Press Center

 Treasury Secretary Robert E. Rubin Remarks to the University of Pennsylvania Commencement Philadelphia, PA


5/17/1999

Chairman Vagelos and the Board of Trustees. President Rodin. Provost Barchi. Deans. Faculty. Honored guests. Graduating students of the Class of 1999 -- their families and friends.

Thank you for this honor.

In approaching this commencement address, I'm mindful of an observation made by this university=s founder, Ben Franklin. He said: AHere comes the orator with his flood of words and his drop of wisdom. I promise not to flood you with words. Whether I leave you with a drop of wisdom is for you to judge.

You graduate today in a world starkly different, in many ways, from the one in which I graduated. It's far more interconnected. Information moves dramatically faster. The decision cycle is vastly shorter. Economies and people around the world are more closely linked than ever before. Decisions made in one capital can be felt across the globe.

Business today is conducted largely without borders. When I first went to Wall Street, more than 32 years ago, finance, for example, was focused on the U.S. markets. We sold U.S. stocks and bonds to our clients and raised money for them in U.S. capital markets. Few overseas markets mattered. Even the biggest U.S. companies had but a limited overseas presence. Now, Fortune 500 firms are headquartered in the U.S. but are truly global in nature.

When I first joined an investment bank, I had to get a partner's signature to make an overseas call. Today traders live on global trading wires, and capital markets are integrated worldwide.

Global markets and technology have brought us together as never before. Pick up a newspaper and you'll find exchange rates for the Thai Baht and Korean Won -- currencies few people worried about when I began my career. Countries that were economically irrelevant to us 25 or 30 years ago, today provide great opportunities for American businesses and consumers. But, as demonstrated during the past two years, these same nations can also give rise to financial instability that can threaten economies around the world, no matter how strong.

Last year, for example, Russia's failed economic policy actions shook global market confidence -- and other countries felt the impact. A Latin American finance minister explained this dilemma to me last year. How, he asked, do I explain to my people why the value of our currency is shrinking and our interest rates are rising, all because the Russian parliament failed to raise taxes last week. This may sound unusual, but its true.

This interdependence isn't just in economics. Today we must deal with immense problems in other areas that begin in one nation but affect many others. Many of these are problems that no single nation can solve: Environmental problems, such as destruction of the rain forest, that can damage the atmosphere of the entire globe, or acid rain. Health problems, such as the startling incidence of HIV in the Sub-Saharan Africa population, that can spread so readily in an era of jet planes. And terrorism, nourished by despair in one country, with its consequences felt around the world.

Whether we meet these challenges of interdependence, and of the tension that exists between the sovereignty of nations and the need to work together to solve problems that have no borders, will shape the world you live in.

In the face of these realities, there are those who believe we should look inward and withdraw from the world. I believe the whole history of the twentieth century shows that this will not work. We would follow this advice at our peril. The world does not end at our shores -- it begins there.

In the complex world of today, decision making has become ever more difficult, but the fundamentals of decision making have remained the same. And, one lesson I can draw from my life is that effective decision making is the key to almost everything you will do.

When I arrived at college, I had never given much thought to how I made decisions. College began changing that. What first struck me was the skeptical atmosphere. Our professors' words weren't seen as unquestioned truths, but as starting points for criticism and thought. In my sophomore year, I took Philosophy I from a wonderful, elderly professor named Raphael Demos. His whole point was to show that every assertion ultimately rested on a basic principle that could not be proven. It could only be assumed or believed. That conclusion, together with what I learned in law school, fundamentally shaped the way I've made decisions ever since.

As I think back over the years, I have been guided by four principles for decision making. First, the only certainty is that there is no certainty. Second, every decision, as a consequence, is a matter of weighing probabilities. Third, despite uncertainty we must decide and we must act. And lastly, we need to judge decisions not only on the results, but on how they were made.

First, uncertainty.

When my father was in college, he too had signed up for a course in philosophy with a renowned professor. On the first day of class, the professor debated the question of whether you could prove that the table at the front of the room existed. My father is very bright and very pragmatic. He went to the front of the room, pounded on the table with his hand, decided it was there -- and promptly dropped the course.

My view is quite the opposite. I believe that there are no absolutes.

If there are no absolutes then all decisions become matters of judging the probability of different outcomes, and the costs and benefits of each. Then, on that basis, you can make a good decision.

The business I was in for 26 years was all about making decisions in exactly this way.

I remember once, many years ago, when a securities trader at another firm told me he had purchased a large block of stock. He did this because he was sure -- absolutely certain -- a particular set of events would occur. I looked, and I agreed that there were no evident roadblocks. He, with his absolute belief, took a very, very large position. I, highly optimistic but recognizing uncertainty, took a large position. Something totally unexpected happened. The projected events did not occur. I caused my firm to lose a lot of money, but not more than it could absorb. He lost an amount way beyond reason -- and his job.

A healthy respect for uncertainty, and focus on probability, drives you never to be satisfied with your conclusions. It keeps you moving forward to seek out more information, to question conventional thinking and to continually refine your judgments. And understanding that difference between certainty and likelihood can make all the difference. It might even save your job.

Third, being decisive in the face of uncertainty. In the end, all decisions are based on imperfect or incomplete information. But decisions must be made -- and on a timely basis -- whether in school, on the trading floor, or in the White House.

I remember one night at Treasury, a group of us were in the Deputy Secretary's Office, deciding whether or not the U.S. should take the very significant step of moving to shore up the value of another nation's currency. It was, to say the least, a very complicated situation. As we talked, new information became available and new considerations were raised. The discussion could have gone on indefinitely. But we didn't have that luxury: markets wait for no one. And, so, as the clocked ticked down and the Asian markets were ready to open, we made the best decision in light of what we knew at the time. The circumstances for decision making may never be ideal. But you must decide nonetheless.

Fourth, and finally, judging decisions. Decisions tend to be judged solely on the results they produce. But I believe the right test should focus heavily on the quality of the decision making itself.

Two examples illustrate my point.

In 1995, the United States put together a financial support program to help Mexico's economy, which was then in crisis. Mexico stabilized and U.S. taxpayers even made money on the deal. Some said that the Mexico program was a good decision because it worked.

In contrast, last year, the U.S. supported an International Monetary Fund program designed to strengthen the Russian economy. The program was not successful and we were criticized on the grounds the program did not succeed.

I believe that the Mexican decision was right, not only because it worked, but also because of how we made the decision. And I believe the Russian decision was also right. The stakes were high, and the risk was worth taking. It's not that results don=t matter. They do. But judging solely on results is a serious deterrent to taking the risks that may be necessary to making the right decision. Simply put, the way decisions are evaluated, affects the way decisions are made. I believe the public would be better served, and their elected officials and others in Washington would be able to do a more effective job, if judgments were based on the quality of decision making instead of focusing solely on outcomes.

Time and again during my tenure as Treasury Secretary and when I was on Wall Street, I have faced difficult decisions. But the lessons is always the same: good decision making is the key to good outcomes. Reject absolute answers and recognize uncertainty. Weigh the probabilities. Don't let uncertainty paralyze you. And evaluate decisions not just on the results, but on how they are made.

The other thing I'd like to leave with you is that you will be entering a world of vastly increased interdependence -- one in which your lives will be enormously affected by decisions made outside of our borders. We must recognize this reality and reject the voices of withdrawal to face the challenges of interdependence. Then, we can realize the immense potential of the modern era, for our economy and our society.

You've just completed an important milestone in developing your ability to deal effectively with the complex choices of the world in which you will live and work. By continuing to build on this foundation throughout your life, you will be well prepared for the great opportunities and challenges of the new century.

Congratulations and good luck.

Bookmark and Share