Constituent Interests and U.S. Trade Policies

Keynote Address, Foster Library, November 8, 1996

Keynote Address, Foster Library, November 8,1996 John W. Sweetland In addressing this group-as distinguished and as talented as it is-I am reminded of President Kennedy's remark before a group of Nobel prize laureates in the East Room of the White House, "There has not been so much talent in this room since Thomas Jefferson dined alone." I have been most impressed with the clarity of the papers presented and the vigor of the discussion at the conference. Bob Stern and Alan Deardorff are to be complimented on the organization of this outstanding conference. However, much to your disappointment, I'm sure, I'm not going to talk about U.S. trade policy. As one deeply committed to the public university and particularly the University of Michigan, I'd like to talk with you tonight about what underlies that commitment. First, I want to talk about Michigan. When my wife Gayle and I were asked to make a major gift to the $1 billion Campaign for Michigan, there was no question about our response. We just had to figure out the best way to make that gift so that it would create the greatest good for the University. My college years were interrupted by the Korean War. Uncertainty about the direction my life should take was reflected in my transcript, which looked like the College of LS&A catalogue. I dropped out mid-way through my junior year, was quickly drafted, and after basic training went to officers candidate school and returned to Michigan four years later as a different person. More mature, married and a father of two. While I was stationed on Guam with the Corps of Engineers, I took a twosemester sequence in the principles of economics at what is now the University of Guam. I was intrigued-really enjoyed what I was learning. When I returned to Michigan, economics became my undergraduate major and the field in which I completed my Master's degree. My memories of Michigan, and especially the Department of Economics, are, to this day, compelling and rewarding. We had a great faculty and interested students and I know I received an outstanding education. Our first gift to Michigan was designed to build up the Department of Economics that taught me the importance of understanding and has contrib- 2 Constituent Interests and U.S. Trade Policies uted to a life-long process of learning. My partner and I had some success in parlaying a modest investment in an all but bankrupt Florida importer of cement into the two largest cement import operations in the United States-in Florida and then California. It was a fascinating time-from 1975 to 1990with circumstances of ample supply abroad, demand exceeding domestic capacity in the United States, favorable exchange rates, excess bulk shipping capacity and new technologies for material handling. We were able to optimize these factors for our two companies. Our gift has endowed a chair in International Economics--even though I learned afterward from Alan Deardorff that we had violated economic dogma--<;ement was used as the example of a commodity that did not lend itself to international trade. My interest in the world economy continues through our family company, The Winsford Corporation , which this year will export its products to over 50 countries from Azerbaijan to Zimbabwe. But beyond this, we have shaped our bequests so that Michigan will be a major benefactor with the Department of Economics receiving the larger part. In doing so, we honor three people who were an important part of my life here in Ann Arbor at both the graduate and undergraduate levels. We have made provision for three additional chairs to be endowed, with graduate scholarships for each chair. Most in academia underestimate the impact you have on your students. Many of them are difficult and seemingly disinterested. Others take up too much of your time-often on trivia. But in recognizing these individuals who made a significant impact on my life, we are also recognizing what is important in the relationship between faculty and student. And it is this relationship, more often than course content, that can shape and change lives. The first chair will be the Shorey A. Peterson Chair in Industrial Organization . Shorey was a shepherd. He shaped the lives of many of his students and guided them through their graduate work. That is not to say he was easy. He had a look of disdain that made you wish you could disappear when he detected any degree of inanity. He did not suffer fools gladly. But he and Eleanor invited his students into their home for dinners and evenings of stimulating discussion. I remember one evening, Mike Scherer, who went on to serve the Federal Trade Commission, Northwestern, Swarthmore, and now Harvard with great distinction, an economist from General Motors and myself discussing with Shorey the policy implications of GM exceeding 2% of GNP. The management of General Motors subsequently made that a moot point. We maintained a close relationship after graduate school with many visits to his home when my travels took me this way. He had a genuine interest in my career as it developed and was a warm supporter. We celebrate Shorey's contribution to this special place by remembering how important it is to be a shepherd . When I had completed my undergraduate work, I was just getting started in understanding the richness of the discipline of economics. I wanted to go on to graduate school but my first two and a half years did not bode well for my Keynote Address 3 acceptance. Shorey and I discussed this and he suggested that we should go down to see Gardner Ackley, who was then Chairman of the department. Shorey explained to Gardner my situation-overall, my transcript was not pretty but my work in the last year and a half suggested I would do well at the graduate level. Gardner said "okay" and that was that! No exams, no testsjust acceptance. However, it is not for this reason that the second endowed chair will be the Gardner M. Ackley Chair in Macroeconomics. Gardner was a model of the dedicated public servant this country most desperately needs. When John F. Kennedy was elected in 1960, his platform consisted largely of two pointsthe missile gap (later proven to be non-existent) and, "We have to get this country moving again." He promised a more vigorous government role in stimulating growth. Two names appeared on most lists for the Chairman of the President's Council of Economic Advisers; Walter Heller from Minnesota and Gardner Ackley from Michigan. Heller got the nod and did a good job with some help from Michigan and Harvey Brazer, who was deeply involved in creating the Investment Tax Credit Act. In Lyndon Johnson's administration, Gardner was Chairman of the CEA. While he never publicly expressed an opinion on the Vietnam War, he was adamantly opposed to financing it by printing more money. He pressed for a tax increase. Now, to argue for a tax increase for an unpopular war with a President like Lyndon Johnson, who dominated the Washington scene, was an act of immense courage. And to have succeeded, attests to the soundness of his policy and the persuasiveness of his arguments. I think we always underestimated what a giant task Gardner undertook to bring that about. He stands as a role model for the public servant who seeks the best, regardless of the consequences . We could use a hearty dose of that in Washington today. The third chair in my bequest will be the Warren Smith Chair in a field to be determined by the Department and the Dean of the College. While Warren was a great teacher and also served on the Council for Economic Advisers, it is not for that he is being celebrated-he was a friend. I related a few moments ago the process by which I was to be admitted to graduate school-took about three minutes. But shortly thereafter, I came to the realization that I was in deep trouble-I was facing an "F" or at best a "D" in Warren Smith's class in Money and Credit. I was working my way through school and that, together with the demands of family life, meant that something had to slip-and in this case it was Money and Credit. I explained all of this to Warren and tried to get him to understand that the miserable results of my two mid-term exams did not reflect my true understanding of the subject matter. He listened to my sad story and responded by making me a deal-my grade would be the grade on my final but he would not give me an "A." I wrote an "A" final and the "B" was adequate for graduate school. Warren Smith's humanness in this story is something that is required of all of us. Shakespeare recognized this in his foray into economics-the Merchant of Venice: "The quality of mercy is not strained, it droppeth as the gentle rain 4 Constituent Interests and U.S. Trade Policies from heaven upon the place beneath: it is twice blessed; it blesseth him that gives and him that takes." (IV., L, 184) Warren Smith knew what Shakespeare meant. It is our hope that the added resources our gifts have brought, and will bring in the future, will increase the standing of economics at Michigan. But in achieving academic excellence, it is also our hope that the qualities embodied in the Peterson, Ackley and Smith chairs-being a shepherd, giving one's self to public service and being a friend-will continue to be a part of the very fabric of the Department. My education at Michigan was much the richer because this was true when I was here. The need today, whether it's in international trade policy or coming to grips with domestic entitlements, is for people who can bring judgment, a sense of responsibility and compassion to the solutions of the problems that surround and, sometimes, seem to overwhelm us. And despite the trend in economics today, these attributes are, to me, of greater value than the latest mathematical models. Now I want to turn your attention to a major threat to our public universities and indeed our society as we have known them over these past decades. I was on campus three weeks ago when the names of the candidates recommended to the Regents by the Presidential Search Advisory Committee were made public. At that time, Regent Phil Power made the comment that excellent public universities "may be the signature creation of American society in the 20th century ." He probably should have included the 19th century, for one of President Abraham Lincoln's achievements was the signing of the Morrill Act in 1862. This act, which had been debated in Congress for years, created our system of land grant colleges. Within a year of its passage, nine states started land grant colleges-Iowa State, Kansas State, Michigan State, Rutgers (New Jersey), Penn State and what are now the Universities of Vermont, Minnesota, Missouri and Wisconsin. Think of the major impact these great institutions and many, many others created by this legislation have had on their regional economies and how they have contributed to the national good. But our public universities are at risk! Last March, Anthony Lewis wrote a column in The New York Times entitled "Sunlight and Shadow." He started by writing "California, land of the possible. So it used to be: the state where optimism was policy and the policy worked. Not today." He compared the policies of two Republican governors-50 years apart. Earl Warren devoted his energies toward the expansion of the University of California system-he himself had risen from poverty by way of Berkeley-and making education available for all Californians. Pete Wilson, on the other hand, has focused on the politics of division, appealing to the dark side of human nature on issues such as affirmative action and immigration. His "three-strikes" law is making, in Lewis' words, "California the world capital of incarceration." The University of California and the California State University systems were models for much of the nation and were virtually free. But that all has changed. In the last five years, fees have quadrupled. Prisons have become the Keynote Address 5 growth industry in California. As recently as 15 years ago, California spent six times more on higher education than on prisons. In 1994, the prison budget was larger than that for higher education. And the cost of prison care is estimated to be 18% of the state budget early in the next century leaving, under current budgetary formulas, only 1% for higher education. Seventeen prisons have been built in the past 15 years-I5 more will be needed in the next 5 years. Prison guards have the same salary-about $45,OOO-as an assistant professor in the University of California system. This craziness is not confined to California. Michigan's budget for corrections is very close to its support for higher education. A state-by-state survey , especially in the industrial states, I am confident would see this trend across the country. Lewis closed his column by writing, "What happens in California, it used to be said, is a preview of what will happen to all of America. We have to hope that that is no longer true." But it seems to me that hope alone is not adequate to the task. What amazes me is that no one of national stature is speaking out against this distortion of values. The ethicists, the political scientists, and the economists are all silent. What economic analysis would suggest that this model represents the best allocation of resources? How would one argue a brief for this position in the court of human values that would be plausible to a jury of our peers? The public universities that are at risk from this perversion of priorities must take the lead in focusing our nation's attention on what has been happening . They need to make the case anew for the richness that the universities have brought-and will bring-to their regions and the nation. But we all must join in this campaign. We have been the beneficiaries of this gift to our country -we need to insure that it is available to future generations. One of the facets of World War II that mystifies me to this day, is that none of the institutions in Germany stood up to the madness that was Hitler. Germany had a great university system, indeed the model for Michigan and, subsequently, other U.S. universities. But that great university system was silent . Germany had a well developed Christian community with strong Roman Catholic, Lutheran and Reform churches and seminaries. But only a relatively unknown Lutheran pastor, Dietrich Bonhoffer, is recognized today as being publicly vocal against the crimes of Nazism. He stood virtually alone and became a martyr. America today has great universities and a diversified and active religious community. But we need voices that will say that our values, as reflected by our public expenditures at the federal and state level, are wrong. Educationfrom head start to graduate school-has made our nation great. We cannot afford to lose that because of spending policies that appeal to the dark side of human nature and do not represent what is best about this great country. ...