Larry Summers, once upon a time, never could have gone all the way to the top. That was the view of official Washington. He was too scruffy, too insensitive and just too damn brilliant, arrogantly treating important congressmen like the hapless foils he once trampled as a national debate champion. Summers's shirttails were always hanging out. And the plump former Harvard professor (who at 28 was the youngest ever to get tenure) was so absent-minded that, an associate remembers, "he had a habit of not looking in the mirror after he shaved. There were always patches." Summers seemed, all in all, better suited to a wonk's cubicle in a basement somewhere than the world stage. "Four years ago, if you had said Larry Summers would be Treasury secretary after Bob Rubin," says a senior administration official who knows him well, "people would have laughed in your face." Except on Wall Street, where the response to an ivory tower type like Summers would have been more direct: Sell!
Behold, then, the "new" Lawrence Summers, Treasury secretary-designate at 44 and, by most accounts, a virtual shoo-in for Senate confirmation. There was nary a snicker last week as President Clinton announced that Summers, a world-class economist and Rubin's deputy since 1995, would replace him in July. Even Wall Street, the only critic anyone cares about anymore, took the Summers appointment in stride. The Dow plunged about 200 points on the long-feared news that Rubin, acclaimed as one of the best Treasury secretaries ever, was leaving. Then it quickly recovered, perhaps as players realized that Rubin's departure may be the surest sign that the global financial crisis is over. In a Rose Garden ceremony, Summers was smooth, diplomatic and hitting his speech lines like a pro--even, amazingly enough, evoking sympathy. Summers, who suffered Hodgkin's disease as a young grad student, nearly broke down as he humbly thanked his parents, his family--and Robert Rubin, from whom "I can't begin to describe how much I have learned."
A great deal, apparently. Rubin is credited with much of Clinton's economic success, especially the fiscal discipline that led to America's longest peacetime expansion. But the grooming of Lawrence H. Summers may be, in some ways, his greatest feat. Rubin, a self-effacing but strong-willed presence who became Clinton's most influential cabinet member, has been pining since 1996 to go back home to New York, where his wife still lives. But Rubin became, in the view of the markets, indispensable--especially during the overlapping Asia and impeachment crises. So to find a way out, Rubin began to play a kind of benign Svengali to the rough-edged Summers. During the Asia crisis, Rubin constantly pushed Summers into the limelight, sending him abroad to dicker with prime ministers before the cameras, missing no opportunity to credit him for policy successes. At the same time Rubin worked on Summers's personality flaws, deflating his ego by poking fun at his highhandedness. (Rubin delivered a last shot in the Rose Garden, saying that "one of the true pleasures of being secretary of the Treasury" is to "laugh at Larry.") In an interview late last week, the secretary continued to tirelessly shape his protege's image, especially Summers's main weak point: his lack of market experience. Rubin described first meeting Summers on the trading floor at Goldman, Sachs in the mid-'80s. "I thought even then," he confided to reporters, " 'he has a feel for this'."
Associates say that Summers worked just as hard to remake himself in Rubin's image. "I think he made it a personal mission to learn from Bob," says Gene Sperling, Clinton's economic adviser. Says another senior U.S. official: "From the beginning of his life Larry was the best student in his class. That is true here. He realized that if he was going to achieve his goal, he would have to become more even-keeled in discussions, more socially adept, not walk into meetings and blow everybody away with how brilliant he is and indicate his utter contempt for their existence."
Ultimately, the Larry Summers makeover worked. Today, says his ex-Treasury colleague David Lipton, "there's no economist who's better at diplomacy and the management and understanding of markets, and there's no one in the markets who's a better conceptualizer" than Summers. Some say the decisive moment for Summers' reputation came in early September, as the president and his team of deputies stepped off their plane in Moscow at the height of the crisis. The then Prime Minister Viktor Chernomyrdin greeted each member with a grunt. Then he came to Summers and his face lit up. "Oh, Dr. Summers is so well respected," he exclaimed to Clinton. As one official tells it, "That's what made the president think that Larry absolutely could represent the United States." Rubin pronounced his own verdict on his handiwork in an interview. His Treasury Department and the one run by Summers, he said, "will be a seamless web."
Wall Street will take a long, hard look, of course. It should. The Street had, in Rubin, a rare anchor of trust--a traders' trader in an era when economics is far less important to Washington's policymakers than the ability to anticipate market psychology. Summers once called the crisply barbered Rubin "the coolest person under pressure I've ever seen," and he lent confidence by just being at his desk every day. In October 1997, for example, when the market dropped 550 points in a day and Asia had turned into a contagion, Rubin strolled down the steps of the Treasury and made a deft statement of confidence in the U.S. economy's "fundamentals." Some doubt that Summers, even today, could bring that off with such panache.
On policy, Rubin and Summers achieved a kind of mind-meld during their years together, by all accounts. But some differences remain. Summers, while a political centrist like Rubin, tends to favor intervention in markets slightly more. His old academic work often focused on market imperfections; in the 1980s he even proposed a transaction tax on short-term trading (which, at the time, Rubin was doing for a living). And last year Summers pushed the views of the liberal Harvard economist Dani Rodrik--who believes in more measured globalization--on Clinton and Rubin. That helped influence the president's new approach last fall, when he began to talk of global social safety nets and tougher market regulation. On Social Security reform, however, it is Summers who is pushing for market-based individual investment accounts, while Rubin frets about their impact on the administration's tight fiscal policy.
Other officials insist there's little daylight on policy between Summers and Rubin. Both have come to hold a hard pragmatists' view of what works and what doesn't--and both agree there is no safe way to control "hot" or speculative money, the main culprit in the Asia crisis. In any case, says Bruce Steinberg, chief economist at Merrill Lynch, in the event of a market collapse, Fed chairman Alan Greenspan will be the one most on the spot. Players know, too, that Summers brings a deep network of Washington relationships to the job--especially with Greenspan and Stanley Fischer, his old teacher at MIT, now the second most important figure at the International Monetary Fund (Summers got him the post). "He has all the skills that could be needed," says Fischer, adding archly: "Some of them he's acquired more recently." Summers is also said to have a wonky rapport with Clinton--the two can talk for long hours--that Rubin himself never achieved.
Summers's biggest challenge will be to rein in his ego, which like his intellect seems as inexhaustible as a national resource. Not all foreign governments are as sanguine about him as Chernomyrdin. Some Asians still resent Summers's lead role in torpedoing a Japanese plan in the fall of 1997 for an Asia rescue fund, which, considering what happened afterward, might have been a good idea. And on a trip to Japan a year ago, the local press derided Summers as a General MacArthur for dictating banking reform to them. Summers took the same line with the Mexicans during the peso bailout in '95--though his many defenders point out his advice worked.
Fortunately for Summers, the Treasury post brings with it some built-in humility. For there is no tougher act to follow than Rubin, who says his first action upon leaving Washington will be to go fishing--in Alaska. Summers knows as well asanyone, of course, that Rubin has set the bar high. Last week he complained to his aide, Howard Schloss, that replacing Rubin "is a little like following Joe DiMaggio in center field." Schloss replied, "Larry, you know who followed DiMaggio--Mickey Mantle." Summers, a baseball fanatic who was raised in Yankee country, New Haven, Conn., replied with a grin, "Yeah, I know."