The Economy: What We Need Is Leadership

I like to think that the next great American leader will channel the soaring rhetoric of Shakespeare's Henry V in the famous St. Crispin's day speech at Agincourt. He or she will call us to our better selves, will inspire us to move forward and will bring us to a realization of our shared destiny. I know that is hoping for too much, but given such a speech, I think people would recognize and value it. Leadership is like that: you know it when you see it. Yet too often our leaders, fearful of their legacy, fail to rise to the occasion. That's certainly true today, as the world's financial markets remain gripped by fear.

It seems odd, given the numerous books and vast resources devoted to leadership training in business schools and in corporate America, that real leadership is so little in evidence. How is it that neither of the two candidates who will lead our country through this financial crisis have squarely addressed it? Where is the courage? Where is the leadership? What we get instead is a retreat to the uninspiring safety of predictable old political positions.

There may never have been an era when people have talked so much about leadership but exhibited so little of it. All too often, the actions of officials in Washington can be accurately understood as advancing their own narrow political interests and handing out blame. Many of the same politicians who are bashing former Federal Reserve Chairman Alan Greenspan, for example, are simultaneously demanding further cuts in interest rates.

There have been positive examples in the past to be sure. As Fed Chairman in the late 1970s and 1980s, Paul Volcker made tough and painful choices that at long last broke our economy from destructive inflation. In the 1990s, Treasury Secretary Robert Rubin showed leadership in managing Mexico's tequila crisis and the Asian financial mess.

And it is true that Ben Bernanke, chairman of the Federal Reserve, and Treasury Secretary Henry Paulson are struggling mightily to stabilize credit markets and restore confidence. They have been creative and, to a degree, decisive, but the direction keeps changing and the game plan is far from clear.

In a financial crisis, such bold, decisive action can help to restore confidence, and control the panic. Too much experimentation, however, can be dangerous. A case in point: Franklin Delano Roosevelt was viewed as a great leader during the Great Depression of the 1930's, and he was a great experimenter. But most economists and economic historians now realize that FDR's experimentation and interference with markets probably prolonged the depression considerably. Still, FDR's words and actions did, at the time, inspire confidence and calmed fears. Those qualities of leadership—explanation and inspiration—are in short supply in the current crisis.

The proposals being advanced to isolate bad assets, recapitalize the banking system and guarantee interbank lending are necessary, given the magnitude of the crisis. But the need for this dramatic action has yet to be explained in a way that makes sense to Americans on both Main Street and Wall Street. This may account, in part, for why markets haven't been buying what Washington has been pushing. Presidents and policymakers may not have control over the ups and downs of financial markets, but those markets render a verdict on the credibility of policies being put forth. So far the verdict is very negative, even if Monday morning's upturn offers hope. They haven't done nearly a good enough job explaining and justifying their actions.

The meeting of the finance ministers of the Group of Seven nations (G7) this weekend, is a test of leadership on the international stage. The G7 may have found some common purpose, but the global economic crisis will test international relations. We may not find one-size-fits-all policies, but people around the world are looking for clarity and cooperation. They want to believe that there is a rational order to things and that the people in charge know that.

And where are the great corporate leaders who might contribute to this very public discussion about an economic problem? Some of them (the Detroit folks come to mind) have been lined up with their tin cups hoping to get a piece of the bailout action. How often have you seen a top CEO take a truly bold and principled stand on a tough issue? Warren Buffett is about the closest thing we have to a J.P. Morgan, whose firm direction helped guide the nation through the financial panic of 1907.

While it is easy to lament the lack of leadership, we should not be surprised. In fact, that's why we design our political and economic institutions to function and be resilient so that they can endure rule by mediocrity. When crisis strikes, however, we do look for individuals to take decisive action—but also to explain the direction they are taking us in and why.

As the dean of a business school that seeks to train future business leaders, I think about these issues a great deal. How can an academic program impart knowledge, encourage independent thinking and foster principled, ethical behavior? Ultimately, how we and the other institutions of America do this job will determine how we navigate and emerge from this financial and economic crisis. Let's hope, in the words of Henry V, that "he that outlives this day, and comes safe home, will stand a tip-toe when this day is named."