemed to me that fixed bonds would be very powerful and would give us a market indicator of inflation expectations by looking at indexed and other bond yields. That was something I had written on and advocated as a professor along with many other academic economists. I was proud to push that process along at the US Treasury and to work to institute that instrument as a permanent part of the financial environment in the United States and, as a consequence, in many other countries as well.

Have you had a theory or an opinion as an academic that you were forced to discard as a policymaker?

As an academic, I would have been for a more aggressive approach to free trade than was politically feasible during the time I was in government. I made the arguments, but in the end the administration of US President Bill Clinton, which had a very good record on trade overall, did not go quite as far in promoting free trade as I would have liked simply because of the political forces.

What specific factors prevent academic theory from becoming policy?

Factors include the inability to convince others because the case is not being made persuasively enough, because policymakers do not know things that academics know, or because academics are wrong in not seeing the full particulars of the situation. There have been ideas about which academics were very enthusiastic that the political process did not accept, and it turned out to be a good thing that the political process did not accept those ideas.

Various academic ideas were quite popular for a time--for example, the idea of a negative income tax to guarantee annual income. It is probably just as well that this proposal was never accepted by the political process. There were also various ideas for permanent wage-price guidelines, permanent income policies that were seen as attractive ways to control inflation and unemployment in the 1970s, that were not accepted. We are probably better off that they were not accepted.

Should policymaking experience be weighed along with academic accomplishment in selecting and granting tenure to professors?

Being a tenured professor at Harvard or any top university is ultimately about teaching and scholarship. The university is hugely enriched by professors who practice, adjunct professors of various kinds, and lecturers who are not completely on an academic path but have enormously valuable experience that they can bring to the university. I suspect that over time we as a university may well want to see more such people here. At the same time, we will want to keep the main ladder of hiring through the more traditional teaching and research route.

How have you tried to bridge the divide between academia and policymaking in initiatives during your tenure as president of Harvard?

Harvard ultimately makes its biggest contributions through its teaching and its scholarship. We try to identify crucial areas, whether it is the study of Islam or global health, whether it is the scientific research in genomics at the Rodale Institute that is so central to the establishment of a cross-university bioethics program or the introduction of joint programs between public health schools and the law school or the business school and the medical school. All of these things seem to me to be terribly important. The ways in which the university can best contribute are through its teaching and research. I think that Harvard makes an enormous contribution in those regards.

Is the separation of academia and policy largely positive or negative? Are there benefits to this separation?

Researchers are at their best when they are doing research motivated by truth rather than by a political agenda. A certain measure of distance is probably a healthy thing. I would not want to see more academic research brought under the control of policymakers. If research became staff work for policymakers, it would lose some of its creativity and vitality.

What is the best way to integrate academic theory and research and policymaking?

I do not think there is any simple way. The best policymakers will be following the best thinking. The best universities will be trying to provide the best thinking on the most important questions. The two will naturally come together.

LAWRENCE SUMMERS, former US Treasury Secretary and Chief Economist at the World Bank, is a University Professor at Harvard.