The Problem With Larry Summers

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Barack Obama is considering appointing Larry Summers as his Treasury Secretary. Summers, a former World Bank chief economist and Treasury Secretary under Bill Clinton, shot to fame with his suggestions that Africa is under-polluted, and that women are genetically less qualified to become scientists. A debate is raging in the blogosphere whether these cynical memos disqualify Summers from becoming Treasury Secretary. The real question is what policies Summers has promoted in his long career.

Commentators at the Huffington Post, Feministe and many other blogs have argued that Summers’ appointment would send a dispiriting sign to the world. Editorialists at the Financial Times, the Washington Post and other papers assert that Summers is the smartest candidate for the job, and as a free thinker who was “thinking outside the box”, should not be sacrificed to the guardians of political correctness.

The main issue is not that Summers is cynical, arrogant, and too smart for his own good. The real problem is that he has been an uncompromising and dogmatic promoter of deregulation and liberalization throughout his career – often with disastrous results. In the early 1990s, he was instrumental in pushing through an untested system of voucher privatization for Russia’s state-owned enterprises. As more prudent colleagues at the World Bank such as David Ellerman had warned, his policies resulted in economic collapse, widespread misery and the emergence of the current system of crony capitalism in Russia.

After Summers left the World Bank, he continued promoting financial deregulation throughout the developing world. When this ill-suited approach brought about the East Asian financial crisis in 1997, he moved decisively to benefit from the crisis. As deputy secretary of the US Treasury, he pushed for a hard response which didn’t allow the debtor governments to approve economic stimulus packages or protect their failing industries. Instead, he forced them to accept the sell-out to US investors.

The US Treasury and Chamber of Commerce used the IMF to impose policy conditions on South Korea and Thailand which allowed an easy take-over of local companies by US competitors. In February 1998, Larry Summers could declare triumphantly: “The IMF has done more to promote America’s trade and investment agenda in East Asia than 30 years of bilateral trade negotiations.”

Joe Stiglitz, who was the World Bank’s chief economist during the East Asian financial crisis and went on to win the Nobel Prize for Economics, strongly criticized the neoliberal orthodoxy espoused by Larry Summers and the IMF. “Did America – and the IMF – push policies because we, or they, believed the policies would help East Asia,” Stiglitz asked, “or because we believed they would benefit financial interests in the United States and the advanced industrialist world?” Even though Stiglitz had history on his side, Summers did not take his challenge lightly. According to Robert Hunter Wade, he told James Wolfensohn that the US government would only accept him for a second term as the Bank’s President if he fired Joe Stiglitz. And so Wolfensohn did.

Larry Summers is not the free thinker which his supporters make him out to be. He has time and again acted as a dogmatic neoliberal with little regard for subtleties such as the history, political culture and power relations in a country. When the opportunity arose, he has been a straightforward promoter of US corporate interests. As Mark Ames commented on AlterNet, “hiring Summers to fix the economy makes as much sense as appointing Paul Wolfowitz to oversee the Iraq withdrawal”.

On November 4, Barack Obama said in his victory speech in Chicago: “I will never forget who this victory truly belongs to: it belongs to you.” Many of us were watching the historical moment with tears in our eyes. The slap in the face may come more quickly than we had expected. With people like Larry Summers on board, Obama’s government certainly won’t belong to us.

Peter Bosshard is the policy director of International Rivers. His blog, Wet, Wild and Wonky, appears at