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A Free-Trade Zone for Ideas

By Steven Pearlstein
Friday, October 20, 2006

Washington is full of people and organizations jockeying for notoriety, influence and power. It is the world capital of networking, the nexus of politics and policy, a swamp overflowing with ambition. It is a city defined not by its charm or its culture or its wealth, but by its institutions.

One of the more remarkable of those institutions is one of its youngest, the Institute for International Economics, which at 25 is the preeminent think tank on the global economy in the country, and probably the world. In terms of its ability to shape policy discussion and influence the outcome, there isn't an organization outside government that can touch it. There's probably not a university department that rivals it for depth and reputation of scholarship in international economics. And the scholars who have worked at, written for or served on its boards constitute a Who's Who in international economics.

For those who suspect that a secret cabal of corporate executives, financiers and economic policymakers runs the world, IIE will give you plenty to fantasize about. Much of its funding has come from foundations with names like Ford, Mellon and Rockefeller, and corporations like Chevron, United Technologies and AIG. Individual benefactors include Pete Peterson, a former Commerce secretary and founder of the Blackstone Group, and Washington financiers Frank Pearl, David Rubenstein and Joe Robert. Speakers for a 25th anniversary gala in New York on Monday include Alan Greenspan, Robert Rubin and the head of the European Central Bank.

In many ways, the institute is the creation of C. Fred Bergsten, who has become the model of a Washington policy entrepreneur. Bergsten launched his Washington career on Henry Kissinger's national security staff in the Nixon White House, and was politically agile enough to become assistant Treasury secretary in the Carter administration. It is Bergsten's vision and energy, his intellectual honesty and relentless networking, that lie behind the institute's success.

I don't remember why it was that I called Fred the first time. But I do remember Fred's call to me the day my otherwise inconsequential story appeared, to point out my serious mistake: It was the Institute for International Economics, he emphasized, not the Institute of. . . .

Columnist Michael Kinsley, toting up the number of times my late colleague Hobart Rowen had quoted Fred in a typical year, first exposed how hopelessly dependent the press had become on the institute. And over the years, my own editors have sometimes asked why all the people quoted in my stories were from the same think tank. My only reply is that the IIE crowd is simply the best: economists whose deep knowledge of a topic is leavened with hands-on policy experience. They also have the uncanny knack of having just completed a book or monograph on a topic as the rest of us were beginning to focus on it.

"The closest thing I can compare it to is the 1927 New York Yankees," said Robert Litan, who once headed the rival economics department at the Brookings Institution, across from the IIE's splendid new headquarters on Massachusetts Avenue NW. Indeed, the IIE lineup includes three Brookings alumni: China scholar Nicholas Lardy, along with Martin Baily and Robert Lawrence, both of whom signed up with the IIE after their stint in the Clinton White House rather than return to Brookings.

Part of IIE's secret is that it has resisted the temptation to become a general-purpose think tank, instead remaining focused on a subject it can dominate. And by staying small, it has avoided bureaucracy and retained intimacy and collegiality. For sheer intellectual byplay, the weekly Friday lunchtime discussions among the resident scholars are said to be the liveliest economics seminar in town.

Not that IIE is without critics.

It has produced many of the most-cited studies in defense of free trade, to the dismay of the anti-globalization left. Its study on the potential job gains from the North American Free Trade Agreement gave free-trade Democrats encouragement at a time when Ross Perot was warning of the "giant sucking sound" of jobs migrating to Mexico. And its calculation that increased trade adds $1 trillion a year to U.S. economic output is one of the standard talking points of business leaders and trade negotiators. More recently, studies by Catherine Mann drew hoots, including from me, when she concluded that the U.S. economy benefits from the globalization of technology, even with all those jobs going to Bangalore.

At the same time, Bergsten's preference for setting trading bands for currency exchange rates has never sat well with market purists who prefer free-floating currencies. And Bergsten and his colleagues have ruffled free-market feathers with calls for sanctions against the Japanese for limiting access to their markets, and their incessant calls for tough action to force the Chinese to devalue their currency.

In reality, there is no orthodoxy on these or other matters at IIE. At the same time some scholars are toting up the gains from trade, others are hammering out details of policies such as wage insurance and expanded unemployment insurance to help redistribute the benefits of trade from the winners to the losers within the United States.

It is worth noting that among the IIE's many publications, two of the biggest-selling have been Dani Rodrik's "Has Globalization Gone Too Far?," probably the most thoughtful critique of free trade; and Laura D'Andrea Tyson's classic, "Who's Bashing Whom?," which makes the case that managed trade may be better than free trade in certain high-tech industries.

"Part of Fred's genius is that he's not only open to outsiders and opposing views -- he actively seeks them out," Rodrik told me this week. He could have mentioned that the strongest dissents to Bergsten's interventionist views on exchange rates come from his colleagues at the IIE.

And that, it seems to me, is the final ingredient to IIE's success. In an era when everything in Washington, including its think tanks, has become more ideological and partisan, IIE has refused to go along. It remains one of the few places where a journalist, legislator or economic policymaker can go for unbiased data and reasoned analysis. In the world of international economics, it's left everyone else in the dust.

Steven Pearlstein can be reached atpearlsteins@washpost.com.

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