IN AN UNCERTAIN WORLD

Harvard Commencement Day Address
June 7th, 2001

Robert Rubin
Former Secretary of the Treasury of the United States

I am deeply honored to be your commencement speaker today. A little over forty years ago, I arrived as a freshman at Harvard College, from a public school in Miami Beach, Florida. I remember the first day of orientation, when the incoming freshman class met together at Memorial Hall, and the acting Dean of Freshman said, as an effort at reassurance, that only 2% of the incoming class would fail out. I felt that I was providing enormous protection to the rest of my incoming classmates, because in my mind I was going to fall short so colossally as to fill that whole 2% all by myself.

However, I remained, and my Harvard experience reshaped the intellectual framework through which I viewed everything that came my way, including the decision-making that has been the critical core of my professional life, both on Wall Street and in government. My views on that critical function of decision-making derived from my life's activities and formatively and powerfully from my Harvard experience, will be the primary focus of my remarks today, because I believe that decision-making will be at the core of your lives, too, no matter what you do. The only question will be how well you make those decisions.

Larry Summers, my former colleague at Treasury and your outstanding incoming President, used to say, when we faced tough situations in Washington, that life is about making choices. And I think that is exactly right. Curiously, though, despite this profoundly important reality, most people give very little serious consideration to how they make decisions. Thus, I would add to Larry's comment, that how thoughtfully you make those choices will critically affect how good those choices will be and how effective you will be.

In addition to discussing decision-making, I'll end my remarks by urging that today's graduates spend at least part of their careers in public service, where so many of our society's most complex decisions - affecting the lives of all of us - must be made.

Sophomore year, in Emerson Hall, I took Philosophy I with Professor Rafael Demos. I still remember the first day of class when a relatively short, white haired, elderly Greek man walked onto the stage in the lecture hall and instead of using a podium, turned a wastebasket upside down on a desk, put his notes on top, and started to speak. That unadorned simplicity - in the best sense - permeated his thinking and his teaching. And Philosophy I was only part of a broader Harvard intellectual experience that provided my most important training for subsequent careers in risk arbitrage investment on Wall Street and in economic policy making in government. Professor Demos would lead us through the great philosophical thinkers of the ages, not in the spirit of simply understanding and accepting their views, but rather to use their views as launching points for our own critical thinking, to question how well each thinker's analysis held together and, most importantly, to question how each assertion of truth was proven. And, as I slowly came to realize, the absolute truths that were asserted turned out to be unprovable and, in the final analysis, to be based on belief or assumption. Only later did I learn that many in modern science hold exactly the same view, that is that sophisticated theories can be developed and then proven by experimentation, but that ultimately this whole structure rests on unprovable assumptions.

I also remember that after we had struggled with thinkers whose work was immensely difficult to understand, Professor Demos then assigned another set of thinkers whose work was relatively easy to understand. However, we came to realize that this group lacked the trying but tight rigor and discipline of a Kant or Spinoza, and seemed intellectually loose, and unsatisfying. We then returned to the more difficult philosophers, with a newly developed appreciation for rigorous thinking.

From the guidance of this gentle professor, and from all my other experience at Harvard, I developed in the core of my being the view that there are no provable absolutes, and that, with the absence of provable certainty, all decisions are about probabilities - that is, all decisions are about the respective probabilities, of each of a number of possible outcomes actually occurring. Moreover, recognizing that all decisions are about probabilities rather than certainties should lead us to uncover and engage with the full array of complexities around making the best decisions.

Perhaps most importantly, rejecting the idea of certainties and needing to make the best judgments possible about probabilities, should drive you restlessly and rigorously to analyze and question whatever is before you - and to treat assertions as launching pads for analysis, not as accepted truths - in pursuit of better understanding.

Moreover, judging probabilities is far from the only complexity in decision-making. Often, each alternative possible outcome is not a simple, single effect, but the net effect of tradeoffs between competing considerations. I'm not expecting in these remarks to fully discuss these thoughts, but rather to convey my view as to the intellectual complexity inherent in making good decisions.

To exemplify both probabilities and tradeoffs, when the new administration's economic team opted for deficit reduction to stimulate economic recovery in 1993, we told the President that the likelihood of success was good, but that there were no guarantees, so that he could make a decision on this dramatic change in fiscal policy with full awareness of the economic and political risks. We also said that even if the strategy did work, the result would be a tradeoff between competing considerations - the positive of economic recovery and the negative of being unable to fund some of his desired programs. Again life is about making choices, and that quickly leads you to probabilities and tradeoffs.

With that, let me make one final point about how complex decision-making can be - the point that sometimes all choices are bad, but some are better than others. For example, our administration was greatly criticized for having worked with the International Monetary Fund to extend support to Russia in 1998, when Russia was facing a severe financial and economic crisis. Clearly, there was a substantial risk that additional assistance would not be effective. On the other hand, there was no question that our country had a very substantial national security interest in attempting to help stave off economic crisis in Russia, even if the likelihood of success was relatively low. All choices were probably bad in that case, including doing nothing, but there was still one choice that was least bad. Often, decision-makers faced with a situation where all choices are bad, react by not deciding. That, however, is a decision in itself, and often the wrong decision.

Let me mention one other situation that exemplifies what I've been saying about decision-making.

I often remember an experience early in my own Wall Street career, when I was investing our firm's capital in arbitrage and a friendly competitor at another firm explained his massive investment in what he viewed as a sure thing.

I agreed that it looked certain, but on the theory that there are no certainties but only probabilities, I made a very large investment, but still at a level where the loss was affordable if the entirely unexpected happened. And, it did. The investment failed: we took a large loss, and he took a loss beyond reason - and lost his job.

I doubt if Kant or Spinoza viewed themselves as offering the best and more important preparation for risk arbitrage or for intervention in the dollar/yen foreign exchange market or for the many other activities of a finance minister. But, in my view, they did. Looking back on all my years in the private and public sectors, in the most important issues, certainties were almost always illusory and misleading, as were the simple answers or opinions that often were the response to the complicated issues in both political discourse and the private sector. Reality is complex, and recognizing complexity and engaging with complexity was the path to best decision-making.

This, as you leave Harvard to undertake a vast variety of pursuits, I believe that nothing will be as important to you - no experience or professional training - as the ways of thinking and the restless pursuit of understanding you have had the opportunity to develop at this great institution.

An important corollary to recognizing that decisions are about probabilities is that decisions should not be judged by outcomes but by the quality of the decision-making, though outcomes are certainly one useful input in that evaluation.. Any individual decisions can be badly thought through, and yet be successful, or exceedingly well thought through, but be unsuccessful, because the recognized possibility of failure in fact occurs. But over time, more thoughtful decision-making will lead to better overall results, and more thoughtful decision-making can be encouraged by evaluating decisions on how well they were made rather than on outcome. In managing trading rooms, I always focused on evaluating and promoting traders not on their results alone, but also and very importantly, on the thinking that underlay their decisions. Unfortunately, this approach is not widely taken, much to the detriment of decision-making in both the private and public sectors.

In Washington, for example, there is very little tolerance for decisions that don't turn out to be successful, creating a tendency to counter productive risk aversion. In 1995, for example, our administration decided to assist Mexico financially in attempting recovery from an economic crisis, and the program succeeded. Then, three years later, we made a conceptually similar decision with regard to Russia and the effort did not succeed. I believe that the decision on Mexico would have been right even if the program had failed, and that the decision on Russia was right even though it did fail. In both cases, we knew that there were no guarantees of success - and in fact, real chances of failure. But we also felt that the chances of success were good enough, and the consequences of not engaging were a severe enough threat to American economic and national security interests, that involvement was the right decision. We were praised for the Mexican program, and criticized for the Russian program, in both cases because of the outcomes. I think both those reactions were based on looking at the wrong things. And that has real consequences. In the Mexican case, especially, President Clinton made the decision well knowing that failure could cause him great political damage, and that the judgment and evaluation of the decision in the media and the political universe would be based solely on the outcome. Fortunately, President Clinton was willing to take that risk, but too often this environment deters optimal decisions where there is a risk of failure.

And that leads me to the thoughts on public service I mentioned at the beginning of my remarks.

When I began in the new administration, a distinguished former cabinet member told me that I would now live off my previously accumulated intellectual capital, because I would be too busy to add to it.

I found just the opposite - that my time in government was an intense learning experience about how our government and our political processes worked and about a vast array of policy issues. I also found that the decisions that had to be made were often amongst the most complex faced anywhere in our society. Public service was a powerful challenge in using all the intellectual qualities that Harvard had sought to develop, towards the objective of furthering the public good.

I believe strongly in a market based, private sector driven economy. But there are a host of critically important functions that markets by their nature cannot or will not perform optimally, from education, programs for the inner city, law enforcement defense, and environmental protection or defense and foreign policy, and this array of functions becomes greater and more challenging in a world of increasing global interdependence.

Thus we must attract to government a critical mass of people with the intellectual drive, the restless quest for understanding, and the effectiveness at decision-making that we have been discussing this afternoon. There was a terrible period during my time in government when radio talk shows and even important elective officials regularly derogated public service and public servants. The atmosphere around government has substantially improved in the last few years, but simply reducing the level of disparagement is not enough. The people I worked with in government were as capable and committed as any I had worked with anywhere. But, to continue to attract the outstanding people to public service that the issues and functions require, I believe we all have the obligation - especially those who have received the benefits conferred by our great universities to reject the denigration of public service and to help re-establish an environment of honor and respect for public service and public servants.

None of this, let me quickly add, has anything to do with the perfectly proper debate about what the role of government should be in our society. This debate is as old as our republic, and the role of government has fluctuated substantially over the course of our history. However, what should not be a matter of debate - no matter what one views may be as to the appropriate role of government - is the respect that we accord public service and public servants.

Beyond urging that all of us contribute to re-establishing that environment of respect, I would also urge that those of you graduating today consider spending at least some time - and hopefully, for some of you, a whole career - in public service.

Public service, at whatever level of seniority, can provide immense challenge to all of your capabilities, as you help make and execute decisions in the most complex of circumstances, to further the well-being of the nation and even the world. And, you can get a very special insight into many of our society's most important policy issues, and a very special insight into how our society works - for example, how policy, politics, and media interact to affect what happens.

Government service, whether for a few years or for a career, can provide enormous challenge and intellectual growth, and the satisfaction of working to directly further the public good.

With that, let me conclude by thanking you for the opportunity to share views that I have thought a great deal about over the years. Important issues are complicated, and many of the most complicated are involved in the immense challenges requiring effective governance in our country and throughout the world.

You have been prepared by an outstanding institution - Harvard - to deal with this complexity in whatever you do and to contribute greatly to that governance.

Thus, you have an extraordinary opportunity to develop lives that work for you and to serve your country and all of human kind. That is a wonderful prospect.

And so, I congratulate each of you graduating today on all that you have accomplished and on this momentous occasion in your lives; I wish each of you the best in the years and decades ahead; and I hope you will cherish and advance in the world the great intellectual traditions that Harvard represents as so many of your predecessors have before you. Thank you.