The In Your Face Economist At The World Bank

Lawrence H. Summers wanted to make a point: Educating women is the best investment the developing world can make. So Summers, the World Bank's chief economist, wrote a speech marshaling extensive new research that demonstrates the economic rewards of educating females. Then he went to a surprising place to deliver his message: Pakistan, a country where only one-third of elementary students are girls and women are less than 10% of the labor force--some of the lowest ratios in the world.

The approach--an economic justification for what most people would view as a matter of social justice--was vintage Summers. And so was the delight he took in challenging his host country. "Some people thought I was the greatest thing ever to come to Pakistan," he recalls with a grin. "Others thought America has 20 million latchkey kids because of the sort of ideas I was pushing."

In the 16 months since he took the helm of the World Bank's economic shop, Summers, an iconoclastic liberal, has stirred up controversy aplenty and established himself as a global economic gadfly. The 37-year-old economist, on leave from Harvard University, has annoyed U.S. officials with his unsolicited advice on budget policy and angered Third World governments with his views on excessive military spending and the environment (table).

PROVOCATEUR. Summers' job at the World Bank, which lends $23 billion a year to developing nations, puts him in charge of the world's largest, though least visible, body of economists. But he's taking a much higher profile than his predecessors did. "Past chief economists have won high marks for prodding the bank from within," notes Richard E. Feinberg, president of Inter-American Dialogue, a Washington think tank. "Summers prefers to provoke people."

He succeeds--even when he would rather not. In February, environmental groups leaked a World Bank internal memo--signed by Summers--that came to some startling conclusions. Applying strict economic reasoning to environmental issues, the memo said that "underpopulated countries in Africa are vastly under-polluted . . . compared to Los Angeles or Mexico City." It asserted that "the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable."

The "toxic memo" set off a storm, playing directly into environmentalists' long-held suspicion that the World Bank pushes development at the expense of ecological concerns. Bank President Lewis T. Preston, on his inaugural visit to Africa when the memo leaked, denounced it as "outrageous" and was forced to defend the bank's program of environmental lending.

Summers issued an internal apology for the memo before it leaked to the press and now misses no opportunity to say that it was a mistake. "It took an aggressively sarcastic tone to try to put some rigor into a very muddled discussion of environmental and trade issues," he says, calling it "a very regrettable attempt to provoke thought."

TOUGH TESTS. Yet some bank officials say the toxic memo hit squarely on one of the key problems confronting international aid today: whether the environment should take priority over the efforts of poor countries to feed, educate, and employ their people. Summers believes the two can be mixed. In the bank's World Development Report, due out this summer, he'll argue that economic reforms--for example, giving landowners incentives to manage forests--can solve many Third World environmental problems. Hard-core activists are already grumbling that the report's cost-benefit approach undercuts the environment. Those complaints don't faze Summers, who concludes: "Poverty is the greatest environmental problem of all."

Summers comes to his faith in economic reasoning almost genetically. His parents are both economists, and two of his uncles--Kenneth J. Arrow and Paul A. Samuelson--are Nobel laureates in economics. Summers received his Harvard PhD in 1982 and became a full professor in 1983 at age 28--one of the quickest ascents in the university's history. He is expected to return to Harvard in September, 1993.

Summers has written extensively on more topics than almost any economist of his generation, ranging from unemployment to taxation to the efficiency of financial markets. While he hasn't revolutionized any single field, the breadth of his work makes him the odds-on favorite to win the John Bates Clark Medal, the American Economic Assn.'s prize for the best economist under age 40, the next time it will be awarded, in 1994. He has also applied his talents to policymaking as a senior researcher for Martin S. Feldstein when his mentor chaired President Reagan's Council of Economic Advisers.

Despite his service to Reagan, Summers is a Democrat who advised Michael S. Dukakis during in the 1988 Presidential campaign. But the Bush Administration chose not to block the hiring of a former adversary at the bank, where the U.S. is the largest shareholder.

LONG ODDS. It may yet wish it had. While he's careful to say that he's not speaking for the bank, Summers is enjoying a Democratic economist's dream, lambasting a Republican Administration's budget deficits and policies that discourage savings and investment. He has also made some comparisons that the Administration finds uncomfortable: "A child born in Shanghai is more likely to survive to age one, more likely to become literate, more likely to graduate from high school, and more likely to live to be 75 than a child born in New York City," Summers recently told a gathering of liberal economists.

Within the bank, Summers is pushing a model of "market-friendly" government, striking a balance between free-market ideology and the bank's historical preference for lending to government-dominated projects. He's directing a massive study of Japan and other East Asian countries, seeking the secrets of success for their mixed systems. "We have lost sight of the role of government's supporting hand in our enthusiasm for the invisible hand," says Summers. "Some government intervention is good, and that's as true in the U.S. as it is in Mali."

Not surprisingly, such comments get under the skin of U.S. officials. "He's supposed to be a development economist, but he's wandering pretty far afield," says a senior Treasury official. Well, Summers has never shown much interest in pleasing the local powers, whether in Washington or Islamabad. And he's not about to start now.

      ECONOMIC POLICY Criticizes Washington for failure to control deficits. Compares 
      conditions of America's poor with the Third World
      INVESTMENT Advocates tax credits for equipment spending. Is against cutting the 
      capital-gains tax
      ENVIRONMENT Signed a memo proposing using low-wage countries as good sites for 
      toxic-waste dumps. Argues that poor countries can best protect natural 
      resources by more development, not less
      WOMEN Argues that spending on educating girls in developing countries will 
      yield higher returns than any other investment
      MILITARY SPENDING Questions aid to poor countries that spend more on arms than 
      on health and education
      DEVELOPING ECONOMIES Advocates privatizing state-owned enterprises. Pushes the 
      idea of 'market-friendly' government
      FORMER SOVIET UNION Tells new republics to preserve trade links, cut subsidies, 
      promote stable currencies, and speed privatization
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