Ten years ago, U.S. Treasury Secretary
Ten years ago, U.S. Treasury SecretaryLawrence Summers called his wife and kids from a car in Chicago just to tell them that he was in a car that had a telephone. Seven years later, sitting in a canoe two hours outside of Abidjan, Côte d’Ivoire, during an official trip abroad, he was handed a cellular phone to talk to then U.S. Treasury Secretary Robert Rubin about an Internal Revenue Service issue. Summers took the call without giving it a second thought.
That experience, said Summers, guest speaker at Wharton’s MBA graduation ceremony in Philadelphia on May 21, brought together some of the most important forces in the world today: Technology, markets, global integration and the move from an economy built on bricks and mortar to one built on bytes and ideas.
A 1975 graduate of the Massachusetts Institute of Technology, Summers received his PhD from Harvard University in 1982. He was sworn in as the 71st secretary of the treasury in July of last year after serving as deputy secretary of the treasury under Secretary Robert E. Rubin from 1995 to 1999.
Addressing his remarks to an audience of more than 900 graduating students, Summers emphasized the importance of adapting to and leveraging the strengths of a world based on technology, information and global integration. He told the students to enjoy the current economic boom but also to be prepared for "a time when the winds of change may be blowing the other way."
Summers described three central elements of the new economy: Changes in information technology and communications; the power of markets and private enterprise; and the emergence of a real global economy for the very first time. When the history of this era is written a few centuries from now, he said, the end of the Cold War will be the second story; the primary story will be that of the truly global economy.
The treasury secretary told the graduates that they sat "at the center of a cyclone of opportunity." He cautioned, however, that there were other, similar moments in history when the economy was doing well, new technologies were transforming the status quo, and market and business leaders were reveredand yet the boom did not last. "The late 1920s were such a time," Summers said, reminding the audience that the consequences of unwise choices made in that period proved detrimental to business and to all of humanity. He cited the decision to erect tariffs and turn inwards; the decision to collect crippling debt from countries that could not reasonably repay; the decision to leave behind the residents of the dust bowl; the failure to respond to gathering economic distress. "Think about the choices you make and that society makes," he noted.
Summers told students to concentrate on four important themes as they moved forward with their careers. First, he said, "Ideas matter most." No longer do we live in an era of gray flannel suits and assembly line workers; we prize innovative ideas. "Be creative, and respect those who are trying to be creative … The people who make the greatest contribution will be those who bring to the table something distinctively new."
For nations and governments, he said, it is important to foster and maintain a climate of innovation "the same kind of climate that has brought many of you here from overseas. It is no accident that the country that has so far benefited most from the new economy is also the only place where you can raise your first $100 million before you buy your first suit."
Second, Summers brought up the impact of globalization. "What matters most in our business is what happens around the world … To many outside the U.S. the World Series is an American enterprise with global pretensions. But increasingly, the World Wide Web like the new global economy rather better lives up to its name. We see that in Europe, with the rise of M-commerce and European companies such as Nokia now at the cutting edge of cellular telephony. We see it to a lesser degree in Japan, in its own "bit valley" and Nasdaq Japan. And we see it in Mozambique where I spoke not so long ago to an Internet provider who feared he was about to face competition."
The industries of tomorrow, Summers said, will be knowledge-based; therefore, companies will incur large up-front development costs and subsequently low marginal costs of production. As scale is the crucial determinant of profit in this scenario, companies will want to globalize to gain access to larger markets. "At a time when more than three-quarters of the world’s population lives in the developing countries, that has to mean a public strategy of opening markets and supporting successful economic integration overseas," he said.
Summers’ third key point was about people: You have to lead people to feel that they belong, he said. "The old command-and-control model … is giving way to partnerships and mentoring …Those who worry that the global, digitized world will be a lonely world do capture a valid concern. I believe that is possible. But history tells us that such a community will achieve less than it is capable of." Today’s challenges are different than they were a half-century ago when the goal was to ensure that all had access to electricity and running water. The goal now is to ensure that all have "access to telecommunications, information technology and basic financial services."
The final challenge, Summers told the assembly, is one of public service and public policy. "The framework for the success we’ve enjoyed in our economy is a framework increasingly determined by public choices, " he said. These choices encompass issues of private investment, open markets and intellectual property protection, among others. "All have a stake in the public sector working well. We saw in the ’20s what it can mean when the public sector works badly," he said, and went on to note, "Your self-interest has a great deal to do with how the public sector performs."
The people who make the public choices that will shape our nation’s future will be our public servants, he said. "One can value public service in a number of ways. But it has to be a concern that in the past five years there have been more than 800 cases of physical abuse or threats against employees of the IRS. And I believe in market forces but one has to ask questions of a labor market that rewards the actors who portray our most senior officials in the "West Wing" 10 times more than their real-life counterparts who actually do the nation’s work."
Summers concluded by encouraging everyone to enjoy the current economic good fortune, but also reminding them to avoid becoming complacent or being lulled into thinking it will last forever. "If there is one message I would hope you might take away with you today," he said, "it would be not to take our current prosperity for granted." Much has changed in the new economy, he noted, but "the basic uncertainties of economic life" remain the same.