Summers Warns of Crisis at Forum

University President Lawrence H. Summers sounded a cautious note on the booming global economy last week at the World Economic Forum in Davos, Switzerland, where he warned that adjustments are needed to ward off a major economic crisis in the near future.

Speaking at the forum’s annual meeting, Summers said that the U.S. economy is too dependent on imports, and that some of its trading partners are too reliant on exports.

“Sometime in the next couple of years, an adjustment will come,” Summers said at a Jan. 28 panel, according to a summary posted on the forum’s website. “It will require rather more policy coordination than we have seen.”

At the same panel, Summers compared the current state of the world economy to the moments preceding the 1994 Mexican peso crisis and the burst of the technology bubble in 2000, according to a Financial Times report from Davos.

Summers, who was a senior official in the Treasury department at the time of the peso crisis and later led the department from 1999 to 2001, played a key role in orchestrating the Clinton administration’s $20 billion package of loans to the Mexican government.

“The time of greatest serenity was also the time of greatest risk,” he said, according to the newspaper.

Summers expressed surprise at the United States’ continued economic strength.

“When I was in government, I was fond of warning that...the world economy could not fly forever on a single American engine. Frankly, it has flown further and longer than I would have anticipated,” said Summers at the session, according to the forum’s website.

JETTING OFF

As undergraduates enjoyed some time off before the start of the spring semester, Summers spent the week in the ski-resort town of Davos, where he joined policy-makers, corporate executives, journalists, and other academics to discuss world issues.

The five-day meeting, which ran Jan. 25 through Jan. 29, was expected to draw 2,340 participants, including 1,000 business leaders and 15 heads of state.

Summers participated in three discussion sessions as one of this year’s four co-chairs. He also attended a breakfast with other university leaders, according to his spokesman, John Longbrake.

This year, the meeting’s stated focus was “the Creative Imperative,” the need for society and industry to produce new responses to the most significant global challenges.

This imperative comes at a time of rising economic integration between rich and poor regions of the world, a shift Summers said “has the potential to be one of the three most important economic events in the last millennium, alongside the Renaissance and the Industrial Revolution.”

At a Jan. 25 panel entitled, “The Big Debate: Setting the Business Agenda,” Summers urged attendees to consider the turbulence that integration brings to some regions.

“At Davos we tend to focus, and rightly so, on issues of global integration,” Summers said. “But I would suggest to you that issues of local disintegration—whether that means Flint, Michigan, whether that means failed states, whether that means struggling middle classes caught in binds everywhere—are of equal importance.” His mention of Flint was an allusion to the fact that General Motors laid off employees in that city during the 1980s and 1990s as the automaker shifted jobs overseas.

Summers said that an excess of investor enthusiasm in world financial markets can ultimately hamper development. “You could say that the main thing we have to fear is the lack of fear itself,” Summers said.

CLOSING THE GAP

Summers also addressed gender inequality in the third world, arguing that the gap can be narrowed most effectively by educating girls.

“It is a terrific investment,” Summers told attendees of the “Economics of Equality” session on Jan. 26, according to the forum’s website.

While educating women increases their productivity by bringing them into the economy, it can also improve their health, promote democracy, impede the transmission of the AIDS virus, and produce better land policies, Summers said.

“In the developing world, there are 100 million women ‘missing,’” Summers said in Davos, referring to the fact that many developing countries have a lower ratio of women to men than do industrialized nations.

In countries like the United States, gender gaps in education are to the advantage of girls, said Summers, In the United States, he said, 130 women graduate from college each year for every 100 men; among African-Americans, 200 females graduate for every 100 males. Women also dominate honor roles at U.S. high schools, Summers said.

Summers drew criticism last year for suggesting that “issues of intrinsic aptitude” might explain the under-representation of women on the science faculties of elite universities. But he has long argued that educating girls in the third world should be a top priority. In August 1992, he wrote a paper on the subject entitled, “The Most Influential Investment,” for Scientific American.

—Staff writer Nicholas M. Ciarelli can be reached at ciarelli@fas.harvard.edu.
—Staff writer Javier C. Hernandez can be reached at jhernand@fas.harvard.edu.