The venerable sage, Bob Aliber (and co-author of Manias, Panics, and Crashes), sent along this fine memory of the late, legendary George Schultz (and then kindly agreed to let me post it here).
February 14, 2021
George P. Shultz, Dean, University of Chicago Graduate School of Business, 1962-1968
“The Man with the Plan”
Robert Z. Aliber
This note was inspired by Paul Wolfowitz’s op ed in the Tuesday, February 9th, Wall Street Journal, titled “Statesman of the Century”; his paean to George Shultz is in the title. For the record, Paul and I first met on the squash courts at Bartlett Gyn in the winter of 1965. Paul was studying deterrence theory with Alfred Wohlstetter in the political science department. Paul sought to take advantage of my advanced age when we were on the squash court; I took advantage of his inexperience. In the late 1990s, Paul was Dean of the Paul Nitze School of Advanced International Studies of John Hopkins University in Washington and he signed my monthly check when I was a visiting professor. The theme of the op-ed was the centrality of trust in George Shultz’s zeitgeist.
More than forty years earlier Mert Miller, a professor of finance at the Chicago Business School (herafter the GSB) and a1990 Nobel laureate quipped that if George had asked the faculty to join him on the roof of Haskell Hall, then the GSB home and said “Now jump” most of us would not have hesitated because we had immense trust that George would take care of us.
Now for the back story. It was April 1965, I was in my office in the Department of State on 22nd Street in Washington. I had the best job in the world for a young and curious economist as the Senior Economic Advisor, Agency for International Development. One week I was in Ankara meeting with the local office of A.I.D. to try to convince them that the Turkish lira was overvalued by at least one hundred percent and two weeks later I was in Seoul trying to help the local office of A.I.D. persuade the Ministry of Finance in a Confucian society of how to deal with uncertainty in the currency market. It seemed like a two year gig and then I would find my way to a university.
The phone rang, “Hi, I am Barbara Otis, secretary to Dean Shultz, he would like to meet with you.” Walter Fackler, the deputy dean of the GSB, had visited in my office several weeks earlier. It turned out that Dean Shultz was going to be in New York City at the same time that I would bat a meeting of the Commission on Trade and Development at the United Nations. We met for breakfast at what was then the Hotel Barclay, now renamed the Intercontinental New York Barclay.
Dean Shultz was attentive and engaging, the Chicago business school was seeking to become more international, and it had developed a plan for a MBA student exchange program with the London School of Economics and the Catholic University of Louvain (since bifurcated along linguistic lines into two universities). Shultz asked whether I would be interested in taking the initiative to develop the international aspects of the GSB. Maybe I didn’t have the best job for a young curious economist.
Shultz had received his PhD in economics from MIT and had taught there before joining the GSB faculty in the late 1950s. His specialty was industrial relations, more broadly the relationship between the large firms in steel, petroleum, autos, and meatpacking, and their unions and workers. He had taken a leave from MIT to be on the staff of the Council of Economic Advisors when Arthur Burns was its chair. (In November 1968 Burns was head of the committee that was helping President-elect Nixon staff the government and was probably responsible for the choice of Shultz to become secretary of Labor.) Shultz had developed a core group of faculty in industrial relations at the GSB, including Arnie Weber and Bob McKersie which he linked with Greg Lewis and Al Rees, then among the leading labor economists in the country in the Department of Economics at the University. Shultz brought Weber into the Department of Labor.
In May Debbie and I flew to Chicago to visit the campus and meet with faculty members, George met us at O’Hare Airport, he had arrived on another flight at about the same time. We met with various faculty members and looked at several houses that were for sale.
One of the hang ups in the discussion was whether the Chicago offer would be a five year term contract or instead a contract with indefinite tenure. My concern was that there was more to economics than showing that market failure is due to government intervention. My Yale thesis challenged the house doctrine at Chicago about flexible exchange rates. My Yale PhD classmate Paul MacAvoy—who was to my right on government intervention–had spent three years in Chicago and had returned bloodied to New Haven. George Shultz understood my concerns and tenure was included in the offer.
We left our home in Chevy Chase on a Saturday afternoon in late September so the children would be in Chicago there in time for the first day of class at the University’s Lab School. The motor on our Volkswagen microbus burnt out on the first steep hill on the Pennsylvania Turnpike; the garage said a replacement engine could be installed overnight, the cost would be $1000 and that we would need to pay cash, checks were not acceptable (credit cards were not then universal).I was embarrassed, I had to call George and ask if he might wire the money by Western Union. We were on our way on Sunday morning. The wind was from the west, and we could not go faster than 55, so the arrival in Chicago was delayed, and the supper with the Shultz family was postponed for a day.
The University was in the Hyde Park neighborhood, which was in the early stages of gentrification. We bought a craftsman style home in the 5600 block of Dorchester Avenue that the university had acquired when the previous owner had defaulted on the mortgage. The purchase price was negotiated with the real estate office of the University with George Shultz as our buyer’s agent. (Subsequently we learned that Stephen Mather, the first head of the U.S. Park Service, had purchased the house about 1904. We now live in an old folks’ home in Evanston named the Mather after one of his distant cousins.) Many of the faculty lived within walking distance of their offices. The Shultzs lived in the 5800 block of Blackstone. Harry Johnson lived two houses away. Mert Miller lived a block away and rented a garage stall in our coach house. Gale Johnson and Ken Dam lived a frisbee throw away.
As we moved into 5638, several staff from the University’s building and grounds department came by to mow the lawn. Courtesy of George Shultz.
Shultz was active in recruiting faculty, Hans Theil had moved to Chicago from Rotterdam to develop a Center for Mathematical Economics. Richard Hoffman was hired to develop the courses in organizational behavior. .There were too few offices and not enough classrooms. George had negotiated with the University that the GSB would move into Rosenwald Hall, which was about fifty yards from Haskell. More resources were committed to the GSB’s PhD program, two of its graduates, Gene Fama and Myron Scholes, subsequently received Nobel prizes in economics.
There was a stream of visitors. Paul Samuelson one of George’s mentors at MIT, came with his tennis racket, I was co-opted for a doubles match with Paul .(yes, there was a teeny blue tiger on the tosh.) George asked that I accompany him on a trip to New Orleans where deans from business schools would discuss their international programs; about all I remember about the visit was that George suggested an early exit from the meetings so we could o visit Preservation Hall.
I was on the planes a lot, visiting the Chicago students at LSE, becoming acquainted with the faculty at Louvain. The Shultzs would invite Debbie and the children for supper.
Bob McKersie wrote “George often talked about the work of Joe Scanlon and his plan for motivating workers to increase productivity and rewarding them for extra achievement. One summer George and I travelled to all of the sites of a major oil company to see if a Scanlon Plan installation made sense. While I got bogged down in the details of the case studies, he pulled the material together in a powerful formulation called PAR (he liked to play golf) standing for participation, achievement, and rewards. George was always ready with a plan to address major problems; disruption of employment for meat packing workers in plants being closed in the cities led to the Armour Automation Committee, the civil rights movement in the 1960s then led to the GSB Black MBA Scholarship program, exclusion of minorities in construction led under his guidance as Secretary of Labor to the ‘Philadelphia plan for non-discrimination in federal construction programs.’“
Sometime in the late winter of 1966 George asked me to help organize a conference on informal government controls; the Johnson administration was relying on informal price and wage controls, and it was using guidance to reduce American spending on foreign goods and American purchase of foreign securities (see Guidelines, Informal Controls, and the Market Place; Policy Choices in a Full Employment Economy, University of Chicago Press, 1966). He brought together a large diverse group of union leaders, corporate presidents, lawyers, and academicians.
Sometime in the Spring of 1968 the students occupied the President’s office at the University. There was a lot of unrest at universities because of the war in Vietnam. The Central Intelligence Agency wanted to send several of its staff to the GSB to recruit analysts. The faculty wanted the MBA students to have access to employers. Somehow George negotiated an agreement so that the visiting recruiters were offered a card table outside the dean’s office.
George called in early May. “We have a problem. Four of our MBA students are enrolled in Hans Morgantheau’s international politics course; they are planning to graduate in six weeks. Hans is sick, the course has been cancelled. What can we do?” We had spent much of the summer of 1968 at RAND in Santa Monica, I chatted with their analysts—Jim Schlesinger, Andy Marshall, Burt Klein—to see how their understanding of crises with adversaries would help me understand financial crises. The four MBA students learned a lot about the crises in the French franc in 1926.
The practice when at the GSB was that in May the Dean would send each faculty member a short letter indicating one’s salary for the coming academic year. George always added a brief handwritten note of appreciation—he had the most amazing ability to make one feel good about one’s self.
George’s background in industrial relations was a central part of the persona. A generation of scholars and specialists in industrial relations had developed the skill set that enabled them to reconcile divergent interests. Many of these IR specialists became presidents of major universities. Clark Kerr became president of the University of California system, he was eventually canned by Governor Reagan. His quip was that he left as he had arrived, “Fired with enthusiasm.” William Bowen became president of Princeton. Robben Fleming became president of Michigan. Arnie Weber became President of the University of Colorado and then President of Northwestern. Bob McKersie moved to Ithaca to head the School of Industrial and Labor Relations at Cornell.
There was much more to George’s persona than his IR skill set. The demeanor was calm, there was usually a smile. George had an empathy for the less-privileged that was evident in his initiative in developing and in raising corporate support for a Black MBA program when he was ahead of ninety percent of the GSB faculty. George had an innate understanding of the interests of those with different briefs. The trust that we extended to George was a response to the trust that he directed at us.