Interview with Mark H Willes

President of the Federal Reserve Bank of Minneapolis,

Interview conducted by James E. Fogerty
Minnesota Historical Society
December 8, 1992

JEF: Today I am interviewing Mark H. Willes, President, General Mills, Incorporated. The interview is part of the Federal Reserve Bank of Minneapolis series, and is taking place in Mr. Willes' office at General Mills headquarters in Minneapolis, Minnesota.

I've been starting by just doing a very, very brief couple of questions with each of my narrators in context, finding out where they were born, where they went to school, knowing that they weren't born in the Federal Reserve System, and trying to sort of put them in context.

MHW: Sure.

JEF: Where were you born?

MHW: I was born in Salt Lake City. Do you want the two-minute summary to respond to all of it at once, or do you want to ask them individually?

JEF: I'd like to ask them individually, if you're willing to talk about it, because that would be great.

MHW: Sure.

JEF: You were born in Salt Lake. You grew up there?

MHW: I grew up there, until I was eighteen, and then went away to New York City to school. Went to Columbia College in New York, and then stayed at Columbia and got not only my bachelor's degree, but my Ph.D. in economics and finance, at the Graduate School of Business at Columbia, and then was an assistant professor at the Wharton School at the University of Pennsylvania, and that was where I first encountered the Federal Reserve System.

I did my dissertation on monetary policy, and then when I started teaching, I started working part time, on a consulting basis, for the research department at the Federal Reserve Bank in Philadelphia. Did that for a few years, and then flipped and went full time to run the research department, and continued to teach part time at the Wharton School. I went on from there to be first vice president at the Federal Reserve Bank in Philadelphia, and then president here in Minneapolis.

JEF: Tell me a little of your impressions of the Fed when you first started. What made you want to join the Federal Reserve System? Had you thought of banking as a career, particularly?

MHW: My father was in banking for a while, and so I had thought about banking, but when I decided to get a Ph.D., I got really quite interested in monetary policy, and thought that I would be a professor. As I say, I did that for a while, but the more I did that, and the more I taught about, and continued to do, research on monetary policy, the more I thought it would be nice to try to have an impact on monetary policy.

So when it looked like there was an opportunity to run the research department, which would make it possible to be the economic advisor to the president of the Bank, that just seemed like too good a deal to pass up. Then, of course, when the chance came to actually be a policymaker, by being president of the Bank here, I felt like I'd died and gone to heaven. I mean, it was terrific.

JEF: Can you tell me a little bit about what research interests you were able to pursue at the Federal Reserve in Philadelphia? When you joined it, were there ongoing research projects which you kind of took under your wing? Did you develop some of your own? Did you have particular interests that you wanted to make the hallmark of the research program that you developed?

MHW: That was a long time ago, so I'm not sure that I can remember in detail. I was primarily interested in policy, and the things that I spent most of my personal time on had to do with what policy should be and what impact it would have, and that sort of thing. I think the truth is, I was probably not the greatest academic researcher the world has ever seen. In fact, I'm quite sure that's the case. But I could recognize pretty good research when I saw it, and I was pretty good at articulating research once I understood it. So I was probably a better director of research than I was a researcher, and that's what I spent most of my time doing.

That was a particularly happy circumstance when I came to Minneapolis, because before I came here, I'd spent about five years being first vice president of Philadelphia, which is an operating job. I didn't have the research department reporting to me at that point. I had all the operations at the Bank. So I'd kind of been out of economics for five years. When I came to Minneapolis, I asked the guys to just bring me up to date on what had been going on for the last five years.

It turned out that I'd fallen into the hotbed of rational expectations and all the things that they were doing in that area. With Tom Sargent over at the University and Bob Lucas in Chicago, and so on, I was not only fascinated by what they were doing, but felt like they were doing things that ought to be much more in the public discussion, as it relates to policy, than it clearly was at that point.

So I rather happily took on the chore of not only interjecting that into the policy discussions in Washington, but talking about it in speeches and in the press, and we wrote some articles which we published, and so on, all of which was designed to try to get the discussion out of strictly the academic environment into the public domain, so people could talk about it, and hopefully have some impact on the way people thought about monetary policy, given the implications of that kind of view of the world.

JEF: You got briefing on what they were doing before you came to Minneapolis, or after you got here?

MHW: That had all started—I had nothing to do with starting that, and was just lucky enough to recognize that they were really on to something, and had a whale of a good time having them kind of tutor me. Then I'd go out and talk about it publicly, in some places where it hadn't really seen much of the light of day up to that point. I actually got a better response from the public forums than I got, at least initially, from the forums inside the Fed. But that's typical.

JEF: How familiar were you with the Federal Reserve Bank of Minneapolis before you accepted the presidency of the Bank?

MHW: I knew a number of people at the Bank, because the System isn't all that big. But, as I say, I'd been involved in operations for five years, so I knew more of the operating people than I did the research staff, and I really hadn't been paying much attention to the research that they were doing. I was really both impressed and ecstatic when I saw what they were doing, because I thought it was so interesting, and really got very excited about it.

JEF: Were you familiar with the area out here before you came? I mean, the Federal Reserve District, the Ninth District. It is the second largest, I believe, in the System in terms of geographic area.

MHW: Yes, it is. I knew something about Montana, because I'd been there a few times, and had been through the area once or twice, but knew virtually nothing, really, about the area.

JEF: What did you think of Minneapolis when you first arrived here?

MHW: I loved it.

JEF: Did you?

MHW: Oh, yes.

JEF: Being a westerner, maybe you did. Some of all the people I've interviewed, of course, were confirmed easterners who sort of came west, but you were really a westerner, so you knew the wide-open spaces.

MHW: It's a great place.

JEF: And you certainly have stayed here with us.

What did you inherit from Bruce MacLaury when you took over at the Bank? Were there policy issues, things that were on the table, that you picked up and carried forward? Were there particular things happening at that time in the Federal Reserve System that, as president, you were able to effect in a way? You mentioned your ability to further the research agenda of the department out here.

MHW: First of all, Bruce was, and is, an exceptional man, and, I think, was a very, very good Reserve Bank president. He had developed the Bank, as had his predecessors. One of the most interesting things, to me, was the difference between the image of the Bank in Minneapolis compared to the image of the Bank in Philadelphia, where I had come from. It's not that in Philadelphia the Bank wasn't well regarded, because it was. But I think the Minneapolis Bank, for quite a long time, had played a prominent role in the community, in a way that was not done quite so much in some of the other banks. That was, at least in part, a function of the strong personalities of the people who had been president. Bruce was very strong, admired in the community, very community oriented, and had an impact.

His predecessors had been the same way, so that I benefitted from that when I came to town, even though, literally, nobody in town, except for a few people at the Bank, knew me or knew who I was. I was kind of immediately welcomed and invited on the kinds of boards that I could serve on, and invited around to get acquainted and make speeches, and I clearly walked in on the reputation of others. Part of my challenge was to make sure that I didn't do too much to diminish what they had already built up. So that was very interesting to me.

The second set of issues I had to deal with were some operational issues. That was a time when the System was going through trying to update some of the management methods it used and become more productive and that sort of thing, things which are taken for granted now, but were relatively new then. Because of the operating experience I had, I maybe had a leg up in that area, so we did a lot of things relatively quickly. The people at the Bank did a tremendous job in finding ways to be more productive and more effective. But, nevertheless, they had to be done, and that was interesting.

Then the third was rational expectations and the kind of research that was going on, that we already talked about.

JEF: Did you feel that there were any particular issues about growth, specifically issues about changes within the Federal Reserve System, that concerned you at that time, as it was dealing with growth, with changes in the international monetary climate, that were a particular concern at that time?

MHW: You mean economic issues or System issues?

JEF: Well, both, but particularly System issues at that time. How the System coped with some of the economic issues and some of the pressures that were coming to be placed upon it at that time.

MHW: In terms of international issues, the “System” didn't, as a System, deal much with those. They tended to be a function of the Federal Open Market Committee, the board, and the New York Bank, and, except as part of my role on the Federal Open Market Committee, I had very little input into, or involvement in, international issues.

That was, of course, a time when there were some fairly sharply divergent views about how to manage things domestically. Even though I was president a relatively short period of time, I tended to get more than my share of attention, because I disagreed often with what the System was doing and how it was dealing with what I thought was a policy that was not going to deal with inflation as effectively as we ought to. I believed that if we dealt with it more effectively at that point, we could deal with it at lower cost than if we waited and tried to deal with it when the problem was bigger.

So, as you well know, I ended up dissenting a number of times from the actions taken by the Open Market Committee. That proved to be a very interesting time for me personally and for the Bank. Even in hindsight, I still feel pretty good about that. One, because I think, in hindsight, history would say maybe we were right.

In addition to that, the System had operated differently. The first time I started speaking out in meetings, one of the very senior staff people on the Board down there kind of took me aside and said, “You need to understand the way this works. You're going to be more effective if you say your peace, but then kind of go along with whatever—in other words, don't shake things too badly or too loudly.”

And I just said, “Look, I've got a policy responsibility by law, and I'm going to say what I think is right and I'm going to vote the way I think is right.”

Dissenting votes had been exceptionally rare up until that time. I did it that with enough frequency, and in some cases, with enough support, that it not only got a lot of public attention—because those things get reported after a while—but I think maybe in a small way helped to change some of the dynamics of the System, to make it a little more open, a little bit more willing to entertain not only different ideas, but to have people say what they thought and vote what they thought, and hopefully get a little bit better policy as a result.

JEF: To give dissent a possibility for existing after you left, too.

MHW: Exactly. And there have been some since I left. Much more than before.

JEF: An articulate maverick.

What did you feel when you came here? Now, admittedly, you had grown up in the West, but you had spent your college years in New York, and you had been thirteen years in Philadelphia in executive positions there, director of research, first vice president. Did you find a sense of region, a level of regional concerns, that were different out here than there had been in the Philadelphia region, for instance? Here you had to interact with farmers, ranchers, small-town bank presidents, among other people as well. Did you find a level of concerns that you felt unfamiliar with at first, or found pretty easy to adapt to?

MHW: The answer to that question depends on whether you ask me or whether you ask others.

JEF: I want to know what you thought.

MHW: I didn't feel that there was—first of all, there's no real sense of region. A Federal Reserve region is kind of a historical artifact. In terms of issues and interchange and so on, while it is true that grain from Montana may come through Minneapolis—and frankly, much less now than it used to—it's really not a region in the sense of having regional policies and regional identity. Just in Minnesota, you've got the Twin Cities and then you've got other parts of the state. I don't think people in South Dakota or North Dakota or Montana particularly identify with the “policies” of Minnesota and the Twin Cities.

So the question is, what were the issues throughout the region, and were they comfortable or uncomfortable? I didn't feel at all uncomfortable. I'd grown up in the West. I was familiar with the issues having to do with agriculture, as well as business, so that felt comfortable to me. I think I made people feel uncomfortable, because I tended to be much more—still am—much more free market in my orientation than is typical here.

In fact, I'll never forget the editorial board of the newspaper, The Tribune [Minneapolis], had me come over after I'd been here a little bit. I'd given a couple of speeches and basically said that people would be better off if they had less government rather than more, and there were market solutions to some of the problems they were trying to deal with, and that included agriculture. I'll never forget, they sat me down and they said, “You're breaking all the tablets.” They tried to explain what the history of intellectual thought was here. I mean, this was where Walter Heller had come from.

And I said, “I'm not breaking any tablets. I'm just trying to show that there's another view of the world, and it happens to be a view I believe in. Whether anybody else does is not so important as that we have a healthy exchange of ideas, and we're all going to be better off as a result.” And from then on, they just delighted to have Walter and I debate and all that kind of stuff, because we had such completely different views about some things, and actually quite identical views on lots of others. But I think I made people feel uncomfortable because of some of the views that I had.

JEF: During your years as president here, did you travel widely in the region, too? It's a big region. It certainly demands, I suppose, that the president show himself at various times at various parts of the region, and you have directors who come from as far away as western Montana and Wisconsin and places like that.

MHW: I did. I traveled a lot. I felt like you couldn't very well represent them, which was one of my jobs, unless you were out there and knew what they were thinking and what they were feeling. I also felt a big responsibility to try to explain what the Fed was doing to as many people who would listen. In fact, I think one of the roles of the Fed is kind of a public education role, to help people understand government. To understand not only monetary policy, but fiscal policy, and what can be done and what cannot be done, and what the effects are of various policies. So I traveled a lot, gave a lot of speeches, met with a lot of people. Loved to go through people's factories, go through their farms, all that kind of stuff. That was fun. That wasn't work; that was fun.

JEF: Do any particular sites come to your mind of particularly interesting trips that you made? Gerald Corrigan, I think, recalled standing by a bonfire on the hillside of North Dakota, where they were roasting buffalo steak one time, and saying, “My God, I've never had buffalo steak, and here we were in the middle of this.” I wondered if anything came to your mind, in particular.

MHW: He's an easterner, so—

JEF: Yes. That's right.

MHW: I'll tell you two things. One, I was at a ranch in Montana, and was told I was going to be shot by the farmers' wives because of the things I had said about agriculture. It was pointed out to me that while farmers would get angry, it was their wives who would get violent, and if I didn't start shaping up, I'd be in big trouble.

One of the interesting things to me—this is going to sound like it's a commercial for General Mills, but it's not. It happens to characterize a lot of organizations in the Midwest.

When I came to the Fed here, Jim McFarland was chairman of the board and chairman of General Mills. One of the plants that I went through was the Purity Oats plant, which used to be right downtown [Minneapolis], which was a General Mills plant where we milled oats to make Cheerios. So I had regular interaction with Jim, on the one hand, and started talking to these guys who were milling this oat flour, on the other hand, and it struck me that they were remarkably alike. They were open, they were honest, they had this enormous sense of integrity and pride and so on.

That is one thing that is different about the Midwest, and I say that carefully because there are a lot of marvelous people all around the country. But on average, day in, day out, it seems like you have a little better experience with people in the Midwest and some people in the South and the far West, than you do in some of the coast cities, for example. I don't know whether there's just so many people or life is hard, or whatever it is, but they tend to be a little more standoffish, and it takes a little longer to get through some of the barriers.

Here, people just—I remember, my wife came home the first day she'd been here and said, “They cashed my check!” She couldn't imagine that you'd just walk into a store and they'd cash your check. They're stopping that now, but it was a whole different environment.

JEF: The time you were here at the Federal Reserve Bank of Minneapolis, the late seventies, was a period of economic climate that was leading into what became the agricultural boom, and then bust, in the eighties. Did you see that coming? You were here. Clearly agriculture is a major issue in this area, one that has to be watched. Did you have a sense of that?

MHW: I did not. It was pretty clear that agriculture was getting better, and the only thing you'd know for sure about agriculture is after it gets better, it gets worse, and it's always been the case. But in terms of specific timing or anything like that, I didn't have a clue.

JEF: Which means that the people you were dealing with, too, a lot of the farmers and ranchers, really didn't either. There was no sense of—

MHW: Not that I could tell.

JEF: What was your impression of the staff at the Federal Reserve Bank of Minneapolis when you first came? Whenever one comes in as a chief executive officer, as you did, you inherit a staff, largely. Did you bring any people with you then or later?

MHW: Didn't bring anybody, and the staff was superb. A lot of the staff is still there. In my view, it's one of the things which the public least understands. The staff in the Reserve Banks, by and large, is exceptional. The staff here at this Bank is absolutely exceptional. The research staff was, I thought, absolutely pioneering, and very good. But everybody else was, too. The attorneys were good, the operations people were good. You go through any function, and they really were outstanding.

I didn't, thank heavens, need to fire half the officers and bring new people in. A lot of that I'd done in Philadelphia, by the way, because we'd had some major problems, and some people retired, and so we needed to recruit a lot of new people. We not only promoted from within, but we went outside to get some new points of view and some new techniques. I didn't have to do that here at all. We went out, at one point, for another director of research, but that's just because we were looking for certain kinds of qualities and experiences. But, no, staff here is terrific.

JEF: If you had to describe your management style, what would you describe it as? Are you a hands-on type? Are you a detail person?

MHW: Then or now?

JEF: I would ask you about then. And maybe after that, now. How would you describe your style then, if you had to characterize it?

MHW: I'd describe it two ways. The head hunter who brought me here, after he had interviewed a number of people that had worked with me, to do his due diligence, said he would describe my management style as an iron fist in a velvet glove. That seemed always a little dramatic to me, but it's not too bad, in a way, because on a day-to-day basis, I think I'm relatively easy to get along with. I like people. I enjoy working with people. I try to give people a fair amount of authority and responsibility, and not tell them exactly how to do it and make them report back every two minutes, whether they have done it or not.

On the other hand, if it's clear to me what needs to be done, we get it done. They either figure out how to get it done or ask for help, or ultimately if they can't get it done, then I've moved them elsewhere and put somebody in who would get it done. Some people have been misled by the first part, and assume that you could get away with anything. I give people a lot of room to grow. There are words that people use today to describe that—empowerment and all this kind of stuff—which has always just seemed like common sense to me. But you have to also make sure that the standards are high, and that people live up to those standards.

JEF: And understand them.

MHW: Or something happens.

JEF: Very good. Thank you.

You're a particularly interesting person to interview, because you're the only one of the presidents I've interviewed who actually left the Federal Reserve and went on to a major career in private business. It's always curious—here you have the Federal Reserve System, and the president of it must, to some extent, one or another, interact with the presidents of banks, some of which he is regulating. How would you describe, from your perspective as a former president of the Bank, the relationship between the president of the Federal Reserve Bank and, for instance, major banking heads, or the chief executive officer of a major industrial corporation? Are there a lot of similarities? I think to the public there seems to be. The Federal Reserve may be a government agency, but it has always, to me, at least, seemed much less like a government bureaucracy than a business. But maybe that's the genius of it, the way it's marketed itself when it's chosen to do so.

MHW: The jobs aren't very much alike at all. Somewhat more alike today than they used to be, but very, very different in certain key aspects.

The fact that businesses are profit-making organizations makes all the difference in how you think about an organization and how you kind of form up that organization to go accomplish whatever it needs to accomplish. That has implications in everything from how you set your objectives and the kinds of objectives they are, to the way you're able to reward your people for accomplishing those objectives.

That's particularly true, because, at least given my bias, I always thought the smaller a government, the better. So I was constantly trying to find ways to make some of the activities of the organization that I was running smaller.

In a profit-making organization, your objective is to make them bigger, to grow your market share and to grow your profitability. So that the mental set can be quite different.

The pace of activity is much faster in the private sector than it is in the public sector. And it's faster both because there's a real time element to it. If you don't move quickly, your competitor will take your head off. But it's also faster because you're able to be faster.

We can make our organization go. In the Federal Reserve, there are some things you can do, and other things have to be approved by Washington, and whether they approve them depends on the implications for somebody else. It just gets all convoluted and really slows you down. And then there are some things they have to do in concert with other Reserve Banks, and, of course, then you get a very complicated kind of governance problem, and a relatively slow-moving organization, in terms of the pace with which it can do things.

I did not appreciate how—I thought we ran a pretty aggressive organization down there, until I came out here and found out what it really means to run an aggressive organization. There's no comparison at all.

JEF: Another question that's always interesting is that this is—and you've alluded to it—the Midwest and the West, are areas in which independent banking has been particularly strong, at least it seems to have been, and yet you have here in the Twin Cities two giant bank holding companies, which sometimes loom larger than they might somewhere else, because they're just so big compared to everything else. With the growth of interstate banking and the ability of banks to acquire branch banks in other places, there has seemed to me sometimes to be more tension in this part of the country between the independent bankers, the small-town banks, and the big-city banks, than there is perhaps in the East where they're more used to co-existing. I don't know that that's true. Was that an issue at all while you were president here, or while you were at Philadelphia, even?

MHW: It's clearly an issue here, but it's easy to exaggerate the issue. It is an issue everywhere, but it's no different in kind than every other industry that has small versus large.

The one complication you have is that as a matter of public policy, at times, rules and regulations will be set up in order to preserve the independence of the small ones, even if that may not be the most economically sensible thing to do.

What I felt at the time, and feel with even more vigor now, is that far too often we try to preserve the independence of small institutions and, in fact, make them dependent rather than independent. If you protect them, they don't do the things they need to do in order to be successful. You take an organization like IBM, which everybody said, “It's so big. We've got to break it up. It's going to crush everybody.” And the fact is, large organizations are very difficult to manage. It's true for computer companies or banks or anybody else.

What we ought to be doing is making these small banks really compete. They'll compete on the basis of service and quality and all the other things. The fact is they can compete just fine, and the large banks aren't going to run them out of business, because the large banks can't compete in some ways that the small ones can. But we need to allow them to do that, rather than preventing them from doing it, which we often do in some of the policy things we do.

So I think I had more of a problem with some of the difficulties that were created, not just by the Fed, but I mean the whole regulatory apparatus, and the legal apparatus. But that's an issue that will ever be with us, for now and ever more, I suppose.

JEF: It wasn't something that you felt during your presidency, at least, was particularly acute, or anything like that, where you were expected, or it was hoped on the part of some of the smaller bankers that the Fed would somehow help regulate the growth of the big bank holding companies?

MHW: It was not a dramatic issue. I got along well with the independent bankers, because they knew I liked them and respected them and thought they were terrific. I also got along well with the big banks, because I felt the same about them. I think I was well accepted by both groups.

JEF: You gave me a nice segue into another question recently when you talked about the difference between the Federal Reserve Bank and a private corporation, in the sense that the profit incentive is quite different. But in the last few years, and surely to a point—and I'd like to find out to what point, while you were president—the Federal Reserve has at least wanted it to appear, that there was some sort of profit being made on various operations. There's right now a move under way that I'm sure you're well familiar with, to centralize some things, computer operations and other things like that. Did you feel, while you were president, that there was a beginning of this? Was it already well under way? Was there discussion of emphasis put upon the individual banks streamlining, centralizing, performing some of the same analytical functions, perhaps, about their operations that a business might, in order to remain competitive and profitable?

MHW: Yes, a lot of that started while I was there, and they made a lot of progress, and they've made a lot more progress since then. The fundamental problem, if I can put it that way, with the structure of the Federal Reserve System, is that sometimes there's an inconsistency between the organizational structure and what is required for a particular operation, or segment, of the business.

What I mean by that is the following. If you take something like the government securities operation, and there used to be all twelve Reserve Banks had their own operations and they had their own computer systems to deal with that, and so on, and when most of them were actual securities, they put them down in vaults. Now government securities are all book entry. If it were a private enterprise, there wouldn't be twelve; there would be one. They've made remarkable progress in that direction, but it took far too long, and it took too long because, on one hand, you're telling all the Reserve Banks they're responsible for it, and on the other, the market, in effect, and the technology is saying we ought to only have one. So you're forcing people to give up, and that kind of stuff. Unless there's a market mechanism to force that, that's a very hard thing to do.

In fact, I was head of the System Automation Committee at one point. We were having these knock-down, drag-out discussions on should you centralize computers or decentralize computers. And I kept saying, it's not either/or. The question is, who has responsibility for what, and then how do you form up the computers to support that activity?

The fact is that there is still, from a policy point of view, a lot of strength in having twelve Reserve Banks so that you have people throughout the country giving input in and impacting on policy. But for a lot of the operations of those Banks, which is where most of the people are, is twelve the right number? Are the boundaries the right boundaries? The answer to that is, obviously, no. That's not the way the economy has evolved.

So the System keeps trying to figure out ways to accommodate itself to the realities of the marketplace in a very difficult way, and I think, under the circumstances, they've done a pretty darn good job at it. But it sure has been painful for them. If we [General Mills] have a division that's out of sync with the marketplace, and they start to lose money, we just have to say, “Look. This is real simple. This can't go on. It's got to change.”

But if you're a monopolist, which they are in some regards, even in those services where they price, they have certain advantages, it's a little harder to let the System kind of help you work things out.

JEF: When you look at the System you wonder if you need twelve of them. Does one really need twelve research departments? How do you feel about that? Clearly, that was a great interest of yours.

MHW: It was a tremendous interest of mine, and it would, in fact, be the easiest thing to change, and, in my judgment, the last thing that ought to be changed. The only reason I say that is because with—let me give you a longer answer, but it's important. In most things, I'm very much in favor of speed and efficiency. Around here [General Mills], we talk about speed, innovation, and commitment. That's kind of our rallying cry. For most activities, those characteristics are absolutely central.

As it relates to the central bank, if you're talking about clearing checks, you ought to be just as efficient as you can possibly be. If you're talking about monetary policy, having a cumbersome, hard-to-change, even bureaucratic system, frankly, is probably a protection, because it means no one person can come in and say, “Okay, I've now seen the light. Here's what we're going to do,” and take you off in a direction that is likely to cause you a catastrophe. Instead, you've got a lot of people sitting around, all of whom are relatively strong-willed individuals, and they push and shove. Fortunately, they push and shove more now than they did earlier on.

So the making of policy is really quite inefficient. But if you have the view I do, which is the more stable the policy in the long term, the better off you are anyway, I happen to like that inefficiency.

The people who make policy are the presidents and the governors in Washington. If a president is to be an effective policy-maker, he has got to have some people doing research for him, and helping him think about those issues. So the honest truth is, I would much prefer to see them get out of the check-processing business, the government securities business, the bank examination business. The last thing I would want to see them get out of is the research department business, even though a lot of the research in a lot of the banks, from time to time, isn't very good, is redundant, all those things. But I find great protection in that. Just as a citizen, I feel more comfortable at night because I know it's there.

JEF: I can see your point. Where you do have a president with a real interest and a real belief that there's a statement that needs to be made, such as you did, you had a research department to back it up, where you could promote that and set them to work, whereas if it had been controlled in Richmond or some place else, there would be very little one could do.

MHW: Exactly.

JEF: Do you think it's important for the Fed to make a profit? This paper profit that they book every year, does it impress you?

MHW: I like the fact that they're trying to. It makes them more efficient. I still think that half those businesses they ought to just get out of. But I'm a lone wolf on that.

JEF: Do you think where we're headed, and this affects you even in business, do you ever think we're headed toward the checkless society? At any point it will go the way of the paperless office, you think?

MHW: Yes. There will be some things that are checkless and some things that aren't. Coins, heavy, difficult-to-handle coins, which were supposed to disappear years ago, are still around in growing numbers, and will be for a long time.

JEF: Even pennies. It amazes me yet that they haven't gotten a handle on that. What an inefficient way of doing it, carrying this stuff around with us.

MHW: That's right.

JEF: I have to ask you a question which doesn't directly relate perhaps to your presidency, but which has become certainly a topic of interest about the Federal Reserve Bank in Minneapolis, and that's the famous Gunnar Birkerts building [250 Marquette]. You moved into it when it was already standing, and there wasn't much you could do about it. And, of course, it's a famous building. It's a building that's become a signature building, both in Minneapolis and across the country, an award-winning building, in fact. What do you think about it? What did you think about it at the time? Which is hard to ask you, because, of course, now you view it as we all do, knowing what we know about it now.

MHW: I loved the building. I thought it was a spectacular building. I had helped build the building in Philadelphia, which was a nice functional building, but nowhere near as interesting as this building. So I liked the building a lot.

Having said that, the folks at the Bank were nice enough to ask me down a while ago, and I went down and talked with the officers down there, and I told them the same thing I'll tell you, and that is if that were a private enterprise, I doubt very much they would replace the building. What you have, if you think about a Reserve Bank, is a series of operations, most of which could be done better in a less expensive area. I mean, we [General Mills] don't put our plants in the middle of big cities; we put them out where the land is cheap and the space is—and so on. Then you've got some office functions, again none of which have to be in the most expensive real estate.

So if you assume that the building needs to be replaced—let's take that for granted—I can tell you, General Mills wouldn't be building that new building down there. And the fact that the System has put up all of these relatively new and expensive buildings around the country—I'd fight to the death for a research department. I wouldn't fight for two minutes for a big, expensive, fancy building. I think we have too many, I think they're too fancy, and they're in the wrong places. So I'd take a very utilitarian approach, and put the operations wherever you can have the least cost space you need, and then figure out what kind of facility you need for the few office functions that are left. Then maybe you lease space, maybe you build a building, I don't know. There are less expensive ways to do it than they're going to do.

JEF: Particularly when, in this case, it would appear that the salability of the building that will be left is in question.

MHW: Exactly. Exactly.

JEF: I'd like to ask you one other question. Looking back on your term at the Federal Reserve Bank of Minneapolis, how would you summarize what you think your main accomplishment was there, or the main stamp that you left, the thing that your presidency there ought to be remembered for? As the president, I'd be interested in your perspective on that.

MHW: I probably ought to ask some other people at some point. I'd be interested in that answer myself. What I would hope to be remembered for, let me put it that way, are the two things we've talked about. One, breathing some fresh air into the policy process, and hopefully, in some small way, making not only the process better, but the result a little better, by being vocal, by dissenting. And not only dissenting, but by having at least what we thought were pretty cogent arguments as to why we were dissenting. I mean, it wasn't a point of view; we had a theory and we had a rationale, and we could then say, “Here's the context in which we're making these statements, and here's why we think it makes sense.” So that would be one.

The other one would be the public education function. I spent an enormous amount of time trying to help people be interested in public policy, help explain what public economic policy was, what kinds of effects it would have, what was possible, was what not possible. You take this last election discussion, and you could cry, because the general notion about what is possible is so far off the mark that people make really important decisions and then clamor for action, when often, if they get what they really ask for, they're going to be worse off, rather than better off.

So we spent a lot of time trying to talk about the possible and the impossible, the impact of various kinds of things. Hopefully in a small way it helped at least a few people understand some issues better than they might otherwise.

JEF: That's very thoughtful. Thank you.

Let me ask you just a little bit about your move to private industry. You were at the Bank, you came there, you had risen rapidly in Philadelphia, you had a major position, you had national prominence as president of the Federal Reserve Bank of Minneapolis, partly by being a Federal Reserve president, but also because of the positions you took nationally. But after a relatively brief time, you moved on to, a multi- billion-dollar international corporation. Why, at that time?

MHW: The primary reason was that I had always been so convinced that we ought to allow the private sector to play more of a role than we did, and that was particularly true in banking, because we, I thought, over-regulated financial institutions. If you believe in markets like that, then there's a big part of you that says, “Gee, I 'wonder if I could be successful if I had to compete in that kind of environment?” I had always wanted, at some point, to go into the private sector. I frankly thought it would be later, but when they approached me and asked me to come here, I was increasingly frustrated with what we were being asked to do in terms of regulating financial institutions, which I just thought was wrongheaded and was going to get us into trouble, and I knew enough about organizations around the country to know that no matter where you went, General Mills was unique, and you either take the opportunity when it comes, or it isn't going to be there. So it was, frankly, premature, but that's when the opportunity came. I took it, and obviously haven't regretted it.

JEF: Well, obviously no one else has either. I have to ask you one question I've never had a chance to ask any of your predecessors or successors at Federal Reserve Bank of Minneapolis. Its something that I normally talk about during other corporate interviews that I do, and I can ask you because you are a CEO of a major international corporation. That's about the relationship between U.S. government and business, which always seems to be so uncertain, and in some ways seems quite different than it is in other countries—different than it is in Japan, different than it is in some European countries. I wondered if you have any reflections on that, as someone who has to deal with that all the time, not only here, but overseas as well. The extent to which that relationship is in part responsible for whatever success, or, in some cases, lack of success American business has because of its difficulties in dealing with its own government, or perhaps its successes in doing so.

MHW: My bias, if I can put it that way, on that subject, is fairly strong, so I think I would be considered by many not to have a very valid view of that. But my view is the following. To oversimplify what's involved in being successful in business, I think is to have very good ideas and then execute them well. Anything that gets in the way of the generation of ideas, anything that gets in the way of execution of ideas, is bad. Anything that facilitates ideas or their execution is good. I'm oversimplifying.

JEF: That's an important point.

MHW: If you just set up that framework, then you get some very interesting implications. Regulation in the way it's done often is bad rather than good, because when you regulate, you not only say what the standard is, but how to get to the standard. It tends to be very depressing in terms of ideas as well as execution.

On the other hand, if you simply say, “Here's the standard. You all figure out a way to get there,” or, “This is what it's going to cost you if you don't get there,” then people unleash their ideas and you get a good result in trying to figure out how to meet that standard.

Another implication. Large organizations tend to be more difficult, in terms of both generating ideas and executing ideas, than small organizations. Japan would seem to be the exception to that. I don't think Japan, long term, is going to be the exception to that. A lot of their large “organizations” aren't, in fact, large; they're small. They form up in confederations that are large, but if you look at the specific entities that are conducting the business, they tend to be small and very focused and very aggressive.

The fact that government sometimes takes a policy position that appears to help business, is I think greatly overstated in Japan. It's greatly overstated if we think that's going to solve our problems here; it's not.

The fact is that competition in Japan is absolutely cutthroat, and, as a result, they've generated some very effective, very successful economic enterprises. And the more we allow our people to compete, the more effective we're going to be.

I tend to have a lot of trouble when the government tries to get in and say not only, “Here's the standard,” but, “Here's how you're going to meet the standard.” And it doesn't matter whether it's a pollution standard or an EEO [Equal Employment Opportunity] standard or a labor practice standard or whatever. I don't happen to have a problem in setting standards. If we don't want to pollute the environment, which we shouldn't do, we ought to say, “Okay, we're going to come up with a way so that we have less pollution.” Absolutely a terrific idea. If we come up with that by saying, “The way we're going to meet that standard is you'll put a catalytic converter on every automobile that's produced, and you'll do this, and you'll do this, and you'll do this,” we'd probably spend ten times as much as we need to spend to accomplish the same result.

So I think that the difficulty between business and government is that government tries to go beyond its role, which is standard-setting, and tries not only to outline the objective, but the route to get others, and it's often abetted by business, which says, for its own self-interest, “Protect me. Keep those guys from doing something,” and so you get kind of an unholy alliance, which is unfortunate.

JEF: Do you think there's anything to what sometimes seems like the antipathy of Americans, in general, to bigness? They're perhaps more afraid of combinations of industry, even when those might be effective and actually save jobs, rather than lose them? Is that a misperception, do you think? The Japanese seem to have less trouble with what you mentioned as confederations of businesses joining together. Americans seem to have more trouble with that sort of thing. I thought that there might actually be a situation in which Chrysler and Ford might join hands on some specific project.

MHW: Businesses tend to be very self-interested. If you can get a large organization that can influence its self-interest, it can, in fact, exercise its self-interest against the interest of other parties. So I think kind of the basic American instinct, which is to be suspicious of people who have inordinate power in the marketplace, is right.

The difficulty is that gets misinterpreted in terms of public policy application. What you need to do is make sure that, in fact, there's an enormous amount of competition, and then let it go.

The government was trying to break up IBM. It turns out that it was the mini-computer-makers that are breaking up IBM. IBM is having enormous difficulty at this stage, because it hasn't been able to keep pace. The market is doing what the federal government could never do. Exactly the same thing happened to the automobile companies. They just had their heads taken off by, in this case, foreign competition.

The key is to make sure that you have an enormous amount of competition, and that you have, for those things that are important publicly, and there are a lot of those things, pollution and health and the way you treat people, and all that kind of stuff, we ought to have absolutely well-understood, high standards for what we expect of ourselves. But then let people figure out how to meet those standards in the least costly way.

JEF: Your comment about IBM is interesting. It's a powerful argument, in fact, in support of your view on regulation.

MHW: Yes.

JEF: To have regulated IBM by doing that, rather than letting the marketplace take care of that—

MHW: It would have been a disaster.

JEF: —could have squelched both the small companies as well as the big.

MHW: All you need is to say, “We'll get all these small companies together so they're big enough to compete with IBM,” and you'd kill all the small companies, and it would be a disaster.

JEF: No COMPACs, or whatever.

MHW: Yes.

JEF: That concludes my questions. Is there anything that you think I should have asked you?

MHW: No. You know more than I know at this point.

JEF: It's fascinating. I appreciate your time. I appreciate your willingness to talk about it.

MHW: My pleasure. Brings back a lot.

JEF: Thank you, Mr. Willes.