Peter G. Peterson is a dreamer—an American Dreamer, as he puts it in the title of his 2009 memoirs (The Education of an American Dreamer). Indeed, his life and work are a testament to the enduring power of the American Dream. And the goal of his philanthropy is to ensure that generations yet unborn will, like him, enjoy the full benefit of the American Dream.
Mr. Peterson’s father, Georgios Petropoulos, immigrated to the United States from Greece in 1912. He was 17 years old. He had no money, no knowledge of English, and a third-grade education. He took a job preparing meals for railroad workers, eventually earning enough money to open a small diner in Kearney, Nebraska. His hard work and determination would eventually send his son Peter to MIT and Northwestern University, where he earned his bachelor’s degree, summa cum laude, in 1947. He received his MBA, with honors, in 1951 from the University of Chicago.
Mr. Peterson’s executive experience began in 1954, when at the age of 27 he was appointed vice president of the McCann-Erickson ad agency. By 1961, he had been named president of film equipment manufacturer Bell & Howell; two years later, he became CEO. From 1973 until 1984, he served as chairman and CEO of Lehman Brothers (after 1977, Lehman Brothers, Kuhn, Loeb Inc.). In 1985, with Stephen Schwarzman, Mr. Peterson co-founded the Blackstone Group. Over the course of two decades, Blackstone evolved into one of the world’s largest private equity investment firms. In 2007, the firm completed a $4 billion initial public offering. A year later, Mr. Peterson retired from Blackstone as its senior chairman.
In addition to his success in private enterprise, Mr. Peterson has a distinguished record of public service. In 1971, President Richard Nixon appointed him Assistant to the President for International Economic Affairs. A year later, he was named Secretary of Commerce, a position he held until 1973. From 2000 to 2004, Mr. Peterson chaired the Federal Reserve Bank of New York.
Mr. Peterson has also been a long-time leader in the nonprofit sector. He is chairman emeritus of the Council on Foreign Relations, founding chairman of the Peterson Institute for International Economics, and founding president of the Concord Coalition. In 1969, he was asked by John D. Rockefeller 3rd to chair a commission on foundations and private philanthropy. A number of the commission’s proposals were codified in law, including its recommendation that all foundations be required to pay out a minimum, specified percentage of their assets each year.
Perhaps his most dramatic philanthropic endeavor, however, was pledging $1 billion of his personal fortune to establish the Peter G. Peterson Foundation (PGPF) in 2008. PGPF is dedicated to increasing public awareness of the nature and urgency of the economic challenges threatening America’s future—and accelerating action toward resolving them. That effort, Mr. Peterson insists, is vital to keeping alive the American Dream.
Philanthropy spoke with Mr. Peterson in his offices on Fifth Avenue in Manhattan.
PHILANTHROPY: At various points in your career, you have been a public servant, a public intellectual, and a leader in private enterprise. For someone with such a varied background, do you think it is surprising that the Peter G. Peterson Foundation has a relatively narrow scope?
MR. PETERSON: I happen to think America’s financial and fiscal sustainability is an extraordinarily important issue. It deals directly with the future of this country. Given how large the problem is, it will take a major investment in order to make a change. And that is one reason that it is, to use your phrase, “narrowly focused.” I would have said “intensively focused.”
Furthermore, had we not focused intensively on this subject, we would have had trouble attracting a top team, with executives like [Peterson Foundation president] David Walker. Dave was the Comptroller General of the United States and the head of the Government Accountability Office. He knows from long experience how challenging these problems are. And were I not willing to dedicate large resources toward this specific mission, we would not have gotten him and some of the other talented, experienced people we now have.
I think it is important to note that I do quite a lot of philanthropy outside of the Peterson Foundation. I have set up a community trust of some substantial size, and I use it to fund more traditional charities in which I have an interest. I have been a trustee of the Museum of Modern Art for many years, for instance. I use the community trust for that. I also use it to support the Council on Foreign Relations, the Peterson Institute for International Economics, Northwestern University, local hospitals, and a variety of other nonprofits. So I have two pockets from which I give.
PHILANTHROPY: This year marks the 40th anniversary of the Peterson Commission on Foundations and Private Philanthropy, which you chaired and which recommended the now-mandatory annual minimum payout requirement. What do you think donors today are doing better than they were when you headed the commission?
MR. PETERSON: Well, since our commission reported, I think there are big differences in several respects. As you mentioned, we were the authors of the minimum payout idea, which has added billions of dollars to philanthropy. That pleases me. Furthermore, I think foundations today are much more transparent than they used to be. At the time of the commission, they were all too often secretive, contained, and inward-looking and, frankly, rather insensitive to public perceptions.
I’m also pleased to see that, since our report, there are more proactive, innovative foundations that define specific missions that they want to achieve rather than simply giving more money to the usual charities. I am impressed with the way that individual philanthropists today have taken on specific, creative missions. I believe one of the rationales for foundations is to be innovative, to do things government is unlikely to do.
Of course, there is nothing wrong with giving money to the usual charities. It just doesn’t happen to appeal to me as a main focus. It is why I’m impressed with donors like Bill Gates and Oprah Winfrey. They are quite strategic. They take very specific, innovative projects, and really get them moving. Without their initiative, neither government nor the private sector would have undertaken them.
I would much rather have foundations use their comparative advantage like that.
When I look around at other billionaires whom I genuinely admire, I have found that, virtually without exception, they get enormous satisfaction out of contributing money to good causes. And as I’ve talked with them, they have revealed something to me. Philanthropy can be a lot of fun. There can be tremendous satisfaction from giving money away—and knowing that you gave it away well. Whenever I talk to any of them about their lives, it is clear to me that they are getting more satisfaction out of their philanthropy than they are from what they do day to day, that is, earning the money to be given away later.
PHILANTHROPY: Was there a moment when you decided that fiscal sustainability was going to be the central concern of the Peterson Foundation?
MR. PETERSON: I wanted to do something really worthwhile. If you are in reasonably good health, and your mind is reasonably sharp, and you are an over-achieving workaholic, you want to find something worthwhile to do in the last chapter of your life. I had stepped down from my role as co-founder of Blackstone, and, after more than 22 years, I had stepped down from chairing the Council on Foreign Relations. I was named chairman emeritus of Blackstone and chairman emeritus of the council, but I did not want to go through the rest of my life as “Peter G. Emeritus.”
I was taught at the University of Chicago if you have no alternative, you have no problem. Well, I began to think of my alternatives. I am one of the few, fortunate people who have made more than $1 billion. So what were my alternatives? I could count the money. I could try to grow it. Both of those options struck me as rather empty, especially given how deeply concerned I am about what is happening to the American Dream. So, ultimately, I realized that the funds should go to the cause I care about most. I decided that there was no alternative but to do it. Besides, I had gotten so much from this country and felt I had given back so little.
PHILANTHROPY: How does the foundation define success?
MR. PETERSON: Well, I suppose we define success in terms of progress in various reforms that put the United States on a long-term, fiscally sustainable trajectory. Our objective, then, is to get the attention of the American people and of Washington and to build a movement. I have a fantasy of 50,000 or 100,000 young people and their parents marching on Washington, crying out the famous line from the movie Network: “I’m mad as hell and I’m not going to take it anymore!”
So, it could be said that we have failed if we do not make Social Security and Medicare solvent; if we do not save more as a society so that we are not so dysfunctionally and dangerously dependent on foreign capital; if we do not bring healthcare costs down; if we do not enact a budget process that will support federal fiscal responsibility; and enact tax reforms to make the system simpler, fairer, and easier to administer, while also generating adequate revenues.
Now, I’m sure some of my friends are saying privately that this is a very daunting set of missions. “Doesn’t the damn fool know how difficult this is?” To them I would say, “Well, let’s grant that for a moment. What are your alternatives? To do nothing?” That is not an alternative. The thought of sitting here and not having tried strikes me as no alternative at all.
PHILANTHROPY: How are you tracking progress toward your goals?
MR. PETERSON: Well, we know we have to try to educate the public on these so-called “unsustainables.” And we are going to be looking at our programs to see how well we are building awareness. We will conduct surveys and check our progress on a variety of metrics, trying as best we can to measure what people know about the problems.
We have found that the central problem on most of these issues is that our political leaders have decided that doing something—anything—is politically terminal. That is very unfortunate. Our Founders hoped we would have legislators who would go to Washington for short periods of time to address serious problems and then return to private life. Instead, we have people who consider politics a career. Their concern is therefore not about the next generation, but rather the next election.
I must tell you, however, that Dave Walker and I have had some very long meetings with the congressional leadership from both parties. In private, there is a stunning recognition that these problems are unsustainable—and that something must be done about them. When I attended the President’s summit on fiscal responsibility earlier this year, I was impressed in the sessions on Social Security, for example, to hear congressional leaders saying that we simply must do something about these problems.
PHILANTHROPY: What kinds of programs are you currently running?
MR. PETERSON: For one thing, we have spent a fair bit of money on advertising and plan to spend more in the coming year. Early in my career, I worked in advertising, and I learned what a powerful tool it can be. We are also going to be deeply involved with the young, and I have nine grandchildren I care a lot about. It’s their future, after all. We partnered with MTV’s college network, mtvU. Together, we created and recently launched an educational online game called “Debt Ski.” It has already had over 340,000 game plays. We also developed on a more interactive, on-the-ground game called “Budget Ball” through our grantees, NAPA [National Academy of Public Administration] and PETLab.
In other words, we are unlike many traditional foundations. We run print advertisements, we have television commercials, we create interactive games, we are exploring all kinds of mechanisms to educate all segments of the public. We are going to measure all of those avenues very carefully. Anecdotally, let me just tell you that I get stopped on the street now from time to time. When I was at lunch today, several people came up to me to say, “Keep it up. By God, those problems are very serious. I had no idea they were that serious.”
Mind you, I have no illusions that we are going to solve all these problems in my lifetime. I just think it is urgently important to try.
PHILANTHROPY: One reason, I suppose, is that you’re addressing deep, structural problems. I wonder, though, if there are less ambitious, but more attainable, goals in line with PGPF’s mission. Difficult as it would be to eliminate congressional earmarks or to institute a presidential line-item veto, either task seems more realistic than, say, comprehensive healthcare reform. Did you ever consider going after the “low-hanging fruit” first?
MR. PETERSON: Well, in many cases, there are already a lot of people working on those issues. Besides, using a term like “low-hanging fruit” begs a question. Where is the most fruit? Maybe the low-hanging fruit is picked over. Maybe you can get more fruit by reaching higher. Really, though, if we don’t do this, who will? There are plenty of organizations working on the narrower issues. There are very few that are dealing with the long-range structural issues that we are dealing with. I wish there were more, but there are not.
You have to deal with life as it is. We cannot tell ourselves that these problems are very tough and therefore we should ignore them and pretend as though they do not exist.
PHILANTHROPY: In your work so far, is there anything that has particularly surprised you?
MR. PETERSON: In a curious way, the unprecedented magnitude of today’s short-term deficits has created a great deal more concern about longer-term problems. That is not something I would have predicted, but it has clearly happened. There is a rapidly growing recognition that the current path is simply not sustainable. That is true not just in the Congress, but among the public, as well.
I have also been surprised at the enormous bipartisan support for major reform. It is important that our effort be bipartisan, because there are no solutions to these problems where somebody does not have to give up something. And we have become a terribly spoiled, indulgent society in which we somehow expect to have whatever we want without paying for it. At bottom, it is an immoral proposition, because we are slipping the bill to our own children and grandchildren without their knowing it. Call it “taxation without representation.”
So I really think—I really hope, let’s put it that way—that the pessimists—and there are plenty of them—are wrong to say that it will take another huge crisis to get us to take action. But if we wait until the crisis hits, the costs are going to be enormous.
PHILANTHROPY: How so?
MR. PETERSON: One of the possible scenarios that concerns me the most is that we are trying to borrow so much, and that we have so little savings, that we are forced to rely on foreign lenders. We have been hearing noises from them, from the Chinese particularly, and there is a lot of rumbling going on about whether it is wise for them to keep financing our huge deficits. Should they lose confidence in the way we are running our fiscal affairs, should they lose confidence in our government and withdraw their dollar holdings, or even stop lending more, we would then have what the economists call a “hard landing.” It would be hard, indeed. The dollar would fall suddenly and interest rates would go up dramatically. We would have both inflation and recession. That is just not an outcome I am willing to accept.
PHILANTHROPY: PGPF interacts with a wide range of groups that are working on fiscal sustainability, ranging from the Heritage Foundation and the American Enterprise Institute on the right to the Center for American Progress and the Urban Institute on the left. Needless to say, while all these groups recognize the magnitude of the problem, they have vastly different proposals for dealing with it.
MR. PETERSON: It has become a common cliché that there are a variety of profoundly different solutions to these problems. In fact, Dave Walker has been leading something called the Fiscal Wake-up Tour where representatives from the American Enterprise Institute, the Brookings Institution, the Concord Coalition, the Urban Institute, the Cato Institute, and other widely different groups all sing from the same hymn book on the magnitude of the problem.
Take Social Security, for example. David Walker and I watched this at the President’s fiscal responsibility summit. I saw the leaders of both parties proposing various solutions. And there was a feeling in the room that if they could sit down together, with the public supporting them, they could come up with solutions relatively quickly. The problem is not the lack of proposals. The problem is the lack of public will to do something. That is where we are focusing our efforts.
More broadly, this effort is going to take bipartisan cooperation for the following reason. I was brought up in Nebraska where we used to have something called the turkey shoot. Basically, the poor turkey that lifted his head first got it shot off. Same thing in Washington. Imagine somebody stands up and says, “Social Security on its current path is not solvent,” and then proposes that we change the wage indexing or we gradually increase the retirement age or we means-test the benefits or we reduce so-called “wage indexing.” All of those proposals involve somebody giving up something. If that Congressman stands up alone, then the other party will treat him like a poor turkey and shoot his head off. So for these problems to be solved, they must be addressed on a bipartisan basis. And, of course, presidential leadership is vital.
I’m not discouraged. There are important leaders we have found through our visits on both sides of the House who are deeply concerned about this long-term problem. When people read that we are talking about unfunded promises that are five times what the public thinks they are—because all they hear about is the public debt, they don’t hear about the huge unfunded promises—people are shocked.
PHILANTHROPY: At a basic level, philanthropy is usually understood to involve people giving something to others. Your philanthropy, however, requires people to give up something.
MR. PETERSON: Yes, we are not used to giving up anything. But I take some encouragement when I remember what this country has done in times past. After World War II, the public debt as a percentage of GDP was 120 percent—much, much higher than it is now. Today, it is about 65 to 70 percent of GDP. Now, not only did they pay back what they borrowed, but they also launched the G.I. Bill, the massive interstate highway construction program, the Marshall Plan, the Bretton Woods system, the United Nations—and we did it all simultaneously. So to say it has never been done before is simply not true.
I would have to acknowledge that we have become a very indulgent “short-termitis” society. I do not know why we became so indulgent, when we got the idea that, “I want it all and I want it now and I do not want to pay for it.” Ultimately, if we are going to change, we will need leadership. Not only are we going to need bipartisanship, not only are we going to need education, we are going to need leaders who tell the people the hard truth, that we cannot continue on this path. All of us are going to have to give up something. And that is a very difficult psychological task for anybody. But if we accomplish that task, we will give our children and grandchildren what our fathers and grandfathers gave us: a chance to enjoy the American Dream.
PHILANTHROPY: Is there a role here for philanthropy to try to re-cultivate the virtue of personal thrift?
MR. PETERSON: Yes. In fact, one of our missions is to encourage people to increase their personal savings. Ultimately, this is not highly complicated. You cannot consume and save the same dollar. And once you see the numbers you realize that, on an individual basis, Americans are on an unsustainable fiscal trajectory. There has to be a huge drive to get us to save more. Incidentally, people have been frightened by the current economy, and we are saving a little bit more than we did before, but we have to save a lot more. We used to save somewhere between 8 percent and 11 percent of our disposable income. For years now, we have not been saving anything. It is Disneyland economics, really, to think that you could keep borrowing forever.
What is true for individual Americans is also true for the United States as a whole. If we as a nation do not save, and we do not have the resources to invest, we will run huge deficits (i.e., negative savings) and have to borrow money from foreign nations. If we borrow money from foreigners, we run the serious risk of over-utilizing our resources for interest payments and we also become extremely vulnerable to them, not only for economic reasons but for foreign policy reasons. I think one of the reasons the American people are concerned is that they in-tuitively understand this.
There have been times in the past, as you probably know, when fiscal policy has taken on national security implications. For instance, the United States took vigorous exception when, in the Eisenhower years, the British and the French established a military presence in the Suez Canal. At the time, we held enormous amounts of securities in pounds sterling and French francs. We let the British and the French know that if they persisted in this military action, we would have to seriously consider dumping their securities. Within 10 days, they had pulled out of the Suez Canal. Today, we find ourselves likewise vulnerable to the Chinese, Japanese, and Middle Eastern nations that hold huge dollar reserves.
We are exposed to a lot of risk—both economic and political—by being so deeply in debt. We have to educate people about the foreign policy and political risks associated with our borrowing. If there is one thing that the country has to do more of, it is to save more. We cannot continue on this spend-and-borrow path. The numbers are just overwhelming. In the post–World War II days, we saved much more and owed most of this debt ourselves.
PHILANTHROPY: What advice would you offer to a fellow donor who shared your interests but lacked your resources? To put it another way, how should a grantmaker with, say, $50,000 use his or her funds to advance the principles of fiscal responsibility?
MR. PETERSON: First, they need to understand the facts. We have produced a handbook, The State of the Union’s Finances: A Citizen’s Guide, that provides an excellent overview of the issues. Second, they need to start pressuring their Congressman—and encouraging other people to pressure their Congressmen. At the present time, the political cost to our Washington representatives of doing something, of taking tough action, is higher than the cost of doing nothing. The way to move forward is to make it politically painful to continue to ignore these problems.
PHILANTHROPY: Assume for a moment that your philanthropy enjoyed success beyond your wildest dreams: the federal budget came to balanced; individuals took greater responsibility over their finances. What would private philanthropy look like? How would it be affected?
MR. PETERSON: Well, you have kind of a negative case study at the moment. You can see what is happening to philanthropic giving this year, because of the tough economic times. But suppose, as you say, the foundation is successful beyond our wildest dreams. It would be what we call in economics a positive-sum game. Everybody benefits if the economic pie is growing and there is more to share and to give away. But at the rate we are going now, it is going to slow down dramatically—and probably persistently—until we get some of these problems solved. And philanthropy, in my opinion, will suffer along with everyone and everything else.
I get letters every day from charitable institutions saying, “You have given us this much in times past. But our giving has dropped off dramatically. Can you not give us more? We do not know where else to go, other than to our current givers.” Of course, the current givers are suffering from the serious diminution in the net value of their funds. So I think philanthropy benefits enormously if the economy does better, and the economy does better if we resolve these problems.
PHILANTHROPY: What are the future plans for the Peter G. Peterson Foundation? Is it intended to sunset, or to be perpetual?
MR. PETERSON: Well, I have thought a good deal about that question. Certain problems can be remediated within discrete periods of time. These, however, are long-term problems, and I have a strong feeling that they are not going away any time soon. We simply aren’t going to solve all these issues in a few years. Sunsetting is therefore not consistent with the nature of this particular problem. Moreover, I am fortunate to have somebody for whom I have both great affection and respect who can carry on my goals. My son, who is 39, will be chairman of the foundation in the future. I have no illusions. After I’m gone, there is going to be an awful lot to do.