The World According to Larry

Larry Summers is to modesty what Madonna is to chastity," wrote Wall Street Journal columnist Paul Gigot in 1995. But if Summers is in fact an immodest man, he at least has much to be immodest about: one of the youngest full professors of economics at Harvard, winner of coveted awards from the National Science Foundation and the American Economics Association, former vice president and chief economist of the World Bank, former secretary of the U.S. Treasury, and now president of Harvard University. (He is also, in addition to his many other institutional affiliations, a member of FP's editorial board.) Along the way, Summers established a reputation as an inspirational teacher, injected a healthy pragmatism into an often-abstract social science, helped douse financial fires around the world, and -- not least -- alienated more than a few onlookers and colleagues with his take-no-prisoners brand of intellectual combat. Here, in a conversation with FP Editor Moisés Naím in May, Summers takes on his critics, offers his views on everything from the state of the global economy to distance learning, and explains how Larry Summers, the academic economist, learned to live with Larry Summers, the public servant.

Foreign Policy: During the late 1990s, you often remarked that the United States was the sole working engine of the global economy, and that other regions -- Europe, Japan, and the rest of Asia -- were not functioning as well. Is that still the case?
Larry Summers: I didn't think the world economy could fly indefinitely on a single American engine. The last year has seen that warning borne out. We did not head toward strength; rather, the economy declined in the United States, Japan, and Europe.

FP: How long can the United States play the role of consumer of last resort for countries trying to export their way out of crises or stagnation? Put another way, when does the U.S. external deficit stop being a sign of strength and become a cause of concern?
LS: It's much better to live in a country that capital is trying to get into, like the United States, than a country that capital is trying to get out of, like many others. And unlike the widening deficit in the 1980s, the current U.S. deficit has been driven, to a substantial extent, by investment demand. Clearly there are questions of how sustainable that deficit is, and there are different paths of adjustment. One involves the United States slowing its economy and importing less. That seems much less healthy for the world economy than an adjustment path involving more rapid growth in the United States, in Britain, in Europe, and in Asia.

FP: Apprehensions about the current account deficit seem to draw on the volatility and fickleness of investor sentiments. Don't you worry that once we begin to see lots of reports, editorials, and then warning signals that the U.S. dollar is overvalued and the deficit is not sustainable, a very sharp, sudden weakening of the U.S. dollar vis-à-vis other currencies might take place?
LS: These concerns were on our minds when I was in government and are perhaps even more relevant now. On the other hand, if you sell dollars, you have to buy something, and at this juncture it is not easy to see the major attraction of either the European or Japanese currency.

FP: Almost every week we see editorials and articles calling for Japan to move forward on economic reforms and clean up its banking system. Assume that Japan will crash and that its collapse will fulfill a worst-case scenario. How and where would the shock waves of a crash in Japan travel?
LS: I'm reluctant to try to reel out economic horror flicks. What I would say is that there are real risks if reflation and growth in Japan are not achieved. The reverberations of similar events in Russia in 1998 and in Thailand and Indonesia in 1997 have shown that predicting the financial repercussions of a crash is very difficult.

FP: One school of thought says that Japan's problems are political -- that it has a political dynamic that makes needed economic reforms very difficult to implement. On the other hand, Japanese politicians say that economists themselves can't agree on what needs to be done, and that for every prescription from a distinguished economist, you have another contradicting prescription from another equally respected economist. Who's right?
LS: I think there's merit in both views. A three-pronged program of reflation and more expansionary monetary policy, greater efforts to disclose and work through problems in the banking system, and more aggressive deregulatory measures to make Japan more hospitable to foreign investment would probably command the support of most thoughtful experts. There are major structural problems in the Japanese financial system, but no country has a financial system sufficiently robust to withstand five years of deflation without all kinds of performance problems. In fact, in thinking about Japan's situation, it's important to emphasize the emergence of deflation. Those who frame their critique largely in terms of Japanese structural problems miss important aspects of the situation.

FP: You reportedly once warned senior Japanese officials that they risked being remembered as the Herbert Hoovers of the 1990s, plunging the country and the world into a great depression through their own obstinacy. In contrast, Paul O'Neill, the Bush administration's Treasury secretary, has insisted that he would not lecture the Japanese, saying that it would be better for them to be left alone to find their own way to deal with their problems. What's your view of that approach?
LS: I don't remember ever having expressed myself, and certainly not in public, in the language that you attributed to me, but certainly I did encourage the Japanese to take expansionary measures. And you only have to read the newspapers to see how, after its initial statements, the current administration has made a number of explicit suggestions regarding Japanese monetary policy and macroeconomic issues.

FP: What about Europe, the third engine that is not working up to its potential? In a November 1998 speech, you cautioned that the success of the European Monetary Union would depend largely on the European Union's ability to move forward with structural reforms, including making it easier to hire or fire workers. Has Europe begun to address those challenges?
LS: I think they've begun, but I haven't seen the kind of significant change necessary to create the virtuous circle -- increased hiring, increased confidence, increased mobility -- that is important to economic success. That lack of progress has complicated the management of the euro, especially relative to the hopes that many European officials had of making Europe more of a magnet for inward investment.

FP: What if the euro becomes a significant reserve currency alongside the dollar?
LS: You know, before the euro was introduced, people always expressed two concerns: one, that it would be a strong currency that would threaten the dollar as a reserve currency; the other, that it would be a weak currency that would work adversely to U.S. trade interests by making European exports cheaper. In the run-up to the euro, I would say the greater concern was that it would be threatening to the dollar. As events have played out, it seems to me the second concern is the greater, and I think that as long as we manage our own affairs well, the buck stops here as far as the dollar is concerned.

FP: You have described yourself as a "market-oriented progressive" -- that is, someone who believes in market forces as well as an activist role for government. But some would argue that deregulatory pressures, electronic commerce, the proliferation of tax havens, the harmonization of tax policies, and other aspects of globalization pose inherent conflicts to raising the taxes needed to create effective social safety nets. In other words, the more you integrate with the rest of the world, the less ability or freedom governments have to be activist. Do you see that dilemma?
LS: I see a kind of trilemma between international integration, national sovereignty, and public purpose. By that I mean the mobility of goods, services, capital, ideas; the ability of countries to make their own decisions on crucial policies affecting their citizens; and the ability to pursue objectives that the market doesn't naturally generate, such as the redistribution of income or regulations on the environment and labor. You can combine any two of these, but not three. Milton Friedman would favor international integration and national sovereignty, and if that led to a race to the bottom in redistribution and regulation, so be it. Pat Buchanan reconciles national sovereignty and public purpose by opposing international integration. And certain academics favor public purpose and international integration by advocating more and more governance at the global level, through global environmental standards, or global labor standards, or a global compact for redistribution. The real challenge of managing globalization is finding the right kinds of balances between these three challenges.

FP: In that light, what is your view of the so-called Tobin tax: the idea of taxing international financial transactions and using the money generated to fund different initiatives, from debt relief to supporting the United Nations?
LS: I don't think it's an idea that will go very far, for at least two reasons. First, although I would like to see more resources devoted to international organizations, to foreign assistance, to debt relief, to post-conflict reconstruction, to global education, or to environmental priorities, it will be a very long time before the countries of the world are prepared to give a taxing authority to an international organization at the global level -- of any kind. Second, while it is tempting to tax what often is seen as speculative activity, evidence suggests that in a world of derivatives, swap instruments, and substantial transactions that take place within individual companies, the imposition of an across-the-board tax on financial transactions is neither meaningful nor feasible.


FP: What would you tell a finance minister from a developing country who tells you, "Mr. Summers, I followed your advice and that of your colleagues at the International Monetary Fund (IMF), World Bank, and Treasury, and I implemented the Washington Consensus, and now a Nobel Prize winner and former chief economist of the World Bank, Prof. Joseph Stiglitz, keeps saying that it was nefarious advice, that it was counterproductive, that we did the wrong thing in following your advice." Who should we believe: Larry Summers or Joe Stiglitz?
LS: Don't look to individuals, look to the evidence and the analysis. By now it should be relatively clear that without macroeconomic stability; without clearly established property rights; without market competition; without openness to the global economy; without significant investments in people, education, and health; without the development of effective institutions in everything from promoting literacy to regulating banks; development is very, very difficult. As the thinking about development has evolved, I've welcomed the extra emphasis placed on the importance of developing successful institutions and investing in people as a resource. But it's highly problematic to suggest that somehow governments that have difficulty privatizing enterprises will run them more successfully; or that industries that have difficulty competing internationally will get better with a combination of protection and selective credit; or that reliance on the inflation tax, a proposed alternative to other spending measures, will somehow make things better. I'm not saying that I have it all figured out, but it seems to me that in the developing world, far more people are poor because of too little globalization rather than too much, and far more people are poor because of a lack of economic reform than because of excessively rapid economic reform.

FP: But critics like Stiglitz have focused not just on your general advice about how to reform an economy but on how you dealt with financial crises. Commenting on the Asian crisis, for example, Stiglitz wrote "how smart, even brilliant people... were not using smart economics. Time and again I was dismayed at how out of date and how out of tune with reality the models Washington employed were." What's your reaction to the criticism that you and others in Washington were using models and conceptual approaches that were completely out of touch with the micro-reality on the ground?
LS: Battlefield medicine is never perfect. There's no question that with the benefit of hindsight, the governments involved might have made some different choices and given somewhat different advice at some junctures. But given the circumstances, I think the advice that we gave during the Asian financial crisis on the basis of the available information was right. Stiglitz would always like there to be a larger audience for his papers, but I think it's not serious to suggest that officials at the IMF or the U.S. Treasury were unaware of the field of microeconomics or unaware of research on credit rationing.

FP: Another economist -- Paul Krugman -- argued that the crisis countries were asked to adopt policies that would deepen rather than alleviate the downturns they were experiencing. He has written that you and your team at Treasury "did not apply orthodox economic analysis. On the contrary, from the very beginning of the crisis, the response from Washington has been to throw away the textbooks. If orthodoxy has been applied, it has been that of bankers, not economists. Why? Because from the beginning, Washington's preoccupation has been not economic fundamentals but market confidence."
LS: When a country's exchange rate is declining rapidly because capital is trying to leave the country, and the country's financial institutions are in real trouble, there is a fundamental policy conflict between restoring external confidence by raising interest rates and providing for financial repair through increased liquidity. It's a classic problem of a single instrument and multiple targets. Confidence is widely recognized as essential in combating financial crises. In fact, I know of no textbook that would treat the confidence of investors as irrelevant to financial stability. We can engage in a case-by-case debate about whether the governments in question or the IMF made the right prescriptions. But it's interesting to note that while Stiglitz and Krugman disagree with the policies pursued, Stiglitz argues that we failed by pursuing the traditional approach and Krugman says it's because we didn't take the traditional approach.

FP: The Bush administration came into office denouncing the bailout of countries going through financial crises. Do you think the Bush team has sketched out a new approach to dealing with international financial instability?
LS: I haven't followed closely everything that's happened. The two packages in the single year, 2001, for Turkey and Argentina were both large, by the standards of the countries' IMF quotas, compared with the packages that the United States supported while I was at the Treasury Department. I also haven't really quite understood the new administration's position on international bankruptcy procedures. The difficulties with a bailout strategy, I think, are very real, but it is much easier to decry bailouts than to develop constructive alternative approaches. And I'm not sure about the wisdom of undermining confidence by decrying bailouts. If that's overdone, it can lead to situations where even larger bailouts are provided to undo the effects of earlier rhetoric.

FP: Larry Lindsey, one of the Bush administration's main economic advisors, has said, "As long as it is perceived that international institutions and the United States taxpayer will bail out imprudent lenders, crises of the kind we're now experiencing are sure to recur, and perhaps escalate." He added, "All too often the IMF simply strengthens existing power elites. It buys them time." This is certainly true in Mexico, which has often been touted as a success.
LS: Moral hazard is a concern. But it is important to remember that U.S. taxpayers have not lost one penny. In fact, both the United States and the IMF in effect have made money on funds lent during financial crises during the 1990s. Nor, it seems to me, does the evidence support the idea that commercial loans are made primarily in reliance on the possibility of future IMF loans. Financial losses during the Asian financial crisis are variously estimated at three quarters of a trillion dollars. That's more than 10 times anything the IMF put in. Of course, most of what the IMF put in has already come back. As for Mexican political dynamics, looking at the performance of the Mexican economy over the last six years, the Mexican political transition in 2000, the continued progress in opening up the Mexican economy, and the kind of political pressures that existed in 1994, I would find it very hard to argue that somehow Mexican politics would have evolved in a better way if we had not provided major support in 1994.


FP: In the last few years, a multitude of new frameworks and "consensus documents" have emerged from the World Bank, including the Comprehensive Development Framework (CDF), which was launched by bank President Jim Wolfensohn in 1999. The bank has described the CDF as "a holistic, long-term, and country-owned approach that focuses on building stronger participation and partnerships to reduce poverty." As a former chief economist of the World Bank, what is your view of the new direction in the development thinking of the World Bank as expressed in the CDF?
LS: I don't think one can argue with the objectives or challenge the relevance and importance of any of the elements that are included. A couple of the bank's greatest contributions to development thinking have come from the application of rigorous analysis to project designs. I hope, though, that the bank, as it seeks to become more holistic, does not lose its analytic edge. I think the bank also needs to be careful about empowering the political opposition in democratic countries, as it sometimes does in the name of popular participation.

FP: The United States has been a reluctant supporter of multilateral organizations. In April 2000, you made the case before Congress for greater U.S. support of multilateral development banks, arguing that these institutions "support policy changes such as reduced tariffs in Mexico and opening up of the Indian economy, which enormously benefit U.S. producers. There are also more direct benefits for U.S. companies. In 1998 alone, U.S. firms received $4.8 billion from contracts arising from multilateral development bank investment and adjustment programs." Don't you fear that statements like these only confirm the views of those who see the international financial institutions as tools of U.S. foreign policy?
LS: I do worry about that, and I worried about it at the time I drafted that statement. My judgment was that it was not appropriate for the United States to seek to instrumentalize those international organizations for its own commercial purposes. But in making the case to a frequently skeptical Congress and public for their role, it seemed appropriate to highlight the direct economic benefits that their activities conveyed to the United States. I don't make any apology for the fact that the United States, just like other major bank shareholders, did try to push bank procurement toward our companies.

FP: Why would you agree to direct scarce aid resources in the form of debt relief to countries like Cameroon, which many observers consider one of the most corrupt, most authoritarian, and least market-oriented countries in the world? Isn't that just rewarding corrupt governments for past bad behavior?
LS: What's the alternative? There is a balance: The reason I don't join those who favor a major reallocation of effort in foreign assistance toward debt relief and away from traditional assistance is precisely that debt relief tends to reward those who borrowed and used resources badly in the past. On the other hand, one has to go forward, and countries with untenable debt burdens don't have a prospect of success unless they address those debt burdens in some way. That's why, as is so often the case in supporting economic development, simplistic slogans that either reject debt relief altogether or that see debt relief as a panacea miss much of what's important.

FP: In late 1999, the World Trade Organization (WTO) ministerial meeting in Seattle failed amid intractable disagreements between member countries. Economist Jagdish Bhagwati argued that President Clinton wittingly sacrificed the talks to pursue a short-term political agenda and avoid alienating organized labor. As Bhagwati put it, "Clinton joined in the anti-globalization frenzy, endlessly repeating the witless sound bite that globalization needs a human face." What do you think of President Clinton's statements in Seattle in 1999?
LS: I don't think Seattle was the Clinton administration's finest hour. I am much more concerned with extending the benefits of globalization by reducing trade barriers around the world than I am with promoting labor or environmental standards, which seem in many cases to me to be cloaks for protectionism. That doesn't mean we don't need to focus acutely on the interests of the world's poor as globalization takes place, that doesn't mean that here in the United States we shouldn't guard against the risk that global integration can cause local disintegration. But in general the priority has to be reducing trade barriers to bring more people into closer contact with the global economy.

FP: Is it fair to say that the Clinton administration achieved much less than it should have in terms of pushing for trade liberalization initiatives?
LS: Trade is very complicated politically. NAFTA has proved to be more important than people supposed at the time, given events in Mexico. I believe Mexico would be a very different country, one much less congenial to American interests without NAFTA. Post-NAFTA, the Uruguay Round was completed, the largest tax cut in the history of planet Earth. The WTO became complete when China became a member. For the first time, special selected trade benefits were given to a number of the most promising African reforming countries. So, it was a period that saw progress, and it was a period that saw resistance, some regress. The administration held the line against a number of protectionist suggestions that seem to have gained greater currency recently.

FP: Do you think that the recent imposition of higher steel tariffs in the United States is a mistake by the Bush administration?
LS: I think its ultimate effect will be a considerably more fractious world trading system and fewer good jobs in the United States because it reduces the competitiveness of U.S. steel users.


FP: Looking back on your time as Treasury secretary, can you name instances when Larry Summers, the public servant, had to make compromises and defend positions that Larry Summers, the academic economist, would have blown to pieces?
LS: There probably were such cases, but usually there were important noneconomic aspects to problems. Trade is a good example. Strict economic logic would compel much freer trade positions than the Clinton administration took. But there were important aspects that were not just political: the need to maintain leverage vis-à-vis other countries to reduce their trading barriers, the need to push adjustments in the United States, the need to maintain political support for trade policies in general. I don't recall ever publicly taking a position that made me privately uncomfortable.

FP: At Treasury, you succeeded a man widely regarded as one of the most successful secretaries in modern U.S. history: Robert Rubin. By contrast, your Washington reputation is more complicated. As the Financial Times put it, "in contrast to the silky and laconic Robert Rubin, Mr. Summers is known for his sharp edges and his inability to resist an opportunity to point out the intellectual inadequacies of those with the temerity to disagree with him." Why do you provoke such a response?
LS: I think it's probably better to ask the people who wrote that. I believe in trying to find the essence of issues, to probe different positions in a very strong way to discover the right approach. I'm sorry when that way of thinking gives offense. That's never my intent. In my years in Washington, I certainly came to have a greater appreciation of the extent to which the mutuality of interests as well as the force of argument is an important element in getting things done.

FP: What is the branch of economics that you think is going to present us with the most powerful, interesting, surprising, useful ideas?
LS: I've been very encouraged by the renaissance in development economics in recent years. It always struck me as a bit of a problem for our profession that one could find dozens of experts on the term structure of interest rates, but few on the economics of the Arab world or on the economics of agriculture in developing countries. Development economics, as a field, is attracting some of the brightest graduate students; it's a very positive trend. I'm also impressed by some of what's happening in behavioral economics, where you're seeing more realistic psychological theories than economists' traditional hyper-rationality brought to bear on everything from savings decisions to the pricing of financial assets to discussions and negotiation. Finally, I am quite struck by how much, in the decade I've been away, economics has moved toward becoming an experimental science, both by using laboratory experiments and even more by working hard to identify natural experiments that contribute to our understanding. 

FP: How do you feel when you compare the extraordinary progress and the revolution in technologies, biology and electronics, computer processing, and even astronomy with the dearth of comparable results in the social sciences, particularly in economics and political science?
LS: I am actually very impressed by how widespread the application of economics has become. One of my most vivid memories from my time in government was being asked by Chinese Premier Zhu Rongji at a 16th-century Chinese pavilion about the theories of Prof. Merton Miller, the Chicago Nobel laureate, on the use of put options to defend fixed exchange rates. That experience made me think about how much difference economic science was actually making around the world. You know, we tend to sometimes dismiss economic work, but market-based environmentalism, tradable permits, and taxes on emissions, which are now used in many countries to form the basis for proposed implementation mechanisms under the Kyoto treaty, were a completely flaky idea when put forward just a generation ago. Voucher plans for schools, income-contingent loans for higher education, futures loans for currencies, auctions of spectrum, trade rules in services -- these were all implausible, unworldly ideas a generation ago that we now have, thanks to progress in economics and its application.

FP: In your first address to Harvard University as president, you stressed that the converging phenomena of globalization and new information technologies (IT) would alter education "in ways that we can now only dimly perceive." What challenges and opportunities do globalization and IT present for institutions of higher learning?
LS: Three phenomena are coming together: globalization, it, and continuing education. Traditionally, education has operated on what might be called the fuel tank model: When you're young, you fill your tank with knowledge; as you age, you deplete your stock of knowledge and then eventually you've forgotten most of what you learned, or it has become irrelevant, and you retire. This model is becoming less tenable as people live longer, have multiple careers, and face more rapid changes. The demand for high-quality midcareer education is increasing. Since midcareer individuals with families can rarely spend a year or a long interval on college campuses, demand is increasing for distance education that relies on IT. Since Hawaii is, in that sense, no farther away than New Haven, continuing education will also encourage the globalization of education. In general when we have had new distribution technologies, whether it was the printing press or the development of recordings for music, the impact has been to spread the reach of those who are most able, at the expense of those who are less able. That suggests an important role for leading institutions in education and globalization.

FP: Should the WTO treat education as simply one more service in the global economy, and force trade liberalization in higher education?
LS: I'm skeptical as to whether bringing educational issues under the auspices of trade negotiations would be helpful. Many of the issues in education are rather different from the ones we usually contemplate in the trade context. To start with, many educational institutions are nonprofit, their motivations are different from the motivations of commercial firms that we think of in a trade context. There may be some egregious practices that should be addressed, but I would be skeptical about treating education in a way that had any parallels with financial services, with insurance, or with foreign investments.

FP: Following the September 11 attacks, we saw various reports about renewed interest by college undergraduates in the United States for courses in Middle Eastern studies, Islamic studies, etc. Yet over the last decade or so it is precisely these areas of studies that have been neglected in American universities. Traditional social scientists tend to consider area studies useless. What should be the role of area studies in U.S. higher education?
LS: Over the last decade we at Harvard have created a major center on Latin America, committed ourselves to a major structure that will house our various international studies centers, begun to create an Asia center, and begun to consider our efforts in a variety of areas. So there's no question that knowledge of different parts of the world is very important. There is a question of balance between work in academic disciplines and work in area studies. And there has been some tendency over time for area studies specialists to be extrapolative in their thinking and therefore to miss really important changes. For example, few if any Sovietologists predicted the fall of the Soviet Union, or the Berlin Wall. Almost all academic Japan experts in the early 1990s felt that the Japanese miracle would continue and that Japanese economic growth would far outstrip U.S. economic growth.

FP: Do you think that being the president of Harvard is going to be your last job?
LS: I don't know. I haven't been here for even a year. I'm certainly having a very good time learning a great deal about many different fields, ranging from law and human rights to religion and genomics. I'm having a great chance to be involved in shaping the way some of the brightest people in the world, our students, learn about the world.

FP: But wouldn't it be more fun to be Federal Reserve chairman than Harvard president?
LS: I'm having a great time doing what I'm doing at Harvard. I've loved every day. I enjoyed almost every day that I worked in government, in Washington, but there's a season in life for everything. And I'm now doing a thing where I think I can make the greatest contribution.


Interview: U.N. Undersecretary-General John Holmes

The top humanitarian official for the United Nations tells FP how to do aid in a time of war. Here’s a hint: it’s not pretty.

What do you do when refugees who need help live under the control of Pakistan's Taliban or Somalia's al-Shabab? Send aid, knowing that some of it might fall into the "wrong" hands -- or withdraw, leaving thousands or millions in peril? The answer, as U.N. Under-Secretary-General John Holmes told Foreign Policy's Elizabeth Dickinson today, is simple: you figure out a way to get the job done -- and it might involve talking to the bad guys (yes, that includes the Taliban).

Holmes's words about humanitarian compromise in AfPak couldn't come at a more pertinent time. Last week's attack on the U.N. guesthouse in Kabul has sent the organization packing; at least a portion of the team's foreign employees will be relocated, possibly outside the country. Meanwhile across the border, the United Nations has been forced to pull out of northwest Pakistan for security reasons, and a suicide bombing that left five U.N. World Food Program employees dead has forced the organization to question how long it can stay on the ground. In both countries, the United Nations and other humanitarians are facing hard choices about how they will deliver aid to millions in need. In his interview, Holmes tells FP about his frustrations with NATO troops and the dangerous melding of military and humanitarian roles. And since the crises don't stop in South Asia, Holmes touches on the financial crisis, climate change, and Darfur as well.

Foreign Policy: Tell us about the current humanitarian situation in Pakistan, where millions have been displaced recently.

John Holmes: Two and a half million people [were] leaving [the Swat valley] in a very, very short space of time [earlier this summer] -- one of the biggest movements that people can remember like that. It was [also] a very unusual situation in that only about 10 percent of those people actually went into camps; most of them were in host communities, and therefore they were harder to reach. We had to be fairly quick in responding and innovative by creating hubs where people could come and collect [food and supplies]. Now, 1.5 million people have gone home but that means 1 million are still there. We [also] have a new wave of people who have come out of South Waziristan -- 200,000 or 250,000. They are coming out into an area to which we have no access, so we have to operate through local NGOs.

It is a very complicated aid operation, and now we face very significant security threats to it. The attack on the World Food Program was the Taliban saying, "We do not approve of what you are doing." We have to assume that is not the last attack of its kind we are going to see. We have to reflect carefully on what kind of footprint can we have in Pakistan under the current circumstances. There is no question of pulling out; it is more [about] how much can we still do and how do we do it?

FP: Taking the example of Pakistan, could you walk me through the logistics of an aid operation under such difficult security circumstances?

JH: What you want to do normally is have your international staff on the ground [doing the] coordinating. That is now becoming extremely difficult in Pakistan, so you have to operate more through local staff, who are not more dispensable but are able to operate in ways that are less high profile. Then, you need to find local NGOs which have capacity and independence to operate and are not either too close to the government or too close to the others. [Take for example the] World Food Program: You have stocks of foods that you will ship to various distribution points and then use a local NGO who you trust to be the distributors of that food. Then you might have another NGO who are the monitors for at least some check and a balance -- some assurance that whatever you are providing is getting to where it needs to get to and not disappearing off into the markets or into the hands of the Taliban.

But the operating standards will have to drop a bit. If you assume, and we do, that these operations are necessary to keep people alive, then you have to accept those kinds of compromises in order to keep the aid flowing.

FP: In the example of Afghanistan, where some U.N. staff may have to depart due to security concerns, how does that process change, since you are operating on the same turf as NATO forces?

JH: It is very difficult coexisting with a military operation. The problem in Afghanistan is that there is more confusion than we would like between military and civilian roles. So you have the military, particularly the U.S. military, doing development and sometimes saying they are doing humanitarian assistance. And we say, "No, please don't do that and please don't say you are doing that, because you are putting in danger the real humanitarians." We have a major issue of liaison, communication and explanation to do with the military. If you [the military] can provide security assistance in a general sense, that is good. But otherwise, it is best left to the humanitarian experts, who will be there after you are gone and therefore need to preserve their independence and their impartiality.

[The civil-military relationship] is not easy in the best of circumstances, and in Afghanistan it is extremely difficult. There are circumstances in which the only way to deliver aid is through the military, particularly in very insecure environments. But that is very much the last resort. Occasionally, they are not delivering it, but we have to deliver [assistance] in a military escort. That is not at all what we want because it can give the impression that the humanitarians have some other political agenda. But sometimes there are no other choices, so you simply have to make those compromises in the interest of actually getting that aid through.

For us to be safe, the vital point to get across is that what we are doing is based on need and has nothing to do with politics. We help people whether they are under Taliban control or government control. We are not rewarding people for being under one or the other. It is a tough message to sell, and there are many people on the other side who do not believe it or choose not to believe it. So we have a major job to do to get that message across to those organizations, like al-Shabab and talk to the Taliban about what we are doing and why we are doing it, to try and persuade them to leave us alone.

FP: How has the U.S. military responded to these concerns?

JH: When we explain [our concerns] either here or [at] NATO or on the ground, people understand it. The difficulty is that the contingents rotate, so you are always dealing with new people. You just got one lot educated about why there is an issue here and then they leave. It is a dispiriting process.

FP: In a similarly rough environment, Somalia, there has been some controversy in the last few weeks, as the U.S. State Department has considered retracting humanitarian aid from Somalia based on concerns of it going to the militant group al-Shabab. How do you balance those concerns?

JH: That's precisely the calculation we have to make. No one is trying to give any aid or comfort to al-Shabab or any other rebel group. But they are in control of a lot of the territory where people who need the help are, so we can't avoid having some dealings with them -- not political negotiation, but some kind of contact to say, here is a convoy of food coming through, please leave it alone. There are checkpoints with soldiers everywhere, and they often demand money. Who is that money going to? It's very hard to say, but there are some certain minimum conditions that you cannot avoid. You have 3.5 million people in danger of starving. [W]ho would benefit most from the aid operation stopping because of concerns of aid leakage? Is it the government or is it al-Shabab? [It's] al-Shabab.

FP:  What hot spots are you looking out for next year?

JH:  Well there are some long-running ones. Our two biggest operations are in Darfur and the Democratic Republic of the Congo, and that isn't going to change, I fear. Darfur is not as much in the news as it was, but it is not any better. The needs are still there, and the political problems are not particularly close to reaching a solution. That is a billion dollar operation, and it is going to stay that way.

FP: Following the global financial crisis, how has your role changed? Is it more difficult to convince donors to help out?

JH: It has not been as much of a problem as we feared it might be. But there is a fear that next year will be more difficult, because the appropriations for 2009 were set in 2008. For 2010, the allocations were being set in 2009, in the middle of the crisis when the fiscal effects were being felt so there is a fear that next year may be tougher.

FP: You have warned this year of the growing danger of humanitarian repercussions of climate change. Going into the Copenhagen climate talks next month, what are the priorities from your perspective?

JH:  The most important thing from our point of view is for people to understand that climate change is a not a future threat; it is a real current issue for many countries and people. I have lost count of the number of African [government] ministers who have come into my room and said, "Yes, we have had floods before, but never like this. The farmers don't know what to do."

There needs to be a recognition that the humanitarian consequences of climate change are with us now and they will only get worse. The negotiation in Copenhagen needs to concentrate not only on mitigation of emissions, but also on helping countries adapt to climate change.

I think we have succeeded in the last year in getting the message across to the negotiators. The reality is, if there is not a significant adaptation fund, the developing countries won't sign up [to the agreement].