Remarks By Peter G. Peterson |
| That gracious introduction (given by Professor Robert Ashenhurst) referred,
among other things, to my relentless crusade for fiscal responsibility and
my book writing. Given the reviews of some of my writings, I would assume
that most of you are here because you have to be, and that you are not
masochists. Therefore, in case any of you are actually tempted to follow
my path of book writings and public crusades, permit me to warn you now it
is not without some considerable peril to your self-esteem.
For reasons unclear to me, friends and critics alike find the idea of businessmen disillusioned enough to believe they have something intellectual or substantive to contribute to the public good a tempting target to roast mercilessly—and relentlessly. Since levity and brevity are to be welcomed at these solemn and lengthy graduation occasions, permit me to try to amuse you with some of these world-class put-downs I have received recently. And these are from my friends:
• Gray Dawn • Karnak • Ted Sorensen terrorist joke
It has been said that the honest title of many a speech is “How to be more like me.” Not this one. It is actually: “How to be more like what this Graduate School of Business is all about.” This great school has a rock bottom premise, namely, that there are certain basic principles or ways of thinking about business and the economy that are enduring and, in the final analysis, are far more useful than some of the more “practical,” “how to,” “vocational” approaches well-known on some other campuses. Before signing up for this university, I was warned by some very practical folks that Chicago was fine for researchers and teachers. But for the rest of us mortals, it was said to be, horror of all horrors, too intellectual, too theoretical, too abstract, and too irrelevant to the real world. In short, just too, too impractical. Let me give you some of my own case studies on this point. In my undergraduate work at another prestigious campus, I somehow persuaded myself that retailing would be my life work. After all, my father had run a restaurant. So with the infinite wisdom of youth, I looked for every “practical” course in retailing I could find . . . retail window displays, retail inventory control, etc., etc. Armed with this very practical tool kit, I launched my career in retailing—selling toys at Christmas to be precise. Two observations about this melancholy experience: (1) Successful retailers have their own clear views about how best to teach their trainees their retailing techniques. (2) After only three months of hell for everyone, why I ever believed retailing would be interested in me or I would be interested in retailing is a profound testament to what a stranger to my unconscious I really am. But the real point is this: Long after I had forgotten everything I had ever been taught about retail window displays, the so-called “abstract” Chicago principles remain with me. It is the “abstractions” that have proven to be the most practical. Let me illustrate this with examples from my career, both in business and in Washington. As to business, since I was presumably educated here, I, of course, knew that Adam Smith is our Patron Saint, and the principle of comparative advantage is our mantra. Yet, I have been surprised how often people go into businesses for every reason other than comparative advantage—“Every-body’s doing it,” for example. As we were setting up The Blackstone Group, we got endless advice to adopt the rage of the moment—hostile, vulture, takeover funds. Just look at Drexel Burnham, we were told. Indeed!! In those days almost everyone looked with some degree of envy on the hostile takeover kings. Still, Adam Smith’s words rang in my ears. Our comparative advantage was that we were fortunate enough to have built up a surprising number of friendly relationships at senior corporate levels. So with Saint Adam’s words emblazoned in my mind, we did just the opposite of the happy trend of the moment. We announced the unthinkable: that our firm would only make friendly investments. Eleven years later, about two-thirds of what we have invested is through “corporate partnerships.” This is our signature form of investment . . . and it is now recognized as The Blackstone Group’s comparative advantage. To take another example: Among George Stigler’s many seminal, if a bit sobering, principles was the following: “If you have no alternative, you have no problem.” In the years since, I could not even estimate the millions of man-hours and dollars I have saved by invoking this Stigler principle. Human beings invest vast amounts of unproductive time in regurgitations and revisionisms of the past, suggesting there is no problem and therefore no need for an alternative. This is often living in a state of denial, when doing nothing is not an alternative. Moving on to the public sector, I offer you but one example of an enduring Chicago principle. In early 1971, I was asked by President Nixon to be his assistant for international economic affairs. I came out to the Quadrangle Club to discuss this opportunity with Milton Friedman. With Milton’s usual lack of ambiguity, he said, “You should absolutely not take this job. With floating exchange rates, the job is unnecessary. Without them, the job is impossible. You are too young a person to take a job that is either unnecessary or impossible.” I did not take Milton’s job advice, but I certainly took his substantive advice about the paramount importance of floating and market-based exchange rates in the emerging globalized economy. Eight months later on August 15, 1971, the President closed the gold window and exchange rates were floated. If our dear friend, George Shultz, were here, he would be the first to tell you that Milton Friedman’s vision was a guiding principle. In my view, our global economy is transformed—more prosperous, more globalized, and more secure because of this vision. Recently, I made a prediction to a client. He asked me on what I based the prediction. I said, “I would bet my reputation on it.” A bit dryly the client said, “Pete, you will have to stake something substantially more than that.” So I won’t predict anything. However, I will state my firm and grateful belief: If you will remember the great Chicago principles you have learned here when you, too, are a geezer, you will conclude what I have concluded: The Chicago education is not only the best education in the country, but, over the long term, also the most practical. There is a famous saying from Chairman Mao Zedong, although it sounds more like Yogi Berra: “It is important that meetings should end when they are over.” I’m sure the good Chairman would say the same principle applies to speeches. I’m about to say something that will, I believe, please you more than anything else I have said today. I am not going to do my prepared segue into my analysis of $17 trillion in unfunded entitlement liabilities and the need to reform Social Security and Medicare. Instead, let me declare: This speech is over! Thank you and my warmest congratulations.
Peter G. Peterson, M.B.A.’51, is Chairman of The Blackstone Group.
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