The program's originator and its financial sponsor disagreed with me. There were several reasons why they failed to extend Economically Speaking after the original series ended, including the fact that it had not attracted a large enough audience. But they decided against giving it another chance to establish itself mainly because they felt that the program had been too neutral, too balanced, for the free-market position they both espoused to emerge a clear winner. This experience drove home a hard truth that I have encountered again and again, that people prefer to see the world in black and white, rather than in the shades of gray that I see as a true reflection of reality.
Meanwhile, I had been keeping my finger in Washington's policy pie by serving as an adviser to several offices and agencies of government on issues related to trade, the US balance of payments, and the international monetary system. We had just come home from our trip to Europe in the summer of 1974 when I was invited as one of twenty-eight “leading economists” to participate in a Summit Conference on Inflation called by President Ford to advise him on the economic conundrum that confronted his new administration.
The postwar economic mainstream in the United States had been grounded in the Keynesian belief that skillful management of monetary and fiscal policy could keep an economy in balance, growing at a healthy rate without dangerous inflation. The rules were simple: in recession, the government should reduce taxes and/or increase spending and the Federal Reserve should lower interest rates; in an inflationary boom, both fiscal and monetary policy should move in the direction of restraint. But there was no prescription for what to do about the “stagflation” that emerged in the 1970s, when excess unemployment and high or accelerating inflation occurred simultaneously.
Inflation had reached double digits when the kickoff meeting of the conference was convened in the East Room of the White House, and the misery index faced by President Ford was far more severe than the one that had provoked President Nixon into instituting wage-price controls a few years before. Explaining his insistence on a meeting open to the press and the public, the president joked, “Some skeptics have warned me that putting 28 of our most distinguished economists and eight members of Congress, both Democrat and Republican, on public display with live microphones would produce a spectacle something like professional wrestlers playing ice hockey.” But his charge was breathtakingly ambitious: “Our purpose is to find ways by which we, the American people, can come to grips with our economic difficulties and surmount them.”17
The emergence of stagflation had laid to rest the Keyensian belief in demand management as a macroeconomic shortcut to nirvana, and the resort to controls had, if anything, made the situation worse. That meant that the hunt for solutions now had to focus on microeconomic or structural changes, supply-side measures that would enhance efficiency and lower costs in the US economy. Both the conference participants themselves and the reporters who wrote about the session were pleasantly surprised by the degree of unanimity among economists across the political spectrum and optimistic that a good start had been made on attacking inflation. And many shared the concern I had often expressed for avoiding a battle over income shares among business, labor, and other groups in the economy.18
At a follow-up meeting on September 23, we economists tried to convert the suggestions for structural change we had offered at our earlier meeting into specific proposals to slaughter a variety of political “sacred cows,” primarily regulatory restrictions on competition. The aim was to tame inflation by reducing costs and increasing the availability of goods.19 During the weeks that followed, the administration held meetings with different interest groups in cities around the country. As reports of the outcomes of these meetings emerged, some of the optimism about the president's anti-inflation initiative began to evaporate. Each group explained why the economy would benefit if price increases (or, for labor, wage increases) were limited in every sector except its own. As one reporter noted wryly, “Interest groups, representing various sectors of the economy, have said not what they would do for their country, but instead what their country should do for them.”20
By the time of the final summit conference, where each of these groups summarized its self-interested position in a circuslike atmosphere, complete with cheering, waving signs, and balloons, disillusionment was setting in. And once the Congress, yielding to interest group pressures, had finished consigning most of the president's structural proposals to the scrap heap, little was left of the highly touted effort other than the large red, white, and blue WIN (Whip Inflation Now) buttons that every participant received.
Two years later, with stagflation's misery index still in unacceptable double digits, it was the turn of Jimmy Carter, who had just been nominated as the Democrats' presidential candidate, to invite groups of economists to his home in Plains, Georgia, to give a series of seminars on economic policy with a student body of one. As the token Republican in the group, I joined “a distinguished bipartisan group of experts on international economic policy.”21 In his remarks to the press, Governor Carter found plenty to criticize in the design and implementation of economic policies during the Nixon and Ford administrations. But he agreed with them that floating exchange rates were here to stay and that he supported lower trade barriers at home and abroad. The reporter for the New York Times tried to give color to his article: “'United States international economic policy,’ said Marina Whitman the other day, standing beneath some tall pine trees in Plains, Georgia, ‘is not an area of great partisan division—there is a very wide range of consensus.’” And, he concluded, “Mrs. Whitman was right.”22
Ironically, Jimmy Carter, the Democratic victor in the 1976 election, presided over many of the pro-competitive structural changes that the defeated Republican, Gerald Ford, had been unable to bring about.23 But, despite the deregulation of a variety of important industries—including airlines and trucking—that began during the Carter administration, it took the tight-money policies of Federal Reserve chairman Paul Volcker, accompanied by some five years of painfully high unemployment (1979–83), to break the back of stagflation and set the nation on a path of noninflationary growth.
Demand-side macroeconomic policies and supply-side structural measures both played important roles in making possible the twenty-five years of sustained economic growth that began during the Reagan presidency—the period that has come to be called the “Great Moderation.” As I once quipped, it takes both halves of a pair of scissors to make them work. A more difficult lesson was that there is no such thing as a painless cure for stagflation. It required individuals who stuck to their economic principles—presidents Carter and Reagan to pro-competitive measures and Federal Reserve chairman Paul Volcker to drastically tight monetary conditions—even in the face of mounting criticism, to make the country take its medicine.
Having returned from the CEA to private life determined to spread the gospel of facing economic realities head-on, I now realized how much personal determination and political clout were required to move in that direction. The collapse of President Ford's effort, after a promising beginning, to conquer stagflation by eliminating many of the economic inefficiencies created and fought for by particular interest groups had taught me my own hard lesson about the vagaries of the political process in a democracy. I had been proud of my country as I described to my mother's old friend in Vienna the virtues of democracy at its best. Now I was frustrated and disappointed as I watched democracy's downside in action: the ability of special interests and partisan politics to gut policies that would benefit the nation as a whole. Was business, I wondered, with its typically hierarchical structure, better than the democratic processes of government at getting things done?
A Lady in the Boardroom
My first glimpse of the boardroom of the Manufacturers Hanover Bank, a world no woman had ever penetrated before, was dazzling. Although the scene was gracious rather than forbidding, I had again the sense of entering the halls of power that had come over me when I p
assed through the guarded gate of the Old EOB. The bank's board of directors met around a long, highly polished mahogany table, lit by crystal chandeliers, in a room high above New York's Park Avenue. This elegant, rarified environment gave no hint of the upheavals that would reshape the organization several times during the years I was associated with it. All the appurtenances were in a matching formal style, and each director's name was permanently embossed on a brass nameplate in front of his seat. As I went around the room to shake hands with my new colleagues, most of whom were the chief executives of leading companies, I could see that some of them were not entirely at ease with this strange creature in their midst. We were only a few minutes into the meeting when short, portly Richards Reynolds, heir to the tobacco fortune, followed up an emphatic “Damn sure” with a hasty “Pardon me ma'am; we're not used to having a lady in here” in his Virginia drawl.
I had joined this exalted group as the result of a luncheon invitation a couple of months earlier, just as I was about to leave the CEA, from Gabriel Hauge, chairman of Manufacturers Hanover. Mr. Hauge turned out to be a courtly silver-haired gentleman with a piratical black patch over his left eye (he had lost the eye, I learned later, to the cancer that would eventually kill him). I was vaguely aware that Manny Hanny, as it was invariably called, was one of a handful of large so-called money center banks, with headquarters in New York but a presence all over the world. That's about all I knew when, somewhere between the salad and the coffee, Mr. Hauge asked me if I would consider joining the bank's board of directors.
I was so taken by surprise that I didn't have the wit to inquire about what the duties and responsibilities of an “outside” or “independent” board member (one who is not part of the company's management) were, even though I was totally ignorant about what I might be getting into. Like most newspaper-reading Americans, it was always the chief executives I had read about; their boards of directors were generally shadowy figures in the background. It was only many years later, when the Enron scandal of 2001 and the financial crisis of 2008–9 clobbered the US economy and wiped out many families' financial security, that the American public became aware that the failure of many boards of directors to discharge their responsibilities effectively was a key to these disasters. Nor did it occur to me to ask about the compensation that came with such directorships, although I soon discovered that it was large enough to have a significant impact on our lifestyle, and eventually to raise serious questions from the same American public about whether the performance of company directors really made them worth their pay.
I was excited by the opportunity to penetrate a sanctum few academic economists had ever entered, even though for-profit companies were major players in the issues and events we studied, analyzed, and taught. I had no illusions, though, about why this opportunity had opened up. Part of it was that my training as an economist had made me comfortable with the mysteries of profit and loss and the bottom line. And my stints in the administration, with both the Price Commission and the CEA, had given me an insider's view of the US regulatory environment, as well as a priceless network of acquaintances in government. But these qualifications paled in importance before the fact that I wore a skirt. By the mid-1970s, companies were feeling strong social pressures to elect women and minorities to their white male boards, and a few of the more forward thinking were beginning to search for and recruit viable candidates.
How much influence women would gain by joining corporate boards was a question that hung in the air. In a 1974 article entitled “New Voices in Business: Ladies of the Boardroom,”1 most of the other women quoted there agreed with my comment that the CEOs who had approached me about directorships—there had been several—had made it clear that the fact that I was a woman was relevant. They weren't playing games. In less than a year, I said, I had discovered that 95 percent of the time we directors are rubber stamps; women will get significant leverage in the economy when they accede to responsible positions inside corporations, rather than serving only as outside directors. Significantly, none of the women directors interviewed, except for a couple who headed family-owned companies, was the CEO of a major corporation, the usual route to a directorship. Their leadership experience, like mine, was in government, universities, or nonprofit organizations.
Despite such doubts, I accepted Gabe Hauge's invitation with the comment “I realize I'm a token, but please don't expect me to be just a token.” Manny Hanny's Board already had its token minority member, Jerome “Brud” Holland, who had won fame as the first black football player at Cornell. A sociologist and former president of two historically black colleges, he had been appointed by Richard Nixon as the US ambassador to Sweden, the first African American to attain such a high diplomatic position. During the two years he spent at that post, he had endured having eggs and tomatoes hurled at him as the anti-Americanism engendered by the Vietnam War reached its height.
Eventually, either my fellow directors' discomfiture at having a woman in their fraternity dissipated or they learned to hide it better. But it wasn't long before the gender issue came up explicitly during the planning of one of the board's trips to the bank's facilities in other countries. The established pattern was that while the directors were receiving all-day briefings on the economic and political environment, as well as the bank's own operations wherever they were visiting, their ladies were entertained with fashion shows or luncheons with the wives of government leaders.
These outings held no appeal for Bob, who would have much preferred to sit in on the briefings. When I passed his request on to Gabe Hauge, the chairman responded with an immediate invitation for Bob to attend. But when Laura Holland, Brud's wife, expressed the same preference, she was at first refused, which embarrassed and infuriated Bob and me. Eventually, a choice between attending these briefings or participating in the programs planned for them was extended to all the spouses and, though almost all of them continued to choose the ladies' outings, I felt gratified that we had won one more small victory over male chauvinism.
At my first Manny Hanny board meeting, I had tried to stay alert in a haze of cigar smoke, listening to a series of boilerplate reports required by banking laws and wondering how long it would take me to understand, let alone make intelligent judgments about, the performance of the bank's loan portfolio and the economic and competitive conditions that affected its financial results. How in the world, I asked myself, did new board members acquire the knowledge needed to do their job? I realized gradually that new members were expected to acquire expertise about the company by osmosis, keeping quiet for the first year or so until they felt enough on top of the situation to ask a pertinent question or make an intelligent comment. Naturally impatient and congenitally incapable of remaining silent for so long, I was determined to accelerate the process. Besides, I felt pressure to come up to speed as fast as possible—wasn't my performance a test of whether women were up to holding such important positions?
After a couple of meetings did little to reduce my befuddlement, I asked the corporate secretary to set up private sessions with the heads of the bank's business units and major staff functions, so that I could learn more about what a money center bank does and what distinguishes a profitable operation from an unprofitable one. My request was met with an immediate offer to set up such sessions before or after each board meeting. But it was also greeted with surprise, as if no one had ever asked before.
Even after I had been given these tutorials, I was frustrated by the fact that neither the board meetings nor those of board committees seemed well designed to elicit useful questions or comments from the outside directors. In meetings of the Loan Committee, for example, the time was spent reviewing sample credit analyses for a cross section of borrowers, many of them in the “rag trade,” the insiders' name for the New York garment industry. I couldn't for the life of me figure out what value I or my fellow directors could add in these discussions; surely we couldn't outguess the professionals' judgments about the creditworthi
ness of individual borrowers.
Looking back, I realize that the purpose of these carefully packaged presentations may have been to increase the directors' confidence in the bank's lending decisions and so discourage penetrating questions that might make the management uncomfortable. Even so, because there was no follow-up to connect the specific cases we saw to their ultimate outcomes, there wasn't any opportunity for us to learn by doing.
Learning to speak up, to ask challenging questions in board meetings, didn't come easily, even to someone as naturally outspoken as I am. One number that Manny Hanny's directors were expected to keep a watchful eye on was the bank's capital-to-asset ratio, an important measure of the institution's safety or soundness, its cushion against disaster. The management assured us that our bank's ratio was comfortably in the middle compared to those of its competitors. But what, I wondered silently, if all those banks' ratios are too low to protect against a sudden increase in bad loans; what if each of the huge edifices that money center banks had become was balanced on the head of a pin? Since the other directors seemed satisfied, I kept my worries to myself.
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