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Twenty-First Century Surprises and Threats

Panelists: Paul A. Volcker, Former Chairman, Federal Reserve System, Walter Russell Mead, President's fellow, World Policy Institute, and John Deutch, Institute Professor, MIT
Moderator: Ellen V. Futter, President, American Museum of Natural History
March 13, 1997
Council on Foreign Relations

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Ms. ELLEN FUTTER (President, American Museum of Natural History): Welcome to a panel discussion on 21st Century Surprises and Threats at the Council on Foreign Relations. I’m Ellen Futter, president of the American Museum of Natural History and moderator for this panel.

Tonight we have asked three of the best minds in America to pick a subject which they believe deserves more attention than it has received, a subject which has the potential to surprise or threaten the world as we head into a new millennium.

Now in the interest of full disclosure, I should tell you that indicative of the respect that we have for our panel and for the century ahead, we have cloned each of our speakers. In fact, it is their clones who will take questions later on.

Before I introduce our distinguished panelists, let me describe the format for tonight, which is a little different from the panel’s usual pattern. Each speaker will present brief remarks and then will be questioned by his fellow speakers on the panel. Then the next speaker will follow, be questioned by the panel and so on. After all three speakers have finished, we will, of course, take questions from the floor, and I assure you we will leave plenty of time for that.

Let me now introduce our three speakers. Paul Volcker is best described as a lifelong public servant, spending 30 years in government under five presidents including eight years as chairman of the Federal Reserve system. In the private sector, he was chairman and CEO of Wolfensohn and company, where he remains today as a director. He currently heads the commission investigating the unaccounted funds for Holocaust victims in Swiss banks. And, Paul, we look forward to your remarks about the threats to pax Americana in the 21st century.

Walter Russell Mead is the president’s fellow with the World Policy Institute here in New York, where he studies the evolving global economic system. He is a prolific writer on topics ranging from social trends to American foreign policy. Walter is the son of a South Carolina minister who, I’m told, finds it difficult to resist quoting from the Good Book. Indeed, he has won prizes for his translation of Testament Greek. Walter will talk—in English—about the conflict between capitalism and democracy.

John Deutch has spent his career commuting, as it were, between academe and government. Currently, he’s back in academe as institute professor at MIT, where he also served as provost and dean of science. He most recently served under President Clinton as director of Central Intelligence and undersecretary of defense. A chemist and engineer by training, John will touch on two areas of his expertise: the human body and energy.

Paul Volcker, the podium is yours.

Mr. PAUL VOLCKER (Former Chairman, Federal Reserve Board): Well, thank you, Ellen and fellow members. It’s a special privilege to come and lead off the panel. But your mention of cloning reminded me of my worry these days. I’ve decided they’ll probably pass a law and say nobody over 6’6” can be cloned. They’re too much out of the common variety. They require extra-length beds and all that kind of thing.

Let me start this affair with one common observation, two strong convictions and one sure forecast. Now the common observation is really a very simple one that I suspect you all share, and that is perhaps never before in the course of human events have circumstances worldwide seemed so promising. We have, of course, the sudden triumph of democratic capitalism, which brings great promise not only in the economic field, great promise for our material prosperity, but I think great promise for the human spirit as well.

But just as a technical economic, scientific matter, it doesn’t seem to me within the time period with which we are concerned, the first part of the next century—a wink of the eye for Ellen Futter, who deals with dinosaurs and that kind of thing. But looking ahead as far as we can look, I don’t think there’s any doubt about our technical capacity to feed and shelter and clothe everyone better during this period of time—better than now and better than anytime in history, which is saying something. So that’s the observation.

My first conviction is that, as Lincoln once said more than a century ago, ‘America is still the last, best hope for mankind.’

My second conviction is that mankind, viewed atomistically—that is, by individuals or even by nation states—won’t take care of itself. It, in fact, needs some leadership. It needs some strong institutions to hold itself together if we’re going to reach the bright promise that lies before us.

Now the forecast is that for all its glories, democratic capitalism is not going to free us from instability, insecurity, inequality and conflict among and between individuals and among whole societies. If you think prosperity ends human conflict, you have not been a partner of an investment banking firm. I believe, in fact, that instability, insecurity and inequality is inherent in capitalism, as that example may illustrate.

I think, for all its glories—and they are very great—there’s going to have to be some countervailing force or forces to capitalism in the roar. And at the same time, looking beyond the innards of the workings of the economy, I think there are tectonic forces from outside, so to speak—environmental pressures, aging populations—that are true almost throughout the world and certainly environmental pressures throughout the world that, by their very nature, require a common approach to deal with. And, of course, you can see—we can see cultural clashes that are going to require mediation of one sort or another all around us.

Now that is a recipe for a fair number of crises, and I don’t know which one will hit first or at all or with the most force. You have the extent of my predictions already now that there will be some. Global warming, the Middle East and Asia have been mentioned, certainly, as prime candidates, but I can think of others: racial conflict is a problem; Muslim fundamentalism; Latin-American instability. That hardly takes a forecast. That would be hardly a surprise if we didn’t see a renewal in that area.

But it seems to me the hidden threat—and what I want to emphasize that runs through it all—would be the failure, any failure, of American will to lead effectively wherever or whenever the crisis comes. And I say so because I see an absence of alternatives. And when I consider the American will to lead effectively, I underscore the word ‘will’ because I think it is much more a matter of will than capacity.

Now I do not doubt that we have budgetary problems, but I do not think those problems are fundamental. We are the richest country in the world. We are much richer than we were 40 or 50 years ago, when we felt a little differently, perhaps, about ourselves and the challenge and we were willing to dedicate 2 percent of our GNP to the Marshall Plan. Today, we give almost no aid, except to Egypt and Israel, and those amounts are declining. We find it very difficult to maintain a State Department and a semblance of the position that I think the leading country in the world should do so. We, in fact, as a percentage of the GNP, spend less than any other leading country except Japan, where it is about equal. But I don’t think we can argue we do not have the resources without even getting into the military area where, obviously, we stand alone.

The underlying problem seems to me the pervasive cynicism about government and the lack of credibility in government itself, which is a big change from where we were 40 or 50 years ago. We are certainly in the habit of assuming a strong sense of moral superiority over the rest of the world. We issue edicts from time to time about how the rest of the world should behave. We sometimes embody them in laws with application beyond our own territorial reach. But when it comes to a willingness to pay, we have increasing problems. And when I say a willingness to pay, I think, of course, immediately, in terms of dollars; here we are unable to maintain our treaty obligation to the UN to keep up to date with our mandatory payments for an organization which we largely designed and which we have, by far, the largest amount of influence, whose budget is effectively subject to our veto.

If we look at the development area, we are in about equal amount of arrears for IDA contributions to which we have officially agreed. And what’s even more interesting, those are fairly sizable amounts. They get up to $1 billion or so. But when we look around at our membership in other international institutions, where we’re talking about literally a few million dollars, OECD, World Trade Organization, World Health Organization, we are also falling behind on our arrears.

When I travel around, I like to keep some of this in perspective. I think we’re behind in our arrears to the OECD for about the cost of two average houses in Aspen, Colorado, which suggests something about whether it’s a matter of will or capacity. But, of course, it’s not just a question of money. I think when our own troops are at risk, we properly are rather jealous about wanting to maintain control, but are we willing to more broadly maintain a lead in military alliances? Are we willing to take risks in that area for our good and for the common good?

There are a lot of reasons, I think, that account for this erosion. I mentioned what I thought was more fundamental as a matter of psychology. When one looks ahead, I think it’s almost inevitable, and it should be the case, that in relative terms, our economic position—not in absolute terms but in relative terms—our position will diminish; that other areas of the world are going to have a—want to have, legitimately have, a bigger voice in what happens.

But, you know, the only obvious substitute for the role that we’ve been playing—and I think the only satisfactory substitute from our standpoint—is some greater authority for international organizations, and that is what concerns me. In terms of looking ahead for some years, we seem to be perversely weakening the very structure of the organizations that we not only originated but will increasingly have to depend upon in the future years. We can’t have it both ways, it seems to me. We can’t step back ourselves but undermine and weaken the obvious substitute.

Well, what’s the consequence? What are some areas that we might particularly worry about? And I’ll just mention a few of them and sit down. What’s the possibility of the world dividing itself up into a more antagonistic form of regionalism? That has not happened so far despite the common market and all their preoccupations. We have NAFTA, but it’s rather open. So far, can’t say Asia, in all its dimensions, is open, but it hasn’t fallen back into a defensive regionalism. But that’s taken place when there’s been a very strong effort at multilateralism in the economic area. And will the United States continue to show the leadership in that particular area that has shown in the past? And if not, what is the threat of regionalism?

What about the prospects for peaceful and prosperous emergence of the former Soviet Union, where some questions of outright aid arise? And it may not be just general economic aid, but how do we control atomic weapons? How do we assist them in dealing with the possibility of dangerous situations arising in atomic energy plants? How do we deal with this, I think, very serious question, myself, of the expansion of NATO in a way, if it is going to be expanded, that is consistent with the interests of Russia? How do we deal with the weaker former parts of the old Soviet Union?

And then, finally, just to take a quite different area, what about the two somewhat related areas of drugs and corruption? If we are going to have a true triumph of democratic capitalism, can that really prosper in an atmosphere where so much of the emerging part of the world has not yet accustomed themselves to follow the rules of law and business practice that we and Europeans and most of the developed part of the world think—and, I think, think properly—are crucial to the effective development of capitalism?

So I will leave you at least with those three possibilities. We have two further panelists who can answer all the questions.

Ms. FUTTER: It’s the advantage of going first. So much for pax Americana. Walter, do you want to start with a question for Paul, perhaps giving him a chance to sit down?

Mr. WALTER RUSSELL MEAD (President’s Fellow, World Policy Institute, The New School for Social Research): Sure. Well, one of the things that interested me in your talk is the relationship between US leadership and multilateral institutions, because I know there are a lot of people in Congress and maybe out there in public opinion who see there’s a contradiction of some kind between, say, a strong World Trade Organization and US independence and sovereignty or a strong UN. How do you think about that?

Mr. VOLCKER: Well, how I think about it, in part, is, we have to recognize that in some cases, that strong World Trade Organization is going to reach conclusions that are unpleasant in terms of some particular industry or political interest in the United States. I think we did so much to create that organization and going back 40 years ago to create the GATT because we thought, on balance, decisions reached in favor of an open trading order would favor the United States. And I think the evidence is that World Trade Organizations knew. But the types of conflict that they have been dealing with and disagreements that they have been dealing with and, earlier, the GATT on balance, have favored the United States and favored our—certainly favored our vision of the way the world should be going; and, in most cases, specifically favored industrial interests in the United States, the trading interests in the United States. But you’ve got to take the adverse decisions with the favorable decisions if you’re going to strengthen those institutions; and we have to create an understanding that’s the way the system works.

Mr. MEAD: Well, say something like Helms-Burton, where a lot of people saw that was the US standing up for democracy and so on in this hemisphere—do you think that was a wise idea or...

Mr. VOLCKER: No. You want a simple, straightforward answer? I think that is a specific case of what I was talking about. We are very good at issuing ukase these days about what the rest of the world ought to do. It’s not clear that it’s in our long-run interest, but even in that particular case, that’s the way to treat Cuba. Even if it was, I think we’ve got to respect that that may not be the opinion of everybody else and live with that or we will, in the end, of course, lose influence.

I think there’s been a sense in the world that American leadership, leadership of any single country as strong as ours, can be tolerated only so long as it is perceived to be generally in the general interest, and I think Helms-Burton is an outstanding case where it is not, and very possibly—it’s a complicated question—violates the rules of WTO. But we can hardly object, I think, to them considering the matter as to whether it does or whether it doesn’t.

Mr. MEAD: So you think we ought to go ahead and participate in the panel and abide by the result? What about part of the leadership, I think, that people in the United States feel is important is a kind of a moral leadership, that we should be on the forefront and defending human rights in China or sort of taking on any regime that we think, for one reason or another, is morally deficient. How do you balance that or how do you work that into our stand in these international organizations in a place like the UN, where China also has a veto or the World Trade Organization?

Mr. VOLCKER: Well, I haven’t got any great problem with the way we have tried to balance that in the case of China, which is a much more important question, I think, than how we’re dealing with Cuba, because I think a very strong argument can be made that the development of trade relationships and open relationships on the economic side will eventually help the human rights side, but that doesn’t mean we forget about the human rights. But I think it’s an illustration of a case where if you try to do it all alone, you’re not going to be terribly successful, so you got to go through, as best you can, that process of trying to get some support from others for what you’re trying to do, and I would think that is a case where you can do it.

Ms. FUTTER: John, do you have a question, or should we put up our next seer? You want to do one?

Professor JOHN DEUTCH (Massachusetts Institute of Technology): Oh, well, I have a comment. I’m going to have a little bit of difficulty turning it into a question, but I will try desperately to do so.

Ms. FUTTER: That’s OK, because Paul will answer your comment.

Mr. VOLCKER: I’ll turn it into an answer.

Prof. DEUTCH: You’ll turn it—OK. You know, you spoke there about the reliance on military alliances, you spoke about NATO expansion and you spoke about the importance of helping nurture or at least try to not get in the way of Russia continuing its move towards democracy in a market economy. It seems to me you are...

Mr. VOLCKER: You’re the expert here.

Prof. DEUTCH: Well, sir, I’m not an expert—more about the human body later, where I’m also not an expert. But I do want to say that I think that there is a little bit of—currently, a contradiction here which—for the country, which is going to have to be worked out that we certainly are basing our relations with Russia more in the currency of military relationships or threats of military relationships rather than economic ones, and it strikes me that this is one of those subjects which is going to bode some problem for us in the future if we’re going to continue to move together.

Mr. VOLCKER: I’d agree with that.

Ms. FUTTER: That’s probably a good note...

Prof. DEUTCH: So you’ve got a real issue here.

Mr. VOLCKER: Yeah.

Ms. FUTTER: We can come back to that, but it’s probably a good note, Walter, to encourage you to share your view of the future with our...

Mr. MEAD: OK.

Ms. FUTTER: ...group.

Mr. MEAD: I think some of my comments will parallel, in some ways, Paul’s. I don’t know if, maybe, I go in a different direction or take you too far. But I remember when Francis Fukuyama first wrote that history is over and that that was the meaning of the end of the Cold War, that, to me, really summed up what is a very widespread view in our country, which is basically that free markets and technological progress kind of lead to democratic stabilization, and that leads to stabilization in international relations—peace. Economic liberty gives political liberty gives international peace. And I think looking at the long sweep of history, you can see that, to some degree, that is clearly true in western Europe and the United States. That’s been our experience—and I suppose, also, in Japan.

But then I look at: What is the scale of time over which that process takes place? How long after market forces began to transform France and Germany and Japan did they settle down into peaceful, democratic states? And what happened in the meantime? You know, you can look at the French Revolution and they ripped up all this old, futile stuff and they moved ahead with market economics and, you know—What did we have?—five republics and two empires and two monarchies, I think, since then, and now they’re very peaceful. But in the meantime, they burned Moscow; they conquered Algeria; they conquered Indochina; and they were all over Africa.

So when I look at the meaning of the Cold War and some of the related shifts that have happened in the world in the last 10 years, where market forces are freer than ever before to work in a wider and wider scale in more and more countries, I guess I don’t really think history is over. I think, maybe, you could say that history is back and it’s hungry; that if you look at the social changes sweeping through countries like China and Indonesia now, they are larger; they are more intense than the changes that went through Europe in any single generation of the industrial revolution.

Now the British had a generation to get themselves used to the cotton jenny when, all of a sudden, in came the railroad and they had kind of a generation to get used to the railroad before the next stage of heavy steel came in. And so, generation after generation—they’ve had six generations since all of this—began to get used to things. In much of the world, it all comes in—you know, you have a rice paddy green field situation on day one. Day two, they’re laying the foundations for a semiconductor plant. And when you look at how large these societies are, how far they’ve got to travel—you look at the idea that Western economic ideas and political ideas are not things that were originally generated within these societies as a product of their own social forces and tradition, but come in from the outside, I think you can see that maybe the 21st century is going to be, in some ways, more explosive and dynamic—both of those things, good and bad—you know, it’s good and bad, not either-or—but more explosive and more dynamic even than the 20th century; that the Chinese industrial revolution will shake the world more than Germany’s modernization did, it seems to me more likely than not.

So I think we face a much larger challenge. And I think to the extent that American policy has been basing itself on the idea that if we simply expand the area of liberty, something that I believe and I think probably everybody here believes in, we will thereby be ensuring a safer, more stable future for ourselves. I think we’re going to see something very different from that. If you look at what happened in Eastern Europe and the former Soviet Union, what was so interesting is, they achieved this frozen, stable, unfree society where nothing much changed from year to year, and it turned out, what finally brought that society crashing down, that system crashing down, was that it lacked the dynamism, the instability, of Western culture, of Western economic organizations so that from eastern Germany now all the way down into Southeast Asia, a stable social system, or a relatively stable one, has been destroyed and something very different has taken its place.

So without belaboring the point, I think we are present at an acceleration and perhaps an intensification of history and that the success of capitalism in the world, which will—I think, potentially, if we can sort of get through this 50-year, 100-year period of transition, will ultimately bring in a kind of an affluence and probably also peace that the world has never seen. That’s not going to be the horizon that any of the people in this room are going to be dealing with in our careers and probably our children also. The instability will come before the stability and it’s going to be a bumpy ride.

Ms. FUTTER: John, do you want to lead off with a question?

Prof. DEUTCH: Oh, I like the perspective, having recently come from Washington, of a person who can talk about thinking of the next 50 or 100 years where, there, we frequently can’t think for 50 hours. But I would like to focus the comments, sir, that you made with a question about China, because there is the place where a player—a major player internationally has put on the table a bet which is entirely different than the assumption that we make and the assumption that you were addressing. That is, in China, the bet is for economic liberalization but continued political authoritarianism. Now the question I have for you is: What is your estimate of the likelihood of the Chinese being able to maintain this approach? And if it were to unravel, how might it unravel?

Mr. MEAD: Well, I think it’s very likely that the present form of authoritarianism in China won’t continue if you look at this for a long-term approach, because the pressures of change—let’s think about what’s happening in China. Tens of millions of people who grew up in rural areas in places where, despite the revolution, society was still fairly traditional and family structured and so it was very traditional—are being uprooted and are moving into the cities in an amazing migration that is really only at its beginning, although already you have millions of transient workers and people in the outskirts of these bustling towns looking for casual jobs.

The traditional social authority is breaking down. It’s atomizing. And what’s going to happen in the future there? They’re going to be—the society will be looking for ways to keep itself together, keep the explosive forces generated by all this change from within from blowing it apart. The answer that most European societies—and some degree that the US found during similar periods in our history—was in nationalism. It is the national community that makes—we are all Chinese together. I may be rich; you may be poor. But classes aren’t important; Chineseness is important. So that if you want to take a dark view, you could see a form of xenophobic Chinese neo-fascism growing up in the 21st century and that communism would be replaced by something that wouldn’t be Communist anymore but might be just as unpleasant and perhaps more difficult to deal with.

But on the other hand, those changes in China are irreversible. They’ve begun. You have the world’s largest society in a period of completely unpredictable flux and explosive flux—and just a small thing: I might remind you that because there’ve been so many families under the one-child policy aborting baby girls or, you know, in other ways, not raising baby girls, a lot of these young men coming into the city not only won’t be able to get jobs, they won’t even be able to get girlfriends. This is not a recipe for stability in the world.

Prof. DEUTCH: You said in the long run that this was likely, these forces were likely to lead to a change in the political author—what do you mean by the long run? I have to check that now with you and with Ellen here.

Mr. MEAD: That’s right. What was it? Mao was asked if the French Revolution was a good thing.

Prof. DEUTCH: Zhou Enlai. Zhou Enlai.

Mr. MEAD: Zhou Enlai—said it was too soon to tell?

Prof. DEUTCH: Yeah.

Mr. MEAD: You know, I think that China—we can all remember, at the time of the Tiananmen demonstrations, not only was there real concern in the West that the whole and, in some quarters, hope that the state might be on the verge of crumbling, but there was that period where these army columns were marching toward Beijing and everybody was wondering, ‘Whose brother-in-law is the general of which army column?’ You can look to some degree, people will tell you that already, the authoritarian Chinese state is only a facade; that regions in China are much more independent of the center than they used to be so that we might be seeing this kind of a slow-motion upheaval in China even as we speak.

Prof. DEUTCH: Let me just note that I think that that is a remarkably happy presumption about where China’s going, and the reasons that both the people and the leadership—the benefits that they see to the past performance—and they see it in the past performance—but of the continued need for—in their terms that they would say, need for authoritarian structures. And I think we’re going to be facing this for some time to come. But here again is an issue which is certainly going to be for us in big-time terms. And if it goes badly, it’s going to go badly in a tremendously serious way for all of Asia, and for the world. So I think that this is an absolutely key question for you, and just speaking about young people. I mean the People’s Liberation Army is not young in any terms, but still has a strong regional character, but still a strong ability to control if anybody steps outside of accepted norms.

Mr. MEAD: That’s right. I would add, just looking, a little bit more about the problem they face with their economic success being the glue that’s holding them together, that there’s this model of export-led development that has worked in so many of these Asian-east Asian countries, but if mainland China were to achieve the same kind of per capita trade surplus with the US that, say, Taiwan had at its peak, you’d be looking at a bilateral trade deficit for the US of something like $750 billion to $1 trillion a year. What this tells you is that China can’t follow the path of the other Asian dragons in the sense of simply exporting to the West. Now maybe the demand can be generated in east Asia; maybe in other places; maybe internally. But it does mean that what many people see as the simple, obvious path for China’s growth isn’t, in fact, open to them.

Ms. FUTTER: I’m assuming, Paul, that you find the notion of trilateral debt irresistible and want to get in now.

Mr. VOLCKER: I’m just wondering how many bonds we can manufacture to sell to all those Chinese. But let me ask a very naive question. You speak of all this rapidity of change and tensions and difficulties that that may create. How does the electronic world fit into all this? Obviously, it is responsible for the speed of change, but it also has a great homogenization influence, I would think, around the world. Does it stabilize things or does it make them more unstable, in your view?

Mr. MEAD: You know, I think it paradoxically can make them both; and you can ask: Has technological progress in general made the world better or worse? You know, Rousseau said worse; most of the enlightenment people say better. But, in fact, it’s both in the sense that, you know, during the Bosnian war, we saw the Serbian machine gunners using modern technology for ethnic cleansing and so on. In the next village over, you might have the Red Cross providing a kind of help to war refugees that war refugees have never had before. And you had CNN filming the whole thing. Is that better or worse than what was happening in the Balkans in 1500? It’s both.

And I think, yes, it’s true that the electronic revolution is accelerating the spread of ideas, bad ideas as well as good ideas. And just, you know, as a way that these things don’t always work out the way that you might expect, we now have, in our heads, a model that the electronic revolution is going to continue to increase income disparities in our country, that the skilled workers—the lawyers, the doctors and so on, will see their incomes rise; the blue-collar workers will see them fall. But in a sense, I think the electronic revolution is coming to the point where the doctors and lawyers had better watch out that the orderly with a smart box may be the doctor of the future in hospitals; that with this doubling every 18 months of computer capacity, processes that now can’t be automated because they’re too complicated are going to be automated. And it won’t simply be the unskilled who face competition. It won’t be John Henry and the steam drill, you know? It’ll be the lawyer and the software.

Ms. FUTTER: But moving from the lawyer and the doctor; we talked a great deal in this country about those who will have information and those who don’t, and we think about it in socioeconomic terms and educational ones. But when you put that in an international context, you will have countries that are operating in fundamentally different centuries. Now what are the implications of that?

Mr. MEAD: I think the outcome is—again, it could go either way, but it sets up instabilities that would tend, without some very intelligent, thoughtful, farsighted intervention, to exacerbate international conflict.

Mr. VOLCKER: On the other hand, the other generation seems to be getting homogenized. They all see the same thing quicker than I do. If you don’t got a computer, you’re out of it, and not on the Web, but that’s going all over the place and they’re listening to the same music, seeing the same movies, having the same demands, it seems to me. Is that a stabilizing—it cuts right across all these old cultural things.

Mr. MEAD: Well, that’s right. But, you know, your investment banking partners also read the same books and listen to the same music. I mean, human conflict can operate within a cultural context as well as across cultural contexts. I mean, you know, human nature is not changing. I think maybe what’s...

Mr. VOLCKER: Oh, I agree with it.

Mr. MEAD: ...underlying a lot of this—that we have more and more power for good or for ill, but we’re the same sort of divided creatures that we have been.

Ms. FUTTER: Picking up on the notion that human nature will not change and moving directly from the social life of young Chinese men to John Deutch’s comments on the human body and energy seems right.

Prof. DEUTCH: Thank you very much, Ellen. I think you’ve both overadvertised what I’m going to say and certainly overadvertised what my knowledge is about the human body. I wanted to use my time here to address two subjects. One is kind of an oddball subject. I wanted to draw your attention to a particular area which I think is going to be intellectually very important in the next 10, 15, 20 years; that subject has to do with the human brain and what we’re going to learn and what it means to know a lot more about the human brain. And the second subject that I want to briefly address to you is a concern I have about the future about the next several decades—I can’t bring myself to say 100 years—about my worries about energy discontinuities—discontinuities in energy markets.

So let me begin, first, with the brain. Since my return from Washington, I’ve gone back to MIT. I think one of the most important things to do is to spend some time trying to learn what’s going on in the world of science and technology; what’s different out there; what is going to have a really tremendous impact on our country and on the world. I’m thinking many people know about computer systems, about telecommunications, about the fruits of molecular biology, including Dolly, this first cloned sheep, which has made such a tremendous hit with the public, although I think we should have seen that coming, for sure. I’ve been trying to think about how you can use that cloning to improve the bad temper that has grown so badly in Congress these days, but I think that that’s kind of a hopeless extension.

When I came back, I saw—with my colleagues at MIT and elsewhere, I began to get an appreciation about what is happening in the growth and understanding about how the mind functions and how the brain works, and I want to draw it to your attention because we are supposed to be thinking about what’s going to be different in the next decades and I think that, here, we have a real change.

The brain is, in fact, a tremendously complicated organ. It performs unbelievable functions—as all of you here in this room surely know, if you’re not observing here this evening—with billions of neurons carrying out chemical and electrochemical activities which allow us to both think and manage our bodies. Now what is happening is that we are now entering a period where we are going to understand how that actually happens and we will be able to use it to, hopefully, help improve the conditions of humankind.

The first point I want to make—I don’t want to go on too long about this—is, in my view, that understanding is going to take place using a different kind of intellectual activity that has gone on before. That’s always interesting in human affairs, when you find human understanding going forward also because the intellects are working together in different ways. And here what you have is an alliance between cognitive scientists, what we used to call psychologists but we now call cognitive scientists—brain chemistry people—and neurobiologists, who are getting data at the level of being able to see a certain drug or a chemical compound like serotonin go into a part of the brain—or L-dopa—and as it is going in the brain and doing its chemical activity, image it and at the same time, measure the consequent behavior and the change in mental activity and physiological response. This understanding is going to be tremendously profound and is quite different than what we’ve seen in the molecular biology starting from a single cell because here, you’re seeing billions of cells working together.

Where is it going to have a practical consequence? I’m going to only mention two areas: in health and in learning. And in health, let me say that a great deal of the illness of this world comes from illness—mental health illness; again, not only among the members of the Council on Foreign Relations, but everywhere in the world, mental health is something which really does impair productivity and, of course, human happiness, and we are going to see that this understanding of how the brain works, in my judgment, is going to have a pronounced effect on the treatment of these kinds of illnesses.

Learning—I’m not speaking here of education; I’m thinking here of learning—learning how to use language, learning how to speak, learning how to use your motor and sensory organs and process information, learning how to interact with machines. All of this, I think, is going to have a tremendous and pronounced effect as we understand how the brain works. And I could give you already a tremendous amount of progress which has taken place in really understanding language and how human beings have hardwired into them the special mechanisms needed to learn language and use it.

Now clearly, these will be major changes in both the areas of learning and health, as I’ve mentioned, but I want to just end with two points. The first is, it’s not going to happen quickly; it’s going to take a long time to happen—several decades—to realize these practical benefits, but it’s something that we ought to be keeping our eye on, because it is an exciting and interesting and different part of human understanding.

And secondly, I’ll note that these advances are going to be accompanied by tremendously difficult ethical questions—very difficult ethical questions about how you’d want to intervene in people who have mental illness or the propensity for mental illness, maybe even in childhood or in very early infancy. There will be many, many questions here which, again, will cause our nation to have to—our society, if you’d like, to really deal with some important issues.

Well, it’s an uplifting message, though, that I want to leave you with, and that is, human intellect goes on and does spectacular things, and the next big chunk, in my mind, in the area of science and technology is going to be the human brain.

Let me turn now to a less uplifting subject and one which is more in line with my own detailed professional concerns for a couple of decades, and that has to do with possible discontinuities in the world of energy. I just want to touch on it. I know there are many people here who have thought and know a great deal about this and the council itself has addressed these questions, but I want to say to you that I think that there are two potential discontinuities out there, which are very important, indeed. The first one I think Paul Volcker mentioned just briefly, and that is: What about long-term environmental consequences of burning coal and other hydrocarbons? I think it is very hard to avoid the conclusion that it is a bad to do so from the point of view of the environment, that it does contribute to global warming, with at least uncertain and probably very difficult adjustments for the ecology of the globe and the transition costs here could be extremely high.

I happen to own a home on Cape Cod, so a change in the height of the ocean makes a big difference to me. I know it may be a transition for those of you who have a longer time horizon, but for me it would be very serious, indeed.

In any event, the environmental effects of burning coal, it seems to me, could jump on us very, very seriously here in the next decade or so. Now to be sure, there are controversies, legitimate controversies, not about whether it’s bad to put CO2 in the atmosphere, not about whether that attributes to an increase in the temperature of the globe, but rather the timing at which such effects could take place, and the magnitude of the relationship of the output of human activity and its effect on the average global economy.

But if this emerges as a serious international problem, it’s going to be a hell of a thing to deal with. It is going to raise tremendous international, political and economic questions roughly around the question: ‘Who is going to pay? Who is going to pay for ameliorating these effects?’ And it will be possible to do so. There will be choices you can make: increased conservation, less use of fossil fuel—I hesitate to even mention the possibility, although I’m prepared to do so—of perhaps more use of nuclear energy. But it will be a tremendous adjustment process.

The second large discontinuity is more troublesome and more near-term. And that has to do with the possibility of a major disruption in oil supplies on the continent—on the globe coming from the Middle East. And here I think that there is no question about—in my judgment more today than at anytime since the late ‘70s a real concern about the possibility of a disruption in Middle East oil supplies. Let me note that there is a continued and growing dependency by OECD countries on Middle East OPEC oil. Let me further note that there has been an insufficient growth in new, non-OPEC supplies of oil throughout the world. This comes back to Paul Volcker’s point about Russia and other states of the former Soviet Union around the Caspian Sea.

And, third, let me also note the tremendous growth in political instability in the Middle Eastern region, which is what is of such concern to me. Now that’s quite different than the energy disruptions in 1973 and ‘79, where it came from OPEC coming together using market power. That’s what led to the sharp discontinuity in, first, energy supplies and then energy prices. Here what is a different possibility—and that is that the disruption of oil supply occurs because of political collapse in some of these countries, whether we’re talking about something which happens—some pressure on Saudi Arabia from growing radicalism in the region or in the country, a royal family that is unable to adjust to change, as they certainly are going to have to in the next few decades. A similar story can be said about Kuwait. I realize that Mr. Saddam Hussein remains a very troublesome military force in the region, which threatens both Kuwait and Saudi Arabia. While it’s absolutely clear that the United States has the military—we’ve demonstrated—the military resolve and capacity to deal with any aggression that Mr. Saddam Hussein could carry out, it is not so clear that that could be done without an accompanying disruption that would be very, very troublesome to the world oil markets, and last a good deal longer than it happened in 1991.

And let me conclude by noting that there’s also Iran, Iran that remains a tremendous puzzle for us. It’s an important source of supply in the world. Iranian activities do include the sponsorship of terrorists. There is a growing strain between Iran and the West, or at least with Iran and the United States. There is certainly a significant risk that Iran is going to be labeled instead of a great friend of the West who sells oil to the West with a state like Libya or like Iran.

What should we be doing or what should we be thinking about this disruption of oil markets? I want to stress that I don’t think it represents some kind of a permanent and fundamental problem. World economies can adjust to disruption, principally by rationing available supply through price, and then by finding other substitutes. But that adjustment process takes both time and it takes capital. And it represents real economic cost to an otherwise happily growing world. If we are prepared for disruption, should it occur, these costs are going to be less. I don’t believe we are currently prepared. We no longer have any serious energy planning with any alliance for what we should do if it’s how we would share shortage if a disruption would occur through OECD.

We’re faced with a growing petroleum demand throughout the world, raising it about 2 1/2 percent a year, especially, I might say, from China, to put it back to where we were before and elsewhere in East Asia. It’s unclear where this oil is going to come from. As the supplies get tighter, the risks and the consequences of disruption get a great deal more serious. So I would like to say that working on maintaining our strategic oil reserves, which none of the countries have been doing, including the United States. It’s a matter of serious problems. And also making great efforts to find and explore and use oil—produce oil wherever we find it in the world, whether it’s in the United States or in other countries.

Russia and the states of the former Soviet Union, as I said here, are clear and important candidates for a variety of reasons, including this one: I believe we should be really encouraging Russia to maintain itself on the road towards a market economy and democracy. I’m a little bit more optimistic about Russia than I am about China in what you would call the short run. And I would say that helping them get a good tax system and a good administration and get rid of corruption and work on their petroleum industry would be one step which would solve maybe more than one problem.

Thank you very much. Appreciate it. Thank you.

Ms. FUTTER: Thank you, John. Paul, do you want to start with a question?

Mr. VOLCKER: I’ll start with a question, but I’m not going to touch that question of the brain, not at my age. I worry about how the brain works to some...

Prof. DEUTCH: Just forget it.

Mr. VOLCKER: John, I think I heard you say, while you put considerable emphasis on the global warming question—one point, you said, if it emerges, then we’ll have to go deal with it. Isn’t this a problem where peculiarly you have to deal with it before it really emerges if you’re going to be successful? Which then raises enormous questions of how you do that politically. And I just ask you, how do you—if I’m right, how do you do that politically? How do you organize it? My understanding now is we have a treaty and agreement about reducing the amount of—whatever is the measurement that’s appropriate by the year 2000. The United States is not on course and doesn’t intend to get on course.

Prof. DEUTCH: Well, first of all, let me say, you’re quite right. This problem will emerge. The issue is, if it emerges in a reasonable period of time. I mean, there is still tremendous uncertainty about whether it’s a 50-year problem or a 10-year problem. But you are also quite right that any measures that one wants to put into place to ameliorate this requires long lead times because of the deployment of both capital and technology to deal with it. And there is no evidence that any country is really doing that.

Now the problem is is that the big increases in burning of coal, or hydrocarbons generally, are not going to be occurring in Europe or the United States. They’re going to be occurring in Asia. And so the question will come up politically, as you quite properly say, who’s going to pay for this? And on that, of course, there is no agreement whatsoever. And I don’t believe that these countries are really going to accept lower economic growth, lower real income per capita, in order to please what they think of as being a rich person’s concern about the environment.

Mr. VOLCKER: And we’re using much more energy than they are to...

Prof. DEUTCH: And we’re also using more energy.

Mr. VOLCKER: Yeah. But what do we do about it? How do we approach that question? And—I mean, how do we do it politically? How do organize ourselves? But you also, quickly, and I understand, uttered the word ‘nuclear’ with some modesty, but is there any possibility of that coming back?

Prof. DEUTCH: I didn’t utter it with some modesty. I uttered it with some fear.

Mr. VOLCKER: Yeah, well, that’s much...

Prof. DEUTCH: I mean, I actually think—first of all, let’s be clear about it, nuclear energy cannot be the sole solution to this problem. I mean, it is only going to work, really, you know, for electrical capacity. And we know that there are tremendous problems in dealing with nuclear, both with respect to the radioactive waste management and safety and non-proliferation issues. But if you’re saying to me, is it a sensible thing to think about? For a portion of the problem, I would certainly say it is. Is the political system ready to think about it? The answer is, it’s not. So I could—fairly unequivocal about that. That’s not an intelligence judgment. That’s just common sense.

Mr. MEAD: I was struck when you were talking about technology. It did occur to me that, you know, to build a nuclear bomb or enough nuclear bombs to make a difference, it takes a pretty large industrial plant. But if biotechnology is really going to be the cutting-edge in the 21st century—you know, you can make something, manufacture some kind of virus or something, I suppose, in a university research laboratory, and then it can replicate itself. Do you think we’re going to face a real kind of proliferation in the type of weapon of mass destruction? Or...

Prof. DEUTCH: Well, it won’t surprise you being a professor of chemistry to know that I sort of think of the chemistry and biology risks here as being more severe than those physics risks. The one place—the one place where I think the nuclear weapons really are a matter which deserve urgent control—urgent concern is in Russia and controlling what my friend Graham Allison calls the loose nukes problem. There we’ve taken tentative steps towards it with Nunn-Lugar, I think, much less aggressively than we should have as a country. It’s much in our interests to help Russians control their nuclear materials, as well as their nuclear weapons and their nuclear expertise.

But in general, I think that the prospects—I mean, this is really going to get gloomy—I don’t want to be gloomy—for much greater availability of biological agents. And we saw that for the first time in Aum Shinrikyo. What is really stunning about Aum Shinrikyo is not what happened so much, but it just took them one year to go from the idea to actually doing the event. So that if that cult had decided, in fact, to spend a little bit more time getting it done, two years, they might have really created a much bigger disaster. But the dangers for biological agents to the national infrastructure, to our troops which are stationed abroad—I mean, we saw one—Al Khobar being an example of what terrorism can do to our forward deployed posture—is just tremendous, just a very serious matter, indeed, all the way to civil use and I think that’s a very grave matter. And the stronger pax Americana becomes, the more we are likely to be targets for these kinds of terrorist attacks. And chemicals—a similar story can be made.

Ms. FUTTER: I think it’s probably a good time to begin inviting our audience to ask questions. So we will shift into that portion of the program if we may now. I see a hand here in the corner.

Unidentified Man #1: Yes, gentlemen, it seems to me you’ve made an overwhelming argument for the need to begin a strategy to revisit nuclear power as a safe way of generating part of our energy requirements. Why isn’t some effort being made to examine what it will take to turn this situation around, given the reality of the situation as you’ve described it?

Prof. DEUTCH: Let—let me, first of all, say I did not come here this evening to make the point that nuclear power is—but it is, in my mind, certainly in many other countries of the world—those who are not even as fortunate as we are in terms of our oil production capabilities—it is something that other nations of the world will look for and look to. And I do think that eventually, during this next century, we are going to come back to it. And hopefully, we’ll come back to it in a better way with a better understanding of the frailties of the technology, than we did at during a period of time when we said it was too cheap to meter, it was going to be the answer to every problem. We’ve learned a lot since then. But I want to stress again, nuclear by itself cannot solve either the global warming problem in the long term, nor can it solve the consequences of a major oil disruption in the Middle East in the next couple years.

Ms. FUTTER: Fred Rose, you had a hand up?

Mr. FRED ROSE (Audience Member): Yes. I was going ask a question concerning energy, but seeing Dan Yergin in the room, I hesitate to open my mouth on that subject. However, to the rather charming prediction of Nirvana in 50 or 100 years, with no reference to the explosion of populations seems to be rather—it calls for a further comment. How many tens of billions of people will be around in 75 years after whatever minor disruptions will occur in the interim?

Ms. FUTTER: Anybody in particular want to take that? John?

Prof. DEUTCH: It’s certainly a question for Walter. I think that...

Mr. MEAD: I thought you were the expert on the human body here. I think that the one grounds for hope is that one of the few things that seems to hold true is that as countries do industrialize, the birthrate falls, partly, I think, because literacy rises among women, but partly for other reasons. And you’re looking in places like Italy and Germany where the birthrate has already sunk below the reproduction rate, which I think will cause some other problems. As Italy empties out and North Africa fills up, one wonders what happens there. You know, China’s success—whatever we may say about some of the methods used at the one child per family problem, says it’s not insoluble. And I think it is in the strong interest of many developing countries themselves to have effective population control programs. That said, you’re absolutely right in identifying population control as one of the great issues that will determine what kind of a future we do have.

Mr. VOLCKER: If we don’t have any of those women left in China, we won’t have any babies. ...(Unintelligible).

Mr. MEAD: It’s—well, not—with the cloning, who knows where we’ll go.

Ms. FUTTER: Victor Gotbaum?

Mr. VICTOR GOTBAUM: ...(Unintelligible) for the future.

Ms. FUTTER: Micro—want to use the mike?

Mr. GOTBAUM: ...transpired or even—I’m sorry. I get emotional, so my voice gets—that is that there’s—you know, things may get worse, but they will eventually get better. There’s no question that American capitalism is riding high, but, you know, how do you define American capitalism today? And what does it mean? When we fought for the NAFTA pact the president of these United States said, ‘We will keep our high-paying jobs now and we will get more high-paying jobs,’ which means that Mexico will keep the low-paying jobs.

Now let’s not knock ourselves out. Of course his prediction was true. Despite this supposed increase in the economy, the workers are getting less than ever. I don’t even have to go into China and Indonesia in terms of what’s going on. The point that I’m trying to make, quite candidly, is that this optimistic picture you paint—you seem to present, that because of American capitalism, then all ships will rise maybe 30 years or 50 years from now, I disagree with that.

I think, in fact, what we may be beginning to create is something that Barbara Ward decades ago said, ‘Marxism isn’t going to affect classes. It’s going to affect countries’—that there will be very poor countries for decades to come and very rich countries controlling it.

So my point that I would make to you gentlemen is that I don’t see an optimistic future. I see the Chinese, the Indonesians, the Pakistanis, you know, supplying us with low-paid labor, being terribly exploited. And I say to my colleagues in the labor movement—and I’ll finish with this—‘Don’t worry about international trade, stupid. It’s direct investment that’s going to kick your behind,’ because that’s really what’s really going to deteriorate in terms of the United States here.

Ms. FUTTER: I don’t know which of you wants to...

Mr. GOTBAUM: I just wanted to give it a...

Ms. FUTTER: ...take that on, but while you’re vying for the privilege, I’m fascinated that you thought that the prognosis was optimistic and wonder if my fellow panelists thought they were being optimistic.

Mr. MEAD: I don’t often get called an optimistic, and I do want to say that, you know, the optimistic side of my prediction is in the 50- to 100-year range when I don’t expect to be around to be taken up on it. But I think some of the points that you raise may not be as far from the themes as some of the different presentations as you think, and that we’re talking about the disruption of the industrialization of some of these countries, not simply that they have to change jobs from being farmers to going to work, but that there’s a kind of Dickensian era in industrialization that often takes place, so that we’re looking at societies under enormous stress for precisely some of the reasons that you’re talking about.

And, in fact, my hope is that one way or another over the next—you know, as far as my eye can see, we’re going to see—experience some of these kinds of conflicts. My hope is that somehow the world will be able to come through this much the way that Western Europe and North America did and enter some kind of a better era for everybody.

Ms. FUTTER: Paul.

Mr. VOLCKER: I get cynical about a lot of economic analysis and think maybe it departs from the real world. But I don’t think it departs as far as your comments are suggesting at all. I do think the basic prospect is for a rise in standard of living of those countries that you talk about being on the outer fringes, much more rapidly than elsewhere. And that’s what experience has shown. And as they participate in the world economy and participate in capitalism, I am perfectly confident that the great force will be to create fast growth there without diminishing our growth and, in some ways, supporting it.

That does not say it may not be accompanied by a lot of inequality and a lot of instability, and I think it will be. But you have to look at that against a background, I think, of general improvement, and if that’s optimism, I’m an optimist. But I think the instability and inequality that goes along with it and insecurity that may go along with it can give you a pretty bumpy road. But I don’t think we ought to question the basic thrust that it is a promising development in terms of the real wealth, most particularly of those countries you call exploited. It takes some time.

Ms. FUTTER: I think I saw a question over there.

Unidentified Man #2: I was struck by the fact that there was some reference to pax Americana, some reference to ‘we have the resources, if we only had the will,’ a number of suggestions that we’re going to have a lot of power, whether it can be exercised for good or ill, and no comment that I could ascertain except for Mr. Volcker talking about our paying our dues to the United Nations and other international organizations, about what America should do with this power. How should we be influencing these events?

It’s all very well to talk about the market economy spreading worldwide and whether or not all boats rise and whether or not we reach a period of instability. But don’t we have some moral obligation, which we don’t seem recently to be exercising very well, whether you look at Bosnia or you look at human rights in China—what is the exercise of our will in the near term that you would recommend?

Mr. VOLCKER: If that question’s directed toward me, I guess my answer would be all of the above, which maybe suggests the problem: that we’re not in a mood to do all of the above and we think it’s too much, and some of it’s very difficult and we can’t cure all these problems. But what can we do? I think we finally did the right thing in Bosnia in a general way. It took us a long time to get to that position, but that was a kind—it illustrated the vacuum in leadership elsewhere and the necessity for the United States to mobilize something if it was going to be mobilized.

You could talk about the potential instability in the old Soviet Union. Did we move as fast and as forcibly as we might have in the early stages? Are we doing as much for their nuclear demobilization? Are we doing as much as we could be doing to help them shut down Chernobyl and do something safer? I mean, I doubt it. And those are all concrete manifestations of what one could be doing. And you can make a lot of other specific examples.

The fact is we feel a little abused that we are called upon to do it so much, but there are some advantages, I think, in taking the lead because it is an American world, I’m about to say. And you go around the world and it’s pretty obvious that it’s our culture that’s triumphant. Carries a certain responsibility along with it.

Ms. FUTTER: John.

Prof. DEUTCH: Well, I think it’s a very important point. I think the first is a fact, the political—the—I’m sorry, military and hence the political military power of the United States for the foreseeable future—again, being careful about my colleagues using the same time scale as I do—is really going to be unchallenged. In the long run it’s another question. But for the near term, the political military power, and the military power in particular, is unchallenged in sort of any dimensions, except on the terrorist side—leave that aside.

Now are we using it for good or ill? I would say that I would—and I’m not habitually apologetic about the first Clinton administration, but I do think the record’s not so bad there. Haiti, I would mention to you, is one particular case that I was certainly deeply involved in, where a decision was made to do something at great expense and difficulty. And I think it’s probably done well. I also can tell you that I’m still terrified about what the human judgment is going to be on this country about Africa, whether you’re talking about Somalia or Liberia or Rwanda and Burundi.

But the one caution I would give is don’t rely on military forces to solve these problems. And the great danger—worry that I have is, frankly, this is a Democratic political—I mean, if I’m allowed to say that here—danger more than it is a Republican; that the Democrats are the ones who try and solve things through military intervention. And I am very worried about seeing my colleagues and my friends say we can solve these social—or deeply—the ones—I mean, you know, the massive deaths which are going on in Rwanda and Burundi—can solve it by military intervention. And in that regard, I’m not sure that Bosnia is exactly a terrific model.

So I would say to you my worry is let’s not rely too much on what is going to be a tremendous, for the near term at least, military advantage strength that we have.

Ms. FUTTER: A lot of people with questions. Let me try to take them as I saw the hands. Yes, on the aisle.

Unidentified Woman #1: In examining the question of stability and instability that you so amply illustrated to us, one area remains a great threat, and that is that the weapons of mass destruction can now fall into the hands of various and sundry, irresponsible or fanatical individuals and that that alone can create more threats, particularly in view of even the revolution that we are undergoing in the information field. It’s easier to learn, it’s moving.

I wonder if the panel would address itself to the question as to: How do you see the societies dealing with it? Because that can be an overwhelming force. And what in a way can be done to perhaps ameliorate that situation?

Ms. FUTTER: Walter, you’re nodding. That makes you the answerer.

Mr. MEAD: I was nodding that I’d heard the question. I think the points that you raise are really very important ones and that we’ve certainly seen it in Russia. I think to some degree you can look in parts of Asia and see where what we could call non-state agencies are going to be getting access to the kinds of powers that we used to think were reserved not just for states but for great powers and nuclear we

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