Larry Summers on world unrest, Obama's agenda

Presidential economist Lawrence Summers, last night at Penn, said the U.S. government needs to improve health care and education at home, and to negotiate global financial and energy policies with China and other faster-growing countries, to prevent wars and unrest that would stop the economic growth he says raises living standards in poor countries and boosts opportunities for global capitalists.

Summers, an ex-Clinton Treasury secretary and Harvard president who briefs Obama on the economy every day, filled the house at Penn's Irvine Auditorium (his parents and brother are Penn professors) to give the annual lecture sponsored by Penn grad and Maniv Investments LLC owner Michael Granoff '80  "to explore the globalization process and the way it's transforming the world economy," as Penn Arts and Sciences dean Rebecca Bushnell put it.

Granoff met Summers when they were picking job applicants for President Clinton in 1992. They got to know each other in programs sponsored by former Goldman Sachs and Citigroup executive and Treasury Secretary Robert Rubin's think tank, the Hamilton Project. Granoff says Rubin turned to Summers to explain really complicated problems. - Excerpts from Summers' talk:

A question that is always important to ask (about) public policy leadership challenges. What will all this look like when history writes about it or considers it many years from now?...

Some people would suggest it would surely be a large story this era saw the end of the cold war, saw the fall of communism, saw the end of a 50 or 60 year struggle between the United States and its allies and the Soviet Union and its allies... Perhaps the story that history will record will go in some way to the relations between the Western world and the Islamic world, the events of 9/11, and all that follows...

But I would suggest to you the likelihood is the major story of our times will be the rise of the developing countries and their rapid ascent to economic modernity… and what it means for the world order...

Look at China. Look at India...  That hundred-fold changes in living standards, the difference between walking... and riding a car, for billions of people, will, I suggest be the dominant story that history records from our time. It has the potential to be a staggeringly positive story of human emancipation and betterment. Of women whose feet are no longer bound. Of children no longer… condemned to illiteracy… The spreading of freedom... The end of hunger and other deprivations.

But history also suggests that periods of profound structural change are periods that come with great instability and come with risk.

That revolutions, wars, traumas, are rarely things that emerge spontaneously all of  a sudden out of static societies, but are much more commonly the result of dynamism that is not well contained.

The prism through which history will judge all of us, our time, America's leaders, will not be just how rapidly the next recovery will be. It will not even be just how forceful and effective we are about bringing about necessary structual changes in health care and education. But it will be on how the global system accomodates to these tectonic shifts that are underway.

What are the challenges, more concretely, and what are we trying to do about them?

First, a globalized world requires a global approach to decision making. Think about everything from the swine flu to global climate change… to the reality that China accumulated more (cash dollar) reserves in the last three months than the world Bank has capacity to lend over the next 8 years.

If we are going to forge cooperative relations, if we are going to address global challenges, we need global fora (forums).  The most important things that has happened since Obama took office was the shift from the G7 (rich Western nations) to the G20 (adding China and other growing powers).

The G7 are important. But they're the traditional stakeholders. They're not undergoing the kind of double-your-economy-in-a-decade transformation that's underway in large other parts of the world. That's why President Obama worked so hard to build on the G20 Institute as a forum for finance ministers to get together. To create a global body that could address global economic questions. That could raise $500 billion... to avoid the failures of confidence that happened in Mexico and Asia in the 1990s.

A remarkable feature (of the current financial crisis) is the shoe that did Not drop. Unlike in the 1980s, 1990s, you didn't hear about any countries that faced default that faced bankruptcy that had to be bailed out... That's a result of sound policies (by countries) It's also a reflection of policies put in place thru the IMF to support those countries.

We have a long way to go. There are issues that loom very large as to what should an international financial institution be?  How many seats should Europe have, how many should Asia have? Is the group of five countries on the (U.N.) Security Council the right group today? But we have made a very important start on the creation of a global architecture at this moment of tectonic change.

A second issue… that will be critical in the (time) ahead is the issue of global climate change…The science has now progressed to a point where denying that mankind's activities thru greenhouse gas emissions affect the climate is a claim equivalent to denying that tobacco is adverse to human health. There can no longer be serious doubt... No one can know fully what all the effects will be...

China (has) become the world's largest emitter of greenhouse gases.… Growth in greenhouse emissions is coimg from the developing world… (With) refrigerators, TVs, (computers), motorized vehicles, the use of fossil fiuels goes way up.

The great test for us is going to be whether we are able to establish an international system in which there area major efforts by all countries to contain and constrain these emissions. That will not be easy. The quality of life on the planet is what's at stake in global negotiation.

There was an agreement reached in the Pittsburgh G-20 meetings that didn't get much attention. Countries agreed (on the) first steps to eliminate subsidies to fossil fuels... Also to increase energy research and development for renewable technologies. We simpley do not have the carrying capacity for everyone to live in the way people in this room traditionally have.

(But) It is not tenable to say if you got there first you have high standards of living and if you got there late you can never have those standards... Ultimately we're going to have to raise the price (of energy). That goes to the environmental legislation (Obama's controversial Cap and Trade).

The third and maybe the deepest and most profound (historical challenge) is what all of this will mean for working people everywhere. For some it is the most fantastic thing that ever happened. For the great entrepreneurs, for the great thinkers, the world was always their oyster. Now it is  a much larger, much richer, oyster because of all of this progress. The capacity to sell and to apply technology everywhere is a boom to standards of living throughout the developing world with enormous benefits.

But the long run economic question of our time swill be this: What about the people who aren't Bill Gates, who aren't going to lever the Indian market or the Mexican market or the Chinese market, who aren't going to be powerful global entrepreneurs, who aren't going to revel in the wake of globalization to prosperity in the way I suspect a large fraction of the grads of this Univesrity will?...

(There are many) people who also desperately fear the prospect of competing with people who live in countries where wages are still a dollar or two dollars, or $5 or $50, a day. Where are they going to find opportunity?

And  what is the relationship going to be between the leaders of our great companies and our broader citizenry at a time when often innovation and business success takes the form of elite design here (in the U.S.) and production there (in cheap-labor countries?) And relatively limited job creation, especially for those who are less skilled here?

It is, I would suggest to you, an irony of our time that our ability to promote global integration, our ability to take advantage of the opportunities that the big world presents, will depend on our ability to contain local disintegration.

It will depend on our ability to make sure basic protections (such as) health care, opportunities for kids, are available for all our citizens. It will depend on developing an economic strategy that starts from strength and creates opportunities for us to export...

One of the more remarkable statistics of the past few months was the report that for the first time in a half century the U.S. is now a net exporter of steel. We found new ways guided by information techonology to make steel much more efficiently . (Didn't mention another factor, the decline in the dollar.)

So the third and final challenge I want to stress is the economic challenge of managing this transition. Of assuring the developing world has a (greater) impact for us as a new market, than as a new competitor.

It can be done. (It needs) a public commitment for protecting and assuring basic opportunities for all Americans. That's why these issues, health care and education, are so important...

If you look at this cohort, that includes my children, it will Not be in the top 10 (among world nations) in the fraction of students who graduate from college. That surely cannot be the right way to prepare ourselves for this new world.

I would conclude where I started. The single story of our time will be this transformation of the developing world if it continues. It has the prospect to be the best thing that ever happened for humanity. But that is not something that we can take for granted. That is something that comes with real risks. Environmental risks... security risks...

That's why the choices we make, the understandings we have, of this new global system, the values that forums like this one are designed to promote, are really so profoundly important to the future of our country.