Each year CFR organizes more than one hundred on-the-record events, conference calls, and podcasts in which senior government officials, global leaders, business executives, and prominent thinkers discuss pressing international issues.  
  • Europe

    Sabine Lautenschläger discusses Eurozone conditions and the European Central Bank's economic tools, as well as the effects of U.S. trade policy on the global economy. The C. Peter McColough Series on International Economics brings the world's foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.
  • United States

    Randall Stephenson discusses his business strategy and lessons learned from leading AT&T. The CEO Speaker Series is a unique forum for leading global CEOs to share their insights on issues at the center of commerce and foreign policy, and to discuss the changing role of business globally. HAASS: Well, good afternoon. Welcome to the Council on Foreign Relations. I’m Richard Haass, president of the Council, and today we have one of our meetings in the series on CEO speakers. It is on the record. Anything you say can and will be used against you. STEPHENSON: I didn’t know that. I want to dismiss myself. (Laughter.) HAASS: Do you want to leave now? We are pleased to welcome Randall Stephenson of AT&T to the Council for a conversation. He has been chairman and CEO for more than a decade now, twelve years give or take. STEPHENSON: Sounds like fifteen minutes underwater. (Laughter.) HAASS: Well, hopefully this won’t. He’s, obviously, been involved directly and personally in any number of consequential decisions, most recently with the acquisition of Time Warner. I should also say that AT&T’s been generous, committing over a billion dollars over his years to a variety of education, retraining, and diversity initiatives, some within the company, some beyond the company. Full disclosure—important to give that—they’re a corporate member here at the Council on Foreign Relations, as was Time Warner in its—when it was an independent company. What we are going to do is Mr. Stephenson and I are going to have a conversation for a few minutes. Then we’ll open it up to you, our members, to ask the tough questions that I didn’t have the wit to ask. Let me just—thirty-second plug for the Council on Foreign Relations. Just this morning we issued our most recent task force report, Innovation and National Security: Keeping Our Edge. And I commend it to anyone in this room and beyond because it’s a real emphasis on what we need to do here at home, and that one can’t ask everything of our diplomats or our military. There are certain things we have to do as a society in order to put ourselves in a position where we can do what we need to to look after all aspects of our national security. So again, I really recommend it to you. Thanks for coming today. STEPHENSON: Good to be here. Thanks for having me. Happy to. HAASS: So let’s begin with China. I’ve been in this business a while, and I can’t think of another major relationship with the United States that has changed, and to give a sense of directionality, deteriorated as quickly and as dramatically as the U.S.-China relationship has in the last couple of years. And everyone decries the lack of bipartisanship in Washington; this is actually fairly bipartisan. If you listened to the Democratic debate the other night, the anti-China rhetoric was pretty—was pretty robust. What has been your experience with China? I mean, for example, a couple of questions come to mind. One, do you—are you aware that they’ve taken your technology? Have you—have you had a problem with that with China? I know you’re doing business with Huawei in places like Mexico. What has—what has been your experience with them? Have they been essentially a good partner or something less? STEPHENSON: (Laughs.) One of the companies over in China that’s a large-scale creator of—builder of telecommunication equipment, one of the first products they ever put out, and did quite well with, was a very close replica of a PBX back in the old days, in the 1960s, that was made by AT&T. (Laughs.) HAASS: What a coincidence. STEPHENSON: It was, probably coincidental. (Laughter.) So in terms of firsthand experience, you know, we’ve had our share of, you know, challenges and concerns in that regard. In terms of, you know, implications to AT&T specifically, we’ve had few issues because by and large we’re not allowed to do business there. We are prohibited from doing business. Now, we do have some points of presence and so forth. We’re allowed to do some things, carry traffic for customers. But we’ve had very little, little experience doing business within China. Now that has changed, obviously, with the acquisition of Time Warner. You know, Aquaman did $600 million before it got to the shores of the United States, and so that’s changing a little bit with this acquisition. But you know, my main thoughts as it relates to China is just what’s happening just domestically economically here in the United States as a result of what’s recently transpired, because I was one of the zealots, biggest supporters in terms of some of the economic policies of this administration. But all of these positives that have been generated over the last couple of years—predominantly business investment, which had been growing 6, 7 percent year over year just consecutively like clockwork since the tax reform went in on corporations—we’re now in a manufacturing recession. And it’s—if you had to point your finger at, you know, something, it would be one of two things. It would be the Chinese situation and the Mexico situation. HAASS: Because it’s probably not that interest rates are not low enough. STEPHENSON: I don’t think anybody’s having trouble accessing capital right now, yeah. HAASS: (Laughs.) STEPHENSON: Accessing capital is not an issue. HAASS: If we end up in a world where we have, if not divorce, separation from China, and fairly separate supply lines and markets, and a lack of technology sharing, how much more difficult does that make business for you, or not? I mean, like if we end up in a slightly bifurcated world, what does it mean for a large company like yours? STEPHENSON: Yeah, I— HAASS: Does it make a difference? STEPHENSON: Yeah, it makes a heck of a difference. I think it makes a heck of a difference just on the United States, and a company like ours is dependent upon the health and vibrancy of the United States economy. And if you end up in a place where it’s—I don’t believe it’s China and the rest of the world; I think it’s China and others and the rest of the world, one could argue maybe some—to some extent it’s East versus West. And when you think about where is the growth in the global economy, you know, Asia is where the growth is. HAASS: Where the people are. STEPHENSON: And so if you’re a U.S. economy—and we just had this conversation; 5 percent of the population, 20, 25 percent of the world’s economy—you’re kind of dependent upon trade if you want to keep growing your 25 percent share. And so a world where you are cut off from a significant amount of global growth, from our standpoint that’s a problem. And so where do you have to look, you know, Africa? Well, China’s doing a lot in Africa. I don’t know how this bifurcation happens. Perhaps Latin America we could do well with. But yeah, it’s disconcerting for a company that’s dependent upon U.S. growth. HAASS: One last thing that’s related to China. If there’s a trade deal with China, I think it’s possible to include things like market access and the Chinese will make certain commitments, again, on technology and the rest. The one area I can’t see a trade deal really accomplishing is a—is anything that would have a major reduction in Chinese subsidies from the state to their state-owned enterprises. And one of the areas that would, obviously, have consequences for would be things like 5G. Would you be happy with a trade deal that didn’t tackle the state subsidy issue, or do you just assume it won’t? STEPHENSON: I’m skeptical that a trade deal could be reached that would address—you’ve termed state subsidy. Let me just term—use the terminology just subsidy in general, because I don’t know how you enforce it. So, for example, the way some of the subsidies seem to work in China—everybody’s familiar with our industry and Huawei and what they do in China. And to put this into perspective, if Huawei could achieve in China a 90 percent share of Chinese communications, market share, they by definition have 30 to 40 percent global share. That’s a big deal. Now, if they could get another 10, 20 percent outside of China and start to get 40, 50 percent global share, this is a problem. This is a problem for the West. This is a problem for Western supply chain. How could they get that other 10 to 20 percent share around the globe? You talk about subsidies. I mean, it’s real easy to conceive of a situation where a Chinese communications company puts out a bid, Huawei bids at a premium to what everybody else bids, and Huawei wins it. They have 90 percent share in China. Now they go bid in Europe, what do you think happens? The flip. They bid at 20, 30 percent discounts to everybody else, and so as a result they start taking significant share outside of China. You go to Latin America, these shares are really high. Go to Africa; Huawei shares are really high. Europe, I mean, for heaven’s sake, there are many countries in Europe where they have 40 and 50 percent share. And so this company is gaining significant share in mobile technology around the world. And this is—if you don’t mind me just kind of bridging real briefly, they’ve gained this share in a world of 4G, fourth-generation technology. You go, well, OK, fine, but what about 5G? They’ve been very smart. They do not allow interoperability of their 4G equipment to their 5G equipment. So if you get 40 to 50 percent global share of 4G technology, guess what you’ve ensured yourself for 5G? Forty to 50 percent 5G market share. This is something that we in the West need to be conscious of and aware of. And while I don’t always endorse the approaches of our administration, I think the mindset, the thought process, the concern is probably on target. HAASS: Let me return to that in a few minutes, but let me—I want to touch on a couple of other subjects before we open it up. I want to talk about corporate America for a second. I assume many people in the room saw the Business Roundtable statement. I think you were one of the signatories. Essentially, the message was shareholder return can’t be our only preoccupation; we’ve got to have a wider sense of constituencies and stakeholders. But how do you navigate—it’s one thing to say that, but then you’ve got your quarterly reports. You’ve got something called Mr. Market that’s looking at you on a regular basis. How do you navigate a world where on one hand people are saying you’ve got to be sensitive to multiple constituencies, but—it’s a big “but”—we still care about your bottom line as shareholders? Is this an impossible dual mandate? STEPHENSON: No, I don’t—I don’t think it is at all. I mean, a lot of the media—the Wall Street Journal hyperventilated over it, and—that how can this be the case. I would represent that this is not anything new. If you really want to have a sustainable business model, sustainable what I’ll call free markets, you better be mindful and you better be cautious about things like supply chains, diversity, communities, and so forth. I just believe that if you’re not you have fracturing in a society, if corporations just run oblivious to that. You have to be mindful about your employees. I mean, how can you possibly expect to have a sustainable, profitable business over time if you’re ignoring all of these other variables? And so to me it’s the most logical thing in the world to think that the purpose of a corporation is to serve all those constituencies if you want to have a true sustainable model. HAASS: Keep moving around. AI, robotics, autonomous vehicles, this is the world we’re living in. You’ve established yourself—you being AT&T—as one of the leaders in the corporate world with reskilling, with training, education. If I’ve got it right, you basically go to your workforce in some cases and say you’re in a job, you’re doing great; the problem is this job is not going to exist in a year. What have—what have you learned from this? What’s working and what’s not working in terms of transitioning your workforce from today to tomorrow? What’s been your—what’s been your experience? STEPHENSON: What works is, first of all, making sure your employees understand how the world is changing. I mean, there has to be an awareness among your employees in terms of what is happening. Where are the jobs going? What jobs are going to be relevant three, five years from now, and what jobs are disappearing? And the one thing that—I wish I could take credit for this—our HR folks did was that starting point is out in our HR systems, when you go look at a particular job opening, it shows you what direction are those jobs going. Are they going up or are they going down? And if it’s a job where the number—the demands for the job are actually increasing, that’s heightening. That’s an awareness. That’s a really important thing. And so that’s a really important variable. And it seems basic, but a lot of people miss this. And so the employee understands this is where this thing is going. And you could think of the kind of areas; if I’m a telephone repairman, you know, and I go and click on for an opening, they’re going to see that that thing is doing this. You probably ought to be aware that’s not a kind of job that you want to be moving into. HAASS: Where does the CEO fit on that? (Laughter.) Sorry, cheap shot. (Laughter.) STEPHENSON: Yeah, I don’t know that most people want it, to be honest with you. (Laughter.) But the other thing is, do you make it really, really easy for the employees to know what is required for the jobs they want to seek? And that sounds easy too, but you know, here are the certifications that are required, and if you want these certifications here’s where you go to get those certifications. Click this, this, this, take these classes, do this training, and now you are qualified for this job. And you can begin to truly move people—it doesn’t happen overnight, but you can truly begin to move people into the new world and into the new jobs, and it takes a period of time. I would say—we started this seven years ago and we said this is probably one of the most difficult logistical things we’ve ever tackled. And we build big networks and, you know, we do big logistical challenges, and this was one of the more difficult ones we took on. And I reflect back over seven years, and I have to say this is one of the areas that I take most satisfaction in over the last seven years, is how this has moved and transformed a workforce. HAASS: Let’s talk about healthcare for a second. You know, this country spends roughly—close to a fifth of its GDP in the area of healthcare. I don’t know the details of your program. STEPHENSON: Five-and-a-half billion dollars. HAASS: OK. So, again talking about the recent Democratic debates, a large number of the Democratic candidates are talking about some version of a large public option, in some cases taking away a private option. As someone who is spending this, you have hundreds of thousands of employees, what is your sense of where you want the government to go with healthcare? STEPHENSON: You know, look, if I were just saying purely financially motivated, government just takes over healthcare? Wow. I mean, five-and-a-half billion dollars a year we spend on it, right? That seems like an unlikely scenario, and I don’t think that it’s a scenario that is in the best interests of our employees. I do think we have to have a really vibrant, good, healthy safety net and access for people who are in areas of the economy where they can’t get healthcare. I’m all in and I’m all-in supportive of that. But the idea that the government is going to take over providing health care for—we insure I think somewhere around a million-and-a-half lives between retirees and actives. And taking that and dumping into a government system—that’s just one company—feels like a really, really big deal. And you know I don’t know. Some would say it’s too paternalistic, but I worry about the healthcare for our employees. We do a lot not just to control costs; we do a lot to ensure that our employees live healthy lifestyles—productivity, just their own longevity, et cetera. And once you start kind of abdicating that responsibility from companies, where does that lead you in terms of the general health of your employee body? I think it’s important that we as CEOs and companies have a vested interest in the health of our people. I think it’s a good thing. I think it’s a productive thing for society. HAASS: We actually practice that here, so we feel good about it. One of the—another area of emerging bipartisanship is hostility or questioning—I’ll make—I’ll dial it down a bit—towards big technology companies. Motivations may be different between the left and the right, but we see—whether it’s antitrust-based or regulation-based, we see the environment in which technology companies are operating in, clearly the temperature’s changing on that. STEPHENSON: Oh, boy. HAASS: What’s your reading of that, whether this would be welcome, or in some areas it might, in some areas it wouldn’t? To what extent are you concerned or potentially relieved that the government may be moving in this direction? STEPHENSON: I’m never one to wave a flag say go regulate or take on antitrust efforts on other companies. It’s just kind of against my nature. But it’s—it is interesting, and probably even ironic, that for twenty years the government seemed to have—didn’t seem to have; the government, the United States government, even state governments had a deliberate policy of light-touch oversight and regulation of the internet companies, and it was for good reason. They wanted to see these technologies flourish. It was good for America, get technological leadership. And so there has been a very, very light touch and hands-off approach to a lot of these companies, and mission accomplished. These companies have thrived, and we now have a lot of these companies who have a very significant share in the—in the domains where they operate. And you know, you think about AT&T, you know, back in the day we were regulated heavily as a monopoly until our market share fell below about 50 percent. We now have these companies that are now operating in domains where they’re having 60, 70 percent share of the particular areas where they operate. It probably should not be a surprise that people—attention is being heightened in terms of antitrust concerns. And are they legitimate, are they, you know, appropriate? I’ll let the authorities worry about that. But nobody should be surprised when you start getting 50, 60 percent market shares in these areas that the government starts looking closely at the behaviors. HAASS: And your sector is also an example where antitrust was applied, and after some degree of disruption quite a lot of companies did just fine. STEPHENSON: A lot of—AT&T, I would suggest. HAASS: Just to mention one, yes. (Laughs.) STEPHENSON: Company has done quite well in a—in a deregulated environment, and it is hypercompetitive. It’s a fun industry, but yeah, it took a little government intervention to get us to that place as well. HAASS: OK. Net Neutrality, let’s raise that—put that on the—I expect you got some opinions on— STEPHENSON: (Laughs.) HAASS: —on that, about what ought to be government policy in that area and how we ought to price it. STEPHENSON: I always start a conversation with Net Neutrality out with what does it mean, because if I were to just ask various tables to give me a definition of Net Neutrality, I— HAASS: You can’t ask this table, by the way. (Laughter.) I don’t care what they think. (Laughs.) STEPHENSON: I would—I would get multiple definitions of what it actually means. And if what we’re talking about is that there should be unfettered access to the content on the internet, and that, you know, companies like ours should not be able to block anybody from getting to certain content, or throttle you in terms of your use of content—we can’t treat AT&T’s HBO Max streaming better than Netflix’s streaming—and somebody ought to be able to develop a device that would connect to the internet and it ought to work as well as anybody else’s device, if you say that’s Net Neutrality, then by all means I think that’s important. I think it’s important to the growth, the development—the continued development of the internet. I think, in fact, that it is so important people in Congress ought to step up and do something about it, and actually ought to legislate what I just said. Instead, what we do is we have—we write the worst legislation in the world anymore. We write just kind of frameworks as legislation. We hand it off to a bunch of bureaucrats to regulate it. And depending on who is president one interprets it this way over here, and so companies orient themselves, they set up their business models over here. And then there’s an election, new president comes in, and we’re swinging all the way back over here, and you’re oriented over here, and your business practices are changing, and you don’t know how to invest in ten-, fifteen-year-horizon networks and so forth based on this kind of phenomenon. And so this is one of these areas that people need to step up and do their job and pass some legislation on this. This is a—this is chaotic for businesses who are trying to keep the U.S. in the leadership position on the internet. HAASS: So your view is almost whatever you decide just decide it and stick with it? STEPHENSON: Yeah, and I think there are some really broad frameworks that people can agree on. And it’s not too dissimilar from what I just articulated. I mean, there will be some—look, we’re all rent-seekers. You start this process and everybody’s going to be in there trying to get this thing and that thing. We just got to keep focused. And I will give credit on some of the recent legislation passed by Congress on tax reform on the corporate side—not the individual, but the corporate side. There were some big, broad principles that said get those competitive U.S. tax rate. There are some big, broad principles on Net Neutrality we should be able to legislate and get done. HAASS: I want to return just for one minute to 5G. And you know, given the way you’ve now—you know, where your company is with the acquisitions, you’ve got content, you’ve got distribution. The question is, given what we’ve said about China, given some of the European companies— STEPHENSON: Right. HAASS: —given Verizon, whether you think AT&T can be competitive in the 5G space. STEPHENSON: Oh yeah, I think we’ll be very—I think we’ll be leaders in the 5G space. We already are. When you think about, you know, what kind of determines how 5G rolls out, the first step is, how do you set standards so that you can get everybody manufacturing gear and equipment that guys like us go out and deploy? The standards are everything. And so AT&T was the leader in the standards-setting process. Now, something you should be aware of, for the first time in my career the Chinese got very aggressive in this, and they were all over the standards-setting process. But we got everything in the standards we wanted, that we thought the U.S. needed to have a shot at maintaining a leadership position. So standards are set right. We, AT&T, in anticipation of this, have been buying up, spending billions of dollars on acquiring wireless licenses, because when you think about 5G, you got to have a lot of airwaves to pump all of these volumes through. We’ve spent over $40 billion over the last ten years on acquiring the licenses so that you can have the bandwidth to pump all this through. I will tell you AT&T is as in good a shape as anybody in the world. I think we’re in the best position in the United States and as good as anybody in the world. So mission accomplished there. We have a balance sheet that we’re committing to this and we’re investing in it. So I feel really good about that. We have great technology. We’ve done a good job on getting the technology ready. Here’s where we have a problem. If you’re thinking about your competition, you said Europe. I don’t think anybody in Europe has even issued an RFP for 5G yet, truly. So I set Europe aside. They have gone from first to worst in the—in the world of mobility for—you can debate why. But Europe is not in play right now. It’s China. If we want a leadership position, it’s vis-à-vis China. You want to deploy 5G, what are the big barriers? I’ve talked about some of the barriers, which we’ve now broken through. We’re past those, spectrum and standards and the equipment and so forth. Now you got to go out and put this stuff up. You got to go out and deploy thousands upon thousands of cell sites. Now, I don’t think in China—they’re spending three years trying to get San Francisco to approve a cell site. I suspect in China, when they want a cell site they go put up a cell site where they want it, and they’re putting up millions upon millions of cell sites while we’re over here kind of debating and thrashing through local/municipal regulations, state regulations, federal regulations trying just to get the infrastructure permits to put this stuff in place. And so if there’s a place where we’re going to fall behind, China is going to be able to go much faster in that regard than the U.S. will. And I’m not saying their approach is better. I get the environmental concerns, aesthetics, appearance. But we have people wearing aluminum-foil suits because they’re afraid of 5G, right, and fighting deployment of 5G. I don’t think they’re dealing with that in China. HAASS: What about the regulatory side or the—so much of the spectrum is reserved for the military. Do you basically feel that the government has to change policies so you can do what you want to do with 5G? STEPHENSON: No, if there’s one area I have to tip my hat to the government, both the Obama administration and this administration, it is getting spectrum out into the marketplace. And there have been numerous auctions conducted. I told you we spent forty billion (dollars). The lion’s share of that have been in government auctions, acquiring airwaves. There have been already a handful of auctions on these really-high-frequency airwaves, which will make this stuff really hum. We’ve participated in a couple of those. There’s another one coming up this year. So I think our government is doing a really good job of getting the airwaves out into the hands of the market and the people who will deploy these networks. And that—we’re not lagging behind the Chinese in that regard. HAASS: You know, this is the Council on Foreign Relations. For a second I’m going to make it the Council on Financial Relations. One of my many joys in recent days was reading a twenty-plus page letter from Mr. Singer and company, from Elliott, sent you all advising you. So the criticisms or reactions about the idea that you’ve put together through acquisition rather than organic growth where you are, content and distribution, that essentially this is an old-fashioned conglomerate and that’s not a good idea anymore, how do you—how do you take that, other than not well? STEPHENSON: Look, I—the letter was—you know, I didn’t take the letter poorly. It was interesting to me the letter laid out some recommendations, and the recommendations seemed to be supportive of the strategy, the importance of Time Warner, the acquisition, and the importance of 5G which we have been talking about here, and the—and the power of the assets. You know, they actually talk about it in those terms. So, look, I read the letter, and candidly there were some areas that I just read and I thought, you know what, they make some good points. And we’ll engage with them on those points. It was a mixed bag, though. There were some that I read and I go, I’m not sure that’s so clear to me. And so those are areas we’ll also want to get some more detail. I mean, say what you will about Paul Singer’s organization, they’re smart people. They’ve got some really smart people. And so if they have some good ideas, I’m dying to sit down and we’ll grind through them and see what makes sense for all of our shareholders—not just one, but all of our shareholders. HAASS: One last question, then I’m going to open it up. When you went through the hoops of the merger, there were all sorts of questions about whether you would advantage your own content in your own distribution systems and disadvantage those of others. Where does that stand now? Because you now have all this content coming out of HBO and other places, and you’ve got your pipes so to speak. To what extent do others who want to get into your distribution system, other streaming services, how do they compete? How is—how is all this going to play out? STEPHENSON: It’s playing out exactly as we said it would play out in the courts. And I—it’s—there is not a whit difference between what we established as our position in the courts, and that is as a media company—I see Wolf and the team down here, CNN—I can’t even begin to fathom the motivation that would say we want to limit CNN’s distribution just to AT&T’s platforms. That is a mindless proposition. You develop and you spend a lot of money on developing great premium content, and how do you make money on it? Wide and broad distribution. You want to distribute it everywhere. And it’s the same with HBO. We want HBO distributed as broadly and as widely as we possibly can. That’s the way you create value out of franchises like HBO. And you know, we recently had a drop from Charlie Ergen on DISH Networks. He dropped HBO. You know, we didn’t stand up at home and start doing high-fives that DISH is not carrying HBO. You know, that’s a lot of distribution to lose. That’s how you make money. I see Sam Feist back there. Do you want more or less distribution for CNN, Sam? Q: I’ll take more. STEPHENSON: You’ll take more. (Laughter.) HAASS: Good answer. STEPHENSON: And so I always felt like the government’s lawsuit felt a bit nonsensical. And I think what we’re seeing play out in the marketplace since the deal closed is affirming that, and I’m having a hard time conceiving of a—of a time where we have said, hold that content back from Comcast or hold it back from Charter. No, we’re saying how do we get it deployed and distributed on Comcast and Charter. HAASS: OK. I’ve already asked more than I know, so let me open it up to our members. Again, it’s on the record. Wait for a microphone. We’ll recognize you. Let us know who you are and keep it succinct. No speeches, just a question. Only Mr. Stephenson gets to give speeches today. STEPHENSON: I’ll try to be succinct. HAASS: Ray? Q: Ray Tanter of the American Committee on Human Rights and the Iran Policy Committee. STEPHENSON: Hi, Ray. Q: Sir, do you think that Huawei is playing chess while we are playing checkers? STEPHENSON: Who? HAASS: Huawei. Q: (Off mic)—the other day. STEPHENSON: Oh, Huawei? Q: Huawei. HAASS: They actually played go, not chess. But anyhow. (Laughter.) Just a technical fix here. STEPHENSON: Well, I think they’re really smart, and I’ve—as you heard me articulate, I think they’ve made some very smart strategic plays. And this issue of disallowing interoperability between 4G and 5(G)—I don’t want to get technical, but that’s a big deal. And you know, if you’ve got the 4G layer and you can’t interoperate to 5G, then you are beholden to Huawei for 5G. So— HAASS: Isn’t that kind of what Apple does when they basically tell you that your charger that worked with one generation doesn’t work with the next generation? (Laughter.) STEPHENSON: Yeah, but changing out a thousand-dollar smartphone is different than—if you—if you don’t want to use Huawei for 5G, then you have to go rip and replace your fourth-generation network and put in another player. So, look, this is a really big deal. We, AT&T, have led the effort on something—I’ll try to make this as simple as possible, but virtualization of networks, putting as much of the electronics out on the edge as possible, but more importantly I refer to open source—open-source software. So we’ve developed—worked with the industry to develop a software layer that is the operating system for 5G. This is the software layer. It makes all the stuff talk to each other, if you will. We developed a software platform here and we contributed it into the open-source community. It’s out there. And guess what this thing is? It facilitates interoperability. And a significant amount of the players around the world have said that is the software layer we want in our 5G deployment. It’s a really big deal. It will take a while to get this scaled to both—to all levels of the network, but as you get open source out there it enhances security—because you got everybody out there auditing this software and identifying bugs and so forth and you fix it—but it creates the opportunity for interoperability, and what it does is says nobody sells a box with software just embedded in it. No, you have the software up here in a layer and any box can run that software. Why is that important? Because suddenly you have had a technological solution for this locking in people to a certain technology, if you know what I’m saying. So if you’re wanting to buy Huawei equipment, it’s a box with software in it. We don’t need that. We’ve got our software; we just need boxes. We need more what I’ll commodity-type boxes. This is a technological revolution that I think can be our fix in the long run for how we ensure that the Western supply chains are not dismantled by virtue of a Huawei strategy here. So it’s—we’re going to have to be smart. I take my hat off to the administration on some of the things they’re doing, the entity list and so forth. But I think these kind of solutions are technological solutions that ensure we have a level playing field for everybody who wants to use something other than Huawei. HAASS: Shane Green. STEPHENSON: Hi, Dick. Q: Hi. I’m with a personal data platform called— STAFF: (Off mic.) Q: Shane Green. Sorry, I wasn’t sure if that was redundant. (Laughs.) Another area that China has a big advantage given their approach to technology is around data and privacy. Some people are calling it surveillance state and they’re actively exporting it. I think Freedom House has listed about thirty-five countries that are actively deploying their approach to surveilling their own people—creating a citizenship score, there’s all these sorts of things. Europe’s taking a pretty big or different approach with GDPR, and there were, you know, serious sensitivities around privacy. I’m curious how you see that, especially given that you’re both in the role of, you know, infrastructure and telecom, but also in the content business where, you know, collecting data and using it in advertising and the like is really important. So I’m curious about your thoughts on that. STEPHENSON: Yeah, this is—this is a big issue, and I’m going to back up a little before I just get to the core of your question. But, look, the beginning of your question is very relevant, and the paper that McRaven and the folks wrote here at CFR, I browsed it this morning, but it talks about the technologies that China has established as areas they want to advance and be in the leadership in: AI, quantum, and 5G. Those are not independent; those are interdependent. And if you think about all of these—and they have established them as the premise for economic as well as military leadership. And when you think about AI, what is the—what is the fuel that makes AI relevant? It’s data—data, data, data, data, data. That’s what AI is all about. As I said, the Chinese aren’t spending a lot of cycles and a lot of time, you know, permitting cell sites. They’re not spending a lot of cycles and time on privacy policies, and what data can we use, and what data can we collect. 5G is going to allow sensors all over the—all over the place. 4G networks, in a square mile you can connect thousands of devices. 5G, millions of devices per square mile, much lower power, much lower compute requirements. So data is going to be thrown off of this stuff. They have no issues with collecting data and using data, which will power AI, which will make their AI much more advanced and much more powerful. To make that AI relevant, you’re going to have to have different compute algorithms, quantum. Quantum is critical for all of this. And if you’re going to have great data, AI, great quantum, what are you going to need? You need to move this data around in real time. That’s why 5G is so critical. These all fit together, OK? Now, in the United States we are headed down a path, unless—here I go again—Congress acts. We’re headed down a path where California now has a data privacy rule, you have I believe Washington—I’m looking at my guys over here. Maine has a different privacy rule. There are multiple states working on their own privacy rules. They will all be different. If you’re a consumer, you’re not going to know what the rules are for how one company handles your data versus another. If you’re a company, it’s going to be hard to kind of manage this across fifty different states, while the Chinese are over there doing this. (Snaps fingers.) We need privacy legislation at the federal level. It needs to be robust. It needs to be a really good privacy bill where everybody is treated the same. But we need to have a privacy bill—this is going to be another one of those areas where we’re handicapped in the U.S. because we just don’t have rules and a framework that allows us companies—(snaps fingers)—to innovate and to move and to—and to really lead in these areas. So your question is a very important question. And it’s one that if we don’t get right it’s another area where we fall behind. HAASS: Well, I’ll just take one minute. Just I want to make sure everybody gets it about why 5G is so significant. What will—the speed, the capacity, and the rest, but just take a second to say why 5G is not just a linear increase, it’s something qualitatively different. STEPHENSON: Yeah. So when you talk 5G everybody goes, oh, it’s faster, right? And it is. It’s faster. It’s lower latency as well. I mean, you’re talking about really low latency, meaning from the time you issue a command from a machine or you push a smartphone or whatnot—(snaps fingers)—instantaneous reaction to the command. So it’s real-time networking. That’s important, but that’s not the gig. It’s what does that facilitate. And you heard me already say in a world of 4G you can connect thousands of devices on a cell site within a square mile. (Holds up smartphone.) This. I can have my watch. You can have your car that’s connected to it, and you can have devices, thousands of them per square mile. 5G, that becomes millions—millions of devices per square mile. This becomes the most connected society we have ever conceived of. This is really game changing. Now, combine this with in a world of 4G you can locate this device—(holds up phone)—or this device—(points to watch)—or whatever device, a sensor, to within meters. But it’s GPS kind of stuff and it’s not very precise. In a world of 5G, you can locate devices within a couple of centimeters. It becomes very, very precise in terms of your ability to locate something that is connected to this network. Now, think of what—about what that means in the world of security. That wigs some people out. Me? Oh, this is new security level. This is great security. The idea that I can locate where is this relative to a transaction that’s taking place; am I within centimeters of a terminal, or can I set up geofence locations to say that only people within a very specific location can access data? I mean, this allows us to take security to a whole different place. That’s really important. Then the last—and these all fit together—but it allows what I call hyper-miniaturization. We have these big devices. You know, it’s got a big screen. But there’s a lot going on inside here. There’s a lot of compute power in here. There’s a lot of storage capacity in here. There’s a lot of power requirements to make all of that work. And so you have some form factors that are—that could be rather large. When the networks are this fast, this instantaneous, that compute, that storage, and even the power requirements could be pushed out of here back into the network. This fundamentally changes form factors over time. Google had the glasses we all talked about. This can conceivably become the form factor. You don’t need all of the horsepower in these devices. This could become your screen to the world. It truly can. You can now think of sensors that rather this size they become miniaturized, and they can have power that will last ten years because it doesn’t require that much power to keep them going. Now you can begin to have all of your infrastructure—traffic management, utilities, pipelines—you can begin to conceive of how much of a society’s infrastructure is underpinned by this kind of technology. Now, as I think about that, that is when I say it makes a lot of sense to ask what companies should be underlying the development of the equipment underlying this infrastructure? And if you’re ever going to be at a place where you’re worried about the relationship of a particular company or country, then you ought to be mindful as to who’s manufacturing this stuff. And so this is how it fits together in my mind and why I think we’re all wise to be thoughtful and prudent about how we pursue this. HAASS: What everybody also wants to know is whether they’re going to be able to find the television remote and—(laughter)— STEPHENSON: There will be no remote because you’ll say “turn on CNN” and it’ll just come on, OK? HAASS: That’s good. That’s good. Yes, sir. Q: Richard— STEPHENSON: Hi, Dick. HAASS: Just wait for a microphone. We all want to hear you. Q: Richard Adkerson from Freeport-McMoRan, a copper mining company. Randall— STEPHENSON: So you could tell us a thing or two about China here. Q: He said I couldn’t give a speech. (Laughter.) I’ve got one to give. But— Q: Another time. Q: Another time. Randall, I want to talk to you about the role you’ve played representing your own company and business in general through The Business Roundtable and other initiatives you’ve had. It seems to me we’ve had two administrations now where we’ve had real challenges in communicating business interests to government. We had some success, as you said, with taxes, but we— STEPHENSON: You’re telling me I’ve been an abject failure. Is that what you’re trying to say? Yeah. (Laughter.) Q: No, no, no, no, no. It’s a challenge for all of us and a challenge for our country—company because our of our impact on international relations. But I’d be interested in your comment on it just broadly. How do you think it’s—we know the challenges, but do you think—are you frustrated by it, encouraged by it? Do you—do you have observations of how we might do it better? STEPHENSON: Look, we’re dealing with elected officials, and that’s always a different environment to be in, right? I mean, these are people who are trying to address the interests of very specific constituencies. And so we always, I think, as business have to figure out how we make the case—and it happens to be the right case—that what we do has virtue, what we do has nobility; and what we do does create investment, it does create jobs, it does create the opportunity to provide healthcare. We educate our workforces. I’m talking people that—with us in the BRT. We educate our workforces like nobody else. And so I just—I’ve never been able to figure out, Richard, this formula for why is it so hard to convey that, you know, with the appropriate regulatory oversight and freedom of the press monitoring all of us and making sure we’re doing the right thing, but why is it so important or so difficult to convey that what is in the broader best interest of American business is in the best interest of the American consumer, the American worker? With the right constraints around, you know, how we treat people and so forth. And that’s why the issue you asked me about a moment ago—you know, the purpose of a corporation—that’s why this is so important. There has to be a virtuous cycle here. We have to see that a corporation has got the best interests of their employees and their communities and all of this in mind, because without that you can’t have the virtuous circle of profitability and reinvestment back into companies that invest in America. And so that’s a hard case to make. You know, I’ve sat up here twice today, tried to make it, and have not been very effective, obviously. But it doesn’t seem like it’s such a difficult concept to grasp if business—if business operates the way we’re talking about here. Now, all organizations have people who don’t, you know, exactly play by the same rulebook, and those companies need to be dealt with, and you need to have enforcement and regulation for those reasons. But by and large, large business in America does a pretty darn good job of taking care of the interests of the American worker. HAASS: I want to put one other question about Time Warner. When you—when you all acquired DirecTV, that was sort of a(n) engineering/hardware company taking over another engineering/hardware. But Time Warner is a creative company. How is that going in terms of merging cultures? Very, very different. And what have you learned? How is it—essentially, what’s been tougher than you thought, what’s going better than you thought? Where does that stand? STEPHENSON: So it’s—this is going to be an interesting case study one day because when we bought Time Warner and we tried to think about how do we—how do we manage this business, how do we preserve the creative culture that’s so critical to their success, you’re buying a business that every single night every asset drives home. And so how do you preserve the necessary culture of a creative company like that, but recognize that that industry is changing not on the margin, it’s changing radically? And I had this conversation yesterday, that as you think about how you run a company like that, you know, you would run Time Warner the way it was structured when we bought it one way with one type of person and leadership and so forth. But if you’re trying to take what I will call a legacy media company and transform it for the new era, would you think about organizing and managing it a little differently? Because this company, we got to get it pivoted. We got to take all this great, fabulous content and all this great talent and figure out how to get that content delivered digitally. Because while the amount of—amount of content people are consuming every day is actually growing, it’s not shrinking—you know, we hear about cord-cutting and oh my God, you know, people are not watching. No, people are watching more content, but all of the growth is happening on digital. So the pivot we have to run—and you know, we’ve done this not in creative cultures before, but we’ve done this a thousand times going from a legacy business to a new business, transitioning business models from wired line to wireless, you know, from old basic dialup to high-speed internet and fiber. You know, you run these transitions. Well, the media industry is having to run one of these transitions. And so how do you do that without breaking the culture that’s so important underlying all of this? And this is where we think we have a really unique advantage here if we can execute this play, because there are a lot of companies in media trying to run this transition and they’re pivoting to a digital model, but they don’t have distribution. Their distribution has been cable companies, satellite companies, and movie theaters. But what happens when that isn’t your primary distribution in the future? You better have some kind of direct relationship with the customer. And if there’s a media company that has a massive relationship with a massive number of customers, they would seem to have an advantage to me. Well, guess what? AT&T has 170 million customer relationships. That’s a pretty darn good starting point for if you can pivot a company to digital distribution. Now, we can take that and drive it through 170 million customer relationships. And I tell people we have a couple of early datapoints. They’re really early; we’re a year into this now. But HBO, in the course of one year, AT&T has been by order of magnitude the largest distributor of HBO in a very short period of time. In fact, if you look at the number-two distributor, we’re 67 percent larger than the number-two distributor. Think about it. It’s going through mobile now. It’s going through our broadband product. It’s going through our pay TV product. And it’s having an incredible impact in driving HBO volumes. And I told you DISH dropped HBO in the second quarter, just dropped them cold. (Snaps fingers.) A huge distributor of HBO. HBO grew 3 percent in the second quarter. How? New distribution, right? And content is king. Distribution matters. You put the two together, we think there’s an opportunity to transform this media company to digital without having to compromise distribution in the interim. HAASS: Time for a few more questions. Yes, ma’am. Yeah. Q: Great, thank you. Molly Elgin-Cossart with Markle Foundation. STEPHENSON: Hi. Q: I wanted to come back to the education and training point. You talked about what AT&T has done, laudably, and I’m thinking there’s an entire ecosystem. There are other employers. There’s our K-12, which a speaker this morning said is actually our biggest national security threat, and other postsecondary education and training. And I’m thinking, what do you take away from that experience to inform the broader conversation about what policymakers should be thinking for education and training and for our talent pipeline, other employers? Sort of a slightly broader picture. I’d love to hear those insights. STEPHENSON: Yeah, this is an interesting question. And if you think about—you called it an ecosystem. That’s the right term. We built an ecosystem around employee development and reskilling our employee base. It seems to me so logical that this would work in a municipality. I mean, why can’t a city—pick it; Dallas, where we’re headquartered—why can’t Dallas inventory all the jobs in that community and, you know, they should be categorized. I mean, the world of AI, this stuff isn’t that hard anymore. It’s not that expensive to do anymore. But categorize all these jobs, directionally where are these types of jobs going—welders, HVAC. I mean, we’re relocating HVAC people into Dallas. Think about that, just people to work on air conditioners and heating systems. And these pay a lot of money, all right? There’s a demand for people who have HVAC skills. Why can we not have an inventory of these? Why can we not have very—for the broad base of jobs, what credentials are required for those jobs, and giving people access to the credentialing criteria to get those jobs? This seems like it would work in a—in a city, in a state, one could even argue in a federal environment. It’s not rocket science, really. It takes a lot of hard work and a lot of effort. But I think there are implications. Tom Friedman has come to me and challenged me, why don’t you just stand this up for Dallas, you know? And you know, you think about it, maybe there’s a business model here. But it just feels like something that could really move the needle in terms of getting people ready for the jobs that are growing, the jobs that are coming, rather than the jobs that have been. How do you reskill a community? HAASS: A little bit of a home-team advertisement: that was the subject of our previous task force report. STEPHENSON: Is that right? OK. HAASS: Yeah. No, it’s a—I think it’s big issue because if we don’t get it right this country’s not going to have—no pun—you know, the bandwidth to cope with a lot of things around the world unless we get this issue right. Yes, sir? Q: Hi. Eben Kaplan from CrowdStrike. You spoke about the tremendous opportunity that the 5G infrastructure will create. It also creates tremendous opportunity for abuse and destructive power of attacks if someone were to manipulate that infrastructure. I wonder where you see the role of the private sector versus the public sector in securing that. What’s the—what’s the right mix there in order to ensure that we reap those benefits without incurring some of the—some of the risks? STEPHENSON: They key word you used is “mix.” It’s a mix. And I think—I think we’re really good at network security. We invest a lot of money at it. We spend a lot of time at it. But you know, our government has a lot of information in terms of things that are going on, and they have insights into traffic and so forth that’s going over these networks. And putting the entities together in a way that protects, first of all, our consumers’ and our businesses’ information and data, but that—a lot of that, as you might well guess, does happen and does go on. I think as this gets more and more sophisticated, and more and more complex, and more and more aggressive—David Sanger is somewhere here in the room. If you haven’t read his book, go read it; it’ll scare the hell out of you in this regard. But we’re going to have to get better and better at partnering with government. And I would challenge that it’s got to be a two-way flow. Our government tends to like one-way flows, and for these things to work it will have to be two-way flows that are more fluid and so forth. But it’s going to be critical to partner on this. And David Sanger’s book makes the point that it’s hard to get people energized and to take action on this if they don’t recognize how significant the threat is. And the threat is significant. I mean, think about the implications of somebody taking down a significant portion of the internet. You could cripple financial communities. You could—you could stop a lot of things. And I try not to be too sensational in these things but, you know, some very targeted things could have significant implications on electric transmission, all right? And these are things that ought to be alarming. And we ought to have a bright light focused on this and making sure that government and business are working together. HAASS: Yes, sir. Q: Thank you. I’m Bob Perry with the Stevenson Group of International Consultants. You’ve given a very detailed and broad view of the 5G world, primarily in the U.S. and maybe other developed markets. My question goes to the developing world, specifically Africa. Go back to the year 2000, telephone penetration in Africa was maybe 1, 2 percent. Then came the cellphone. And now you have mobile use in villages of a hundred people, two hundred people. The question is, the opportunity and financial governance challenges if 5G move into that space. HAASS: Actually, when you answer that, also talk about low-density areas in this country. I had the same question, about rural areas. STEPHENSON: You know, something’s happened here in the United States that doesn’t get a lot of attention, but this is another one of those I believe there’s a model here for the world. And I’ve talked to the president of Mexico about this, in terms of how you achieve rural coverage in Mexico and connect everybody not to wireless telephony, but to connectivity, the internet. This is an internet device now, right? And so after 9/11, none of the emergency responders could interact and communicate. I mean, communications were a disaster after 9/11. Everybody was on different protocols. And firemen from Pennsylvania came to New York, and they could communicate with New York firemen, and the police couldn’t communicate with the fire, and the EMS couldn’t communicate. And it was just really, really bad. And so Congress passed legislation that instructed that a nationwide network—wireless network—be built for the first responder community. It was a big deal. It was called FirstNet. And so the government finally came out and did a big bid in 2016—put out a big bid. We went in hard on this. And this bid said: Whoever wins this thing must build out all of America this network for first responders. And whoever wins it gets this big block of spectrum, airwaves, to build it in. But you got to build out the whole country. So very detailed requirements, and specifications, and so forth on this. We, AT&T, went in hard, and we won this thing. And we’re building out this nationwide network. We’re 60-some-odd percent complete now. This is really an amazing thing, because you’re getting this first responder network that is truly—it’s a high-performance network. Really, really impressive. When the first responders aren’t using it, we’re allowed to commercialize it for anybody else. But what’s happening? We’re building our rural America for the first responders, but the network’s available for rural America. We and the United States government are funding this. And you know how it’s funded? It’s funded—I told you, we spent $40 billion over the last ten years on wireless airwaves at auctions. In one of those auctions, the government carved off a few billion dollars of the proceeds and said: This is going to be used to help build this network out into rural America. And that’s what’s happening here. And I tell you, I watch this and I just—I expected this to be big and significant. It’s exceeding all of my expectations. And I do—when I talk to government officials around the world, I tell them: You need to watch this. This is really important. In Africa, in these communities, somebody has to buy the wireless airwaves. They’re either releasing those airwaves or they’re paying a check to get those airwaves. I think governments should be thinking about, how do I set some of that money aside now to take and put back into connectivity for our communities that would not otherwise have connectivity. So this is a model that I think has a lot of legs could be used elsewhere. HAASS: Randall, we’ve only got about a minute left. One of the very few principles we try to keep here is that we begin and end meetings on time. So many of us are enthralled with the HBO show Succession. And after having read the letter from Elliot, what we really want to know is to what extent does that tell us what we need to know about succession at AT&T? (Laughter.) STEPHENSON: Well, first of all, I have no sons that I can name as my successor. I don’t think that would be allowed at all, anyway. But I do love that show. I hope everybody’s watching that show. So please, tune in this Sunday night to Succession. (Laughter.) OK. HAASS: Thank you very much. STEPHENSON: Thank you, Richard. (Applause.) Thanks a lot. (END)
  • United States

    For the past three-quarters of a century, the United States has led the world in technological innovation and development. The nation now risks falling behind its competitors, principally China. Innovation and National Security: Keeping Our Edge, the report of a CFR-sponsored Independent Task Force, outlines a strategy to ensure the U.S. remains the predominant power in a range of emerging technologies, and the national security implications if it fails to do so.  *This meeting will take place at the Council on Foreign Relations in both New York and Washington, DC.* Members may bring a guest to this event. 
  • United States

    The World Economic Update highlights the quarter’s most important and emerging trends. Discussions cover changes in the global marketplace with special emphasis on current economic events and their implications for U.S. policy. This series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies. MALLABY: Well, welcome, everybody, to today’s Council on Foreign Relations World Economic Update with, on my far right, Lewis Alexander from Nomura Securities; Jan Hatzius from Goldman Sachs; Isabelle Mateos y Lago from BlackRock. I’m Sebastian Mallaby from the Council, and I’ll be presiding over the discussion this morning. So I think a fair summary of where we are with the world economy is that it’s growing moderately. The OECD reported fairly recently that growth in the G-20 is the lowest since 2013, but it’s still growing. We’ve got 2.2 percent forecast for 2019 in the U.S., 1.3 (percent) in the euro area, 1 percent in Japan, 6.1 percent or so in China. You’ve got pretty much full employment in the U.S., Japan, the U.K.—although not in Western Europe, where structural unemployment remains pretty high. But you’ve still got stuff to talk about, to worry about. That’s our job here. That’s what we’ll be doing. You’ve got negative growth in the last quarter in Germany and Britain, disruption of the oil markets in the Middle East, full-scale disaster in Argentina. So there’s no shortage of things for these folks to comment on. So let’s start with oil, since that is the most recent uncertainty. Maybe start with Jan. The first news kind of headlines after the drone attack on the Saudi infrastructure was that this was the biggest inter-day spike since 1990. And I’m wondering whether these headlines, in your view, exaggerate the impact on the world economy. HATZIUS: Yeah, I mean, there was clearly a big inter-day spike, but I would say that they do exaggerate the impact from the perspective of the overall impulse from oil prices to growth and inflation. For that it’s not really the day-to-day moves that matter, but really more the moves over several quarters or a year or so. And on that basis, we’re still I think in reasonable shape. We had seen a negative impulse from oil prices to growth and a positive impulse to inflation a year ago, but with the decline that’s occurred since then even with the backup here these effects are gradually fading. And even at the current level, in our view they’re likely to turn into, you know, small positives on growth and, you know, somewhat less positive numbers on inflation, maybe slightly negative numbers. So I mean, these are all moves that are sort of at the margin, and I don’t think that anybody can really argue seriously that this significantly changes the economic outlook on its own. The question, I think, is really more—and that’s probably more a question for security experts—what does this say about the vulnerability of oil infrastructure, and what does it say about, you know, future attacks or military conflict in the—in the Middle East? And you know, the oil market, obviously, tries to come up with some kind of judgment on that, and I think at the moment the judgment is that, you know, it’s probably not such a huge change in the—in the risk profile. But we’ll see. MALLABY: Isabelle, do you think that the description—I mean, Jan’s given an overall description. I think you’re talking about the U.S. mainly when you give that answer? HATZIUS: I’m talking, no, actually more about the global impact. I mean, the—since the oil price is basically global, the impulses from oil, you know, are likely to be relatively small. Obviously, the signs are different, the magnitudes are different for a given change in oil prices. But over the last year we just haven’t seen that much of a change. That’s really my main point. MALLABY: Isabelle, would you agree that, you know, even if you think about a region like Europe where the balance of payments is a bit more exposed than in the U.S., it’s not a huge worry? MATEOS Y LAGO: Well, so yes and no. I would say—I mean, at the macro level you just have to agree with Jan, and we don’t know where this is going. If it’s just, I mean, the oil price is still, you know, well within the range it’s been—it’s been trading over the last twelve months—in fact, you know, not even towards the higher end of that range—but we have to see where this goes. And to me the relevance of this shock is that, you know, even though most people don’t have a recession in their baseline forecasts for next year, this is a reminder that we are only, you know, a few shocks away from potentially sliding into that scenario, and I think that focuses the mind on what are the policy tools that are available to offset a serious shock if this is the direction we’re heading into. I think also Europe is in a—as you pointed out, is in a different situation to the United States. It’s not—for most countries it’s not an oil producer, so it’s hard to get this offset between the corporate sector and the consumer sector that you would see in the United States. And then the third point I would make is we are—we’ve been navigating a very complex geopolitical environment for the past twelve months at least, and this plays into this in terms of, you know, now is this going to change the dynamic of the U.S.-China trade negotiations because China needs to secure some other supply at a reasonable price? Is it going to be more willing to, you know, reconsider some of the tariffs that it’s put on U.S. oil prices? How is the U.S. and Europe going to respond to, you know, what seems to be a belief, certainly, in this country that Iran had anything to do with this action? So are we going to see an escalation and tensions in the region? All these are things we don’t know the answers yet—it’s too soon—but that could add to the uncertainty that has been plaguing corporate sentiment and investment, certainly, over the last quarters. MALLABY: So, Lewis, you revealed two facts just before we came onstage. One was that you lived in Saudi Arabia in the ’70s and the other was that on a more recent basis you were staring at projections on what this oil thing does as recently as yesterday afternoon. (Laughs.) So you’ve got the history. You’ve got the contemporary. What’s your take on how much this matters? ALEXANDER: I have to admit I’m surprised at—if you look out the oil curve, so you look out two years and look at how much oil futures have moved, it’s pretty small for something if you told me before that you were going to take out, even for a short period of time, half of Saudi capacity. The notion that that would—that’s all you’d see is a bit surprising. And so I very much agree with the previous two speakers in terms of a lot depends on what happens here, how those risks play out. The other thing is, it—I think it is very important if you’re thinking about it from the U.S perspective to recognize how much things have changed, how much more we are producing, how sensitive that is. Not only are we producing more oil now so we’re essentially no longer a net—a net buyer of oil, we’re essentially balanced, but it’s also the investment intensity of the production is higher. The nature of fracking means that it takes a lot more investment activity to get the oil out of the ground. What that means is when oil prices go up and people want to do more of this, the impact of that on the economy is larger than it would have been in previous regions. So you can argue whether or not the impact on the U.S. is a small net negative or a small net positive. I’m not going to, like, pound the table on that. But it is quite different from the way we’ve thought about oil shocks in the past. MALLABY: Well, since, as Isabelle pointed out, this is a reminder of, you know, the vulnerability of the system to shocks and the policy space there is to respond to those, let’s talk about monetary policy, and maybe start with Isabelle on Europe. Last week the European Central Bank tried to double down on stimulus. There’s some debate as to whether the efficacy is diminishing. But talk first about, you know, what was the central bank responding to when it announced a resumption of QE in November and a slightly bigger step towards negative rates? What’s the fear that it’s—that’s driving that? MATEOS Y LAGO: So, I mean, look, very clearly—and Mario Draghi made that clear—the ECB is looking at a more pronounced and more protracted slowdown in the eurozone than they had expected, and as a result a more challenging inflation environment, meaning, you know, it’s going to take longer to reach the ECB’s inflation target. So they did feel a need to double down in terms of their stimulus efforts. But, you know, to me the main takeaway from that—from that ECB meeting and from the press conference in particular was, you know, it’s time for fiscal policy to step in. And so I find it interesting that when you say let’s talk about policy space and let’s talk about monetary policy, I think increasingly there’s a—there’s a sense among monetary policymakers—and definitely that is the case in Europe—that monetary policy is not going to manage to do this all by itself, and that it’s time to look for fiscal space—well, to look for policy space in other places, and fiscal is a—is a good place to start. And the debate is going to be difficult on this issue in Europe, but it is at least beginning to happen. And I wouldn’t expect a very rapid shift because there are some very entrenched conservative fiscal views in a number of member states, but nevertheless, that issue is now squarely on the table and that should be—that should be positive. MALLABY: So Jan, I mean, what’s interesting though is that, you know, as Isabelle says, you know, Draghi, in his press conference, emphasized the importance of the fiscal response. But at the same time, he wasn’t saying he was going to do nothing to the country. He was doing as much as he possibly could. He was driving his committee to the brink; he drove at least seven members to vote against him. So he, obviously, thinks that it’s worth the central bank’s effort to push the boat out still as much as possible. I’m tempted to read this by saying well, you know, Draghi arrived in the job in 2011 at a time that was basically the peak of Superman central bankdom. He’s now leaving the job at a time when the monetary tools have been used up, to some extent. And yet he can’t give up that Superman feeling that he had when he said, whatever it takes. So now he’s saying, however long it takes. Do you think this—am I being unfair? HATZIUS: Well, I think a lot of people were saying back in 2011/2012 that central bankers were close to the, you know, close to the limits of what they—what they could achieve with— The interest rates were already low; they hadn’t, you know, started QE yet, but—in Europe. But there was that argument and, you know, at the time Draghi did prove that argument wrong. And I agree with you that now there’s less room for monetary policy than there was, but I still think there’s—there’s some room. You could do—you could do more. The European Central Bank, unlike the Fed, is authorized to buy pretty much any asset it chooses to buy. So if things were to turn materially worse, I think we would see more aggressive moves from the—from the ECB. We think we’re still not at the effective lower bound on interest rates, even with a deposit rate of minus-fifty basis points. We think there’s still some room, especially if you can cushion the impact on the banks, which is the main negative impact, via tiering of reserves. So he can still do some more. He can still do some more on QE. They’re buying twenty billion a month. That’s not an enormous amount. That could be scaled up. So, you know, I do agree with basically everything that was said, that fiscal policy would be the much more—the much more effective instrument. And there is a significant amount of fiscal space in the—in the euro area, especially in Germany. But monetary policy still has a role to play, I think. So what Draghi did here seems quite sensible to me. MALLABY: And on the fiscal side, Jan, what’s your reading of the German politics around considering a fiscal expansion? Is it still off the table? I mean— HATZIUS: No, I don’t think it’s off the table, but it’s just moving very slowly, for a couple of reasons. I mean, one is the sort of entrenched view in Germany that, you know, activist, Keynesian macro policy is something you should really only resort to in exceptional circumstances. There’s a sort of deep-seated skepticism of Keynesian macroeconomics which I don’t share, but it’s definitely there. And then number two, you have the debt break in the constitution which limits the structural deficit to 0.35 percent of GDP. So, you know, that gives you a very limited amount of room. There are probably ways of kind of getting around parts of that, especially for infrastructure spending. But it’s not as straightforward as it would be in the United States or other countries. So some of these shackles are obviously self-imposed, but nevertheless they’re there. So I would expect some positive fiscal impulse, but certainly we’re not talking about percentage points of GDP. We’re talking about, you know, probably more tenths of a percentage point. MALLABY: So Lewis, how do you think the incoming ECB president, Christine Lagarde, plays this? I mean, she arrives, you know, seven members or whatever it is of the committee have voted against her predecessor. Her predecessor nonetheless seems to have forwardly committed her to a policy, even though this authority to buy wider categories of bonds was not approved by the committee—right, Jan?—in the meeting last week. I mean, in theory they have the ability to expand the category of bonds that they’re going to buy, but they didn’t go there. So what do you think Christine Lagarde does about all this? Does she—does she accept the mandate that her predecessor seems to have given her, or does she wiggle and— ALEXANDER: My guess, and I’m no expert on Christine Lagarde—(laughter)—but my guess is yes. And the point I would make to the way you sort of framed this earlier is even if—even if the tools are limited, even if the effectiveness is questionable, I don’t think any central banker is ever going to come out and say there’s nothing we can do. They are always, in some sense, going to sort of say, Of course there are things we’re going to do and it’s our job to use the tools available to achieve the objectives that have been set for us. And in that sense, I don’t get the sense from what I know about Christine Lagarde and her views on the world that in some sense Draghi has put her in a place that is uncomfortable. How far she can bring the ECB is an open question that we will find out over time. As you’ve laid out, there are disagreements, and we’ll see how compelling she can be in all of that. But I don’t think he has put her in a position that she doesn’t want to be in. My guess is the way she sees the situation in Europe is very similar to the way Draghi did. MALLABY: So Isabelle, I can’t resist asking you two quick questions on Brexit. The first is that the government in Britain has been projecting an air that at last it is grappling with the mechanics of what leaving would mean and that no-deal wouldn’t be so catastrophic, because they’re really thinking about it hard. In your personal experience as a French citizen living in London, what’s your perception? (Laughter.) MATEOS Y LAGO: I—well, maybe—I mean, first I would say probably living in London probably doesn’t give a fair reflection of the mood of the country or the degree of preparedness of the country. So that’s number one. I mean, look, number two, what I’ve observed, I mean, certainly the government has been trying its utmost to stress that everything’s going to be fine and maybe—save for a few bumps in the road. What I’ve observed is that as the risk of an abrupt no-deal exit at the end of October has risen, or rose for a while and then before—before maybe falling again, we saw many more businesses going out in public and saying, Actually we’re very worried that there’s going to be very significant disruptions, which hadn’t been the case very much so far, because I guess, you know, nobody wanted to be seen to wade into a highly politicized issue. So the reality is there’s been a number of assessments put out by professional associations, really, throughout the economy and the medical sectors, saying there’s going to be a lot of disruption. Even if we do everything we can to be prepared, this is not going to be a smooth process. So look, this debate is ongoing. It now seems we’re in a phase again where the risk of a no-deal exit at the end of October has receded, both for political reasons and because the prime minister seems keen now to really work hard at getting a deal. So we’ll see where—we’ll see where that goes, but that risk is absolutely not off the table. If we end up having a general election, then the outcome of that could well be that the country after all is quite keen to leave without a deal. The problem is people’s views have pretty much not changed since the—since the referendum. And you know, the Remain campaign had promised all sorts of really adverse consequences if the referendum was—turned out in favor of leaving. And these consequences, for the most part, haven’t happened, and only now we’re seeing a material slowing-down in the U.K. economy, but the labor market is still doing really well. And so a lot of people who believe in leaving actually do not—do not buy all the warnings from various parts of the country that there’s going to be problems. They just—they just do not believe it. And so unfortunately, the argument remains very based on views of, you know, what’s good for the future and yes, a few bumps in the road are probably a price worth paying. MALLABY: Because I have total faith in the government, I assume that, you know, all these preparations, so that high-value foreign citizens living in Britain can stay and continue to contribute to the economy, that this is all being worked out. So if you want, for example, yourself to have permanent residency, you just whip out your iPhone and with a few clicks you can sort that out, right? MATEOS Y LAGO: Yeah—no, so we spoke about this earlier. (Laughter.) No, actually, you need an Android device, but the— MALLABY: You need an Android? MATEOS Y LAGO: You need an Android device, which is a complication. MALLABY: So with an Apple you’re out of luck? MATEOS Y LAGO: For now, you’re out of luck entirely, yes. MALLABY: Well, then I have still total confidence in the government. (Laughter.) Let’s move to the U.S. economy. So a Wall Street Journal poll of economists recently found that the sort of expected probability of recession in the next twelve months has gone up to one in three, so that’s about twice as high as the same poll said a year ago. And so I guess the question I’ve got, maybe for Lewis first, is, you know, if inflation is subdued, financial markets are not about to crash, the Fed has a bit of space, what’s—what’s going to trigger this expected—I mean, it’s only a one-in-three expectation, but if there were to be a recession, what’s the trigger? ALEXANDER: First of all, I don’t know. Second of all, one of the obvious uncertainties at this moment is the degree to which the policy uncertainty that starts with trade but is more—broader than that is going to be a constraint on business spending. Seems like the most obvious problem. MALLABY: Mmm hmm. ALEXANDER: And we all spend our time trying to assess it. I must admit my own—my own and other modeling work I’ve read on the trade effects, they all seem remarkably small, when you kind of run them through conventional models. And I suspect it may well be that we’re underestimating some of those effects. So the biggest risk that I see sort of centers there. The consumer has been very strong. Fundamentals in terms of income growth, confidence, have held up pretty well. Savings rate is actually pretty high, given how strong the balance sheets have been. That raises an obvious question as to whether or not consumers are just more cautious than they’ve been in the past in the wake of the Great Recession. And so you wonder if consumers were going to crack because of their concerns about this outlook. That could be another issue. I think you look—financially, I—in the wake of the Great Recession and all of the financial disruptions, I think the policy response has been pretty robust, which means I don’t think the financial sector itself is going to be the source of the problem in the way it was in the last recession. Corporate debt is obviously a particular problem, and if you saw a series of unexpected defaults, that could be the financial, sort of, accelerant. None of those things seem like, you know, preeminent, imminent issues, which is why I would broadly agree with the notion that that probability is about a third. But these things are almost inevitably things you don’t see coming. MALLABY: Jan, what do you think? HATZIUS: I’m in a similar place. I mean, I’d probably put the number at less than that, in terms of probabilities. Obviously it’s not something you can—you can rule out, especially given the potential for significant shocks from trade policy from geopolitical issues, you know, just political shocks in general. MALLABY: But just on the—so on the trade policy, I mean, we’ve had shocks. What’s the extra shock that you’re thinking of? HATZIUS: Well, if we were to see further increases in the—in the tariff rates beyond what’s been announced. You know, we’re building in as effectively what the White House has already announced, so the increases scheduled for October and December we think are mostly going to go through. That’s incorporated. Then the expectation that we’re building in is that as the 2020 election approaches, trade policy and tariff escalation gets put onto the back burner to some degree. So we’re not expecting a deal, but we do think that the escalation basically stops there. If that were to be wrong and the escalation continued and you continued to see maybe more of an escalation even beyond tariffs in—you know, making life more difficult for basically each other’s multinationals, you could see a shock that—that is large enough to result in a further slowdown in growth. Right now, the U.S. economy’s probably growing at—roughly at trend pace, you know, a little below 2 percent. And by our—by our estimates, if you were to push that down significantly further, then you’d have to again worry about the, you know, sustainability of below-trend growth. But that’s—that’s not our best guess. Our best guess is that things actually stabilize and growth maybe picks up a little bit as we go into 2020. And I would say, underscoring what Lewis has said, that if I look at the private sector and the vulnerability of the private sector to adverse shocks, I’m actually fairly sanguine. I mean, the private sector, households and businesses taken together, runs a large financial surplus of more than 4 percent of GDP. That’s a very, very different place relative to where we were in the—you know, equivalent periods in the past couple of cycles. You know, 2000, 2006, 2007 private sector was running very large financial deficits, and therefore very vulnerable to shocks. We’re not seeing that. You know, the shocks could get large enough, but I think the private sector is in pretty solid shape. MALLABY: So I want to invite questions from members in a minute. I’ve got time for one more. So I’m going to jump over China and Japan, where you can come back by prompting questions. But I want to get in a question for Isabelle about Argentina, if that’s OK. I mean, this is obviously a tragic mess. You’ve got a country that had—you know, went to the IMF for an absolutely massive loan, 10 percent of GDP. Now it wants more loans to pay back that loan already. It wants to restructure its private debts, but the private sector is not very keen to negotiate with a lame duck government that looks likely to lose power to the Peronists in the election coming up. So the question I ask, I mean, clearly, you know, Macri and his government made a mistake in moving too slowly to stabilize the fiscal position and to stabilize inflation. He—in some ways I think reflected, it’s fair to say, the IMF fashion at the moment, which has been less shock therapy, more gradualistic, you know, do what the political circumstances can absorb. So that kind of go-slowly-don’t-worry-too-much-about-that, which maybe reflects a bit, you know, on the debate on whether debt matters, whether fiscal debt matters in the rich world. When transported to Argentina, which obviously has a history of crises and therefore much less space afforded to it in terms of the confidence of the markets, it didn’t—it was a disaster. I mean, going too slowly was a big mistake. They should have worried more about fiscal debt, not less. And so I guess, with the shift of power at the IMF, and you worked at the IMF, which is why I’m pointing this to you. Does the IMF move back towards a more, you know, get-your-house-in-order-quickly kind of stance, or how does this—how does it absorb this lesson and avoid it in future? MATEOS Y LAGO: Yeah. No, that’s a very good question. I mean, look, Argentina is obviously in a very difficult place right now, and everybody is looking around for—for culprits, and I don’t think there are any easy answers. Certainly the key lesson that the IMF had learned, both from the Asian crisis at the end of the ‘90s and from its prior experience with Argentina was that, you know, too much austerity is not helpful in the long run. And that is not just the lesson that the IMF, you know, staff or—had learned. This was the general worldview. IMF has been too keen to impose austerity on a bunch of countries, including, by the way, in the—in Europe. And so it was politically very courageous for President Macri to resume a relationship with the IMF, and he knew and the IMF knew this is only going to work. The problems Argentina has are deep-rooted. They’re not going to be sorted out in one mandate. We need—we need time to address this. And so both—on both sides there was a sense that we need this program to work so that Macri can get re-elected and we can get two mandates to deal with these deep-rooted problems. And so at the time, I think it made sense to say, Well, let’s not be too austerian in this program so that the population can find it, you know, acceptable. Now, this was not necessarily a stupid strategy, but it was a strategy that was predicated on Argentina continuing to receive large amounts of financing from capital markets. And frankly, this is where things fell apart, that the global environment ended up being significantly less conducive to capital inflows to Argentina. But again, Argentina was kind of—was not alone in this situation. The capital markets did—sentiment towards emerging markets soured last year. Argentina had larger vulnerabilities than most, and so was hit most. And from that point on, you know, markets began doubting that Macri could be reelected. And this is where we are now. This has intensified after the unusual primary election that Argentina had in August. And now there’s been almost a fast forward to everybody assuming Macri’s not going to be reelected, and therefore making him face all the disruption that in reality would more likely be brought about by the next president. So it’s extremely tricky. Now the IMF has to decide whether to put more money before the next president comes in. The next president comes from a party that is extremely anti-IMF, may or may not be willing to repay its obligation to the IMF. So it’s an extremely difficult issue, and a difficult one for any new managing director to inherit. But this is where we are. The IMF ultimately has a responsibility to help countries in trouble. Where do you place the balance between financing and adjustment is the perennial question. Did everybody get it right in this case? Ex post, obviously not. But you know, should they have made a different decision back at the start of the program? Very hard to say, because for the—for the Argentine president to go back and ask financing from the IMF was a very difficult step. MALLABY: It does remind me a bit of Russia in ’98, where you have the leader who the West really, really, really wants to succeed politically. And so you give him quite a lot of backing. And ultimately when it doesn’t work, it’s a big shock. OK. I’d like to invite members to join the conversation. Remember that this is on the record. So if you have a question—yes, let’s start right here. Just wait for the microphone. Q: Hi. Bob Hormats. I’d like to follow up with a question on monetary policy. There seems to be consensus that there’s more room for central banks to operate. My question really relates the efficacy of what they do. And that is, what would be the impact of their moving particularly to more QE kinds of tactics or more unconventional kinds of things, like the ECB? And what’s the transition—what’s the most effective transition device? In the U.S. the consumer’s doing quite well. To what degree would that have an impact on capital investment, because it does seem to me that that transmission device toward more investment would provide a lift, both for the economy and for productivity. How effective would these unconventional or repetition of QE policies be in the transmission device from those policies to a higher degree of capital investment? MALLABY: Bob, are you talking about the U.S. or about Europe, Japan? Q: I’m talking, first, about the U.S., but also Europe. Europe’s—the techniques are somewhat different. We would—we would probably not do some of the things the Europeans are doing. We would do more QE if there were more room, if we needed to. So my question is, what’s the transition device? How effective would it be? And would you get more capital investment through this kind of unconventional or somewhat different central bank approach? MALLABY: Maybe Lewis and then Jan? HATZIUS: Oh, I would say in the U.S., of course, initially you would use up the remaining room to cut the funds rate to somewhere close to zero. Probably the next step would be a return to QE, if that, you know, were to be necessary, if 200 basis points also of easing wasn’t sufficient. And you try to basically restart the QE program within certain parameters. The Fed can only buy government-guaranteed instruments. So you’d be talking primarily Treasurys again. And you know, I think the transmission in the first instance is always going to be housing and consumer durables. I mean, those are the most interest rate-sensitive sectors. They’re obviously already getting a lift from the significant declines in rates that have already occurred with the, you know, ten-year Treasury yield at 1.8 percent, down from 3.2. So, you know, we’re getting a decent lift already. But that’s—that would be the main impulse. And then I think the impact on business investment would probably be a bit more indirect. Typically it’s really more the expectation of stronger future demand that has an impact on business investment, more than, you know, changes in riskless interest rates. So I think there would be a positive impact on business investment as well, but it would be more indirect. You know, I think there still is a significant amount of room. Two hundred basis points is still substantial. It’s obviously a lot less than the cuts that we’ve seen in the average post-war recession, which was about five hundred basis points. But I do think that that probably understates the available room to some degree for two reasons. One, historically the cuts in the funds rate were not accompanied by significant forward guidance about the future path of the funds rate. So markets basically built in pretty quick reversal of sizable rate cuts, and that to some degree limited the effectiveness of the cuts. That would very likely be different in an environment where the Fed had to cut more aggressively. And then the other one, of course, is QE. QE is now an established instrument of monetary policy and would be—would be used again. I mean, there are challenges in terms of policy room. I’m not denying that there are challenges. But I think sometimes they’re overstated by this comparison of, you know, two hundred basis points of conventional policy room versus five hundred basis points of cuts in the average post-war recession. MALLABY: Do you have a question? Yes. Q: Niso Abuaf of Pace University. At what point of interest rates do the costs of low interest rates offset the benefits, especially when we look at negative interest rates in Europe? And how much of that have central bankers realized that? MALLABY: Maybe Lewis could take that, and perhaps link it to the Japanese meeting this week. ALEXANDER: Sure. So first of all, I think the Japanese and the Europeans are actually having exactly that debate right now. I think in the case of both the BOJ and the ECB they think they have some room to go further, that there are ways that you can minimize the negative consequences on the financial system, primarily banks, that come from pushing rates further into negative territory in ways that mean that you can still generate some stimulus. In the Japanese case, a lot of it has to do with the exchange rate. I think their hope would be that they could push short rates down, that would weaken the yen in an environment where they could provide some insulation to the profitability of the banking system and therefore get some monetary stimulus from that. But I think they are clearly very concerned about it and don’t feel all that confident about how strong it will be. In the context of the BOJ meeting this week, we don’t think they’re going to do anything, in spite of the fact that the slowdown in China, the slowdown in global trade obviously affects them, in part because they don’t feel they’re kind of at a critical point where they need to. My impression is the ECB debate is very much going into the same territory. The decision to adopt tiering I think is clearly related to trying to find some room to use lower—even lower rates in a way that will still provide some stimulus. So I think my answer would be I think in both the BOJ and the ECB’s case they feel they have—they can go a bit further, but they’re pushing on the limits. MALLABY: Yes, right here. Q: Nancy Truitt, Truitt Enterprises. I’d like to raise a question about Argentina, because Argentina—if you look at it, and go back to the time of Peron, they have an economic crisis about ever eight—seven to ten years. It’s a rollercoaster. And it seems to me that you’ve got to look at the underlying causes, and not just the ones that affect this recent crisis if you’re going to do anything about Argentina, or it’s going to keep being every seven to ten years you can count on a crisis. MALLABY: Here we are, cultural determinism. Maybe Lewis can—(laughter)— ALEXANDER: So I’m—let me take a shot at that one. I spent a bunch of my career doing emerging markets. I did my dissertation on the Latin debt crisis in the ’80s. And around the time of the Argentine crisis in 2001, I was head of emerging markets at Citi. So I lived that particular one very closely. I was convinced in the wake of the utter disaster of 2001 in Argentina that surely this was the economic crisis that was big enough that it would transform the politics of Argentina. And I would argue for about a year after that it kind of looked like that’s how it was going to play out. I have to admit, that obviously did not happen. I honestly don’t know what it would take to get them out of this cycle. But frankly, if the economic crisis in 2001 and 2002 wasn’t enough to do it, I’m not sure what you do. The challenge for the Fund, and I’m totally sympathetic to the problems they face there, I am struck by the notion that the other alternative that you faced is some much larger reduction in debt, some version of sovereign bankruptcy. And there is—to some extent, if you were going to go back and rethink that I wonder if the thing you wouldn’t rethink is whether or not you should have just done that more dramatically. But I don’t think there’s any easy answer to the politics in Argentina, which is, I think, the question you’re asking. MALLABY: Let’s go, yes, over here. Q: My name is Richard Erb, and I have a very simple question. And that is, why are interest rates still negative in Japan and in Europe? What fundamental change has taken place that would lead us into a world of negative interest rates? If twenty years ago you had forecast negative interest rates in 2020 you would have been sent to, well, someplace—would have been thought of as crazy. But here we are, negative interest rates. Why? What are the—I’m looking for the longer-term structural issues here, not a short-run macro response to, well, maybe we’ll have a recession, and what we need to do to stop that recession. MALLABY: So is Larry Summers right? ALEXANDER: I think Jan has a different view on this, but I’ll say yes and Jan can say no. (Laughter.) Look, I think there are a bunch of things that have affected by savings and investment that have pushed down interest rates. Just to throw out two of them, if you look at the percentage of time that people spent in retirement in industrial countries, that has gone up by something like 60 percent over the last twenty years. If you think about what that implies for the demand for private savings, it’s pretty profound. That’s simply one argument you can make on the savings side of the equation. On the investment side of the equation I would make the argument that the nature of innovation today simply requires less capital spending. Think about the differences between Uber and railroads. We simply—the way—the nature of innovation today does not require the level of capital spending it has in the past. So I think there are—there are a set of things on the basically savings and investment side that have gotten us here. I would stress the fact that this is global. This is not something that you see in just one or two countries. It is a global phenomenon. The other thing I think that is underappreciated is the degree to which we now live in a world where stock prices and bond prices move in opposite directions. The correlation between stock prices and bond prices is negative. In the ’90s, and in the ’80s, and in the ’70s, that correlation was positive. If you think about what that means for how investors should price risk, it’s pretty profound. If you’re saying your two primary asset classes are negatively correlated, it is just simply a much better place to invest. And I think that means risk premium generally are lower. That’s certainly, I would argue, part of why interest rates are generally so low. I also think, frankly, it’s why equity valuations seem surprisingly high. So I do think there are set of fundamental factors that can get you there. Now, I—you know, the hard question is, how long does this last? I think, as somebody who—part of my job is to forecast interest rates—one of the things I’m spending a lot of time trying to think about is how durable are those trends? And I wish I had a better answer on that. HATZIUS: I would say—I mean, I agree with a lot of this, certainly the point about, you know, much lower term premium at the long end of the curve because of changes in the correlation between stock and bond returns. I think that’s important. I would add also on the term premium side, you know, which affects obviously the longer end of the curve, the—basically getting use to the low inflation environment that’s now been in place for twenty to twenty-five years. If you look at inflation over that period, since the late 1990s, it’s been very stable and low. We’re talking a lot more about the death of inflation now than we did perhaps in the, you know, 2000 period or the subsequent cycle. But actually, if you look at the U.S. and—or Europe, although in Europe you would sort of start that comparison in the early 2000s—we’ve really been in a very low inflation environment for a long period of time. And that has kind of gradually filtered through into the premium that investors think they require in order to hold long-term bonds. I think as far as short-term rates are concerned, you know, the equilibrium short-term interest rate also, you know, certainly seems lower for some of the reasons that Lewis outlined on the savings said and investment side. That said, I don’t think that short-term rates are going to stay, you know, as low as they are now. There are some important cyclical factors. The fear of recession, I think, is an important factor. And you know, at least in Europe and many other places—less so maybe in the U.S.—still to some degree a hangover from the crisis. I mean, in the U.S. the crisis occurred, you know, eleven years ago, but the crisis didn’t really peak in Europe until 2011/2012. And Europe is still recovering from that. Right now very slowly, but if and when this recovery gets back on track, I think that will also have consequences for short-term interest rate expectations. Certainly don’t expect any hikes from the European Central Bank for several years. But I also don’t think that we’ll be at minus fifty basis points on the—on the policy rate forever. MALLABY: Do you want to weigh in, or? LAGO: No, just on—I mean, certainly an additional consideration in Europe—I mean, ultimately it is a demand and supply story. And I think part of the story in Europe has been the lack of supply in the form of the very conservative fiscal policies of German, in particular. Sort of lack of public investment and the broader debate around at least a perception of insufficient supply of safe assets in the eurozone that leads to extreme compression of interest rates on German debt and other core eurozone debt in general. And these are—these are largely structural issues as well, that hopefully will be addressed at some point, but I think it will persist beyond the current cyclical phase. MALLABY: Another question. Yes. Just the microphone. Q: Nick Bratt with Lazard. Putting aside the official statistics, could you give us a sense of what’s going on in the Chinese economy? MALLABY: I’m glad you asked that. We need to talk about China. Six-point-one percent is the official growth rate this year. HATZIUS: Is it reasonable to ask around that, you know, what the—you know, the true growth pace is? There are a number of different trackers out there. We’re towards the lower end probably. We’re in the kind of 5-5 ½ percent range at the moment, based on higher frequency indicators that we think are more reliable. So, you know, we do think that the trade war, the tariff escalation, and maybe to some degree still the slowdown in debt growth that we saw from late 2017 to early 2019—that that is having a negative impact on China. It hasn’t been a dramatic negative impact. It’s not looking as serious as what you saw back in 2015-2016. Certainly on the financial side we haven’t seen the capital outflows that were a major worry back there, with reserve losses of up to $100 billion a month. But there has been an impact and that, I think, still points towards increases in the stimulus provided by the—by the authorities to monetary policy and fiscal policy. And so, you know, we think we can get back to 6 percent, but right now I don’t think we’re there. MALLABY: Anybody else want to weigh in on China? Nope? OK, there’s one right here. Q: Is this on? MALLABY: Yes. Q: Could we talk about U.S. fiscal deficits? If you would look back five, ten years ago, would you have expected ten years into a recovery they’d be this high? And do you think they’re sustainable? ALEXANDER: So, short answer, depends on the horizon you’re looking at. In the near term, there’s very little evidence that it’s a problem. I mentioned this correlation issue between stocks and bonds. And there’s some interesting—there’s been some interesting research that basically shows the sensitivity of interest rates to supply of Treasurys is partly a function of that correlation. In this world where the correlation is negative, it seems like we can put a lot more in and not have an effect. So my answer in the short run is I see no evidence that it’s not sustainable. Obviously in the long run, we are—you know, we’re on a trajectory that can’t work. The trick, and obviously in that scenario, is obviously what gets you from one place to the other. I have to say in terms of what’s coming in terms of the election, it’s hard to see us—the politics of this sort of getting us back on track anytime soon. We are now at the point where the Baby Boom generation is in the process of retiring. And just the near-term dynamics on entitlements are extremely demanding, even forgetting the discretionary side of the budget which is what we sort of all focus on. So, you know, my long-term answer is of course it’s not sustainable. But I don’t see the process in the—kind of the forecasting horizon that is going to force us back onto that. So I don’t see it say, for example, being a significant upward pressure on U.S. interest rates in the near term. I think it would take a different macroeconomic environment to get that. MALLABY: Lewis, it’s quite striking that the Democratic debates, as far as I paid attention, you know, people talk about the Democrats moving to the left. It’s not left as expressed through protectionism, which it would have been twenty years ago, right. When people talked about the economic left of the Democrats, they would talk about Gephardt’s view on Japan, or whatever. Now, you know, Trump’s got that covered. If you want protectionism it’s in the debate, it’s in the policy. And so Democratic left now means Medicare for All. It means more progressivity on taxes. Does this strike you as a shift that is going to have economic consequences? ALEXANDER: This is a very different debate on the Democratic side. I would push back on you on a little bit on the notion that protectionism isn’t there. It’s not an issue in the campaign because it’s not a—it’s not a way for Democrats to distinguish themselves from Trump. The remarkable thing to me is this incredibly important thing that the current government is doing is essentially not being commented on by the other party, which is basically telling you I think that the politics of trade within the Democratic Party have moved in a direction where they’ll pursue it in a different way, but we are not going back to the Obama and Clinton policies on trade. I do think there are a bunch of fiscal commitments that are—you can tick them off. There is some form of guaranteed income. There’s some sort of form of significant expansion of health care coverage. There’s probably something on student debt. And then there’s some version of climate change, all of which are going to be significant fiscal demands that any Democratic candidate for president is going to support. The other thing which I think is important for people to recognize is, just sort of moving away from the fiscal side, is I think you’re going to see income distribution as a kind of overarching framework for a next Democratic administration. And that means things like the labor share is going to go up. So think about things like what California just did vis-à-vis Uber. And you had a sort of set of economic policies under Bill Clinton and under Obama that were, in some sense, business friendly. You can also add to that sort of what Elizabeth Warren is talking about in terms of the big tech firms. And you’re going to see, I think, potentially a very different attitude about that, that is relevant for things like if the labor share is going to go up, the capital share is going to go down. And some point in the election, and I think that is something that people are going to focus on. Now, if you’ll indulge me, there’s one other thing I want to talk about in terms of the election. We haven’t talked about Trump and the Fed. Trump has very little direct impact on the Fed, except through appointments. There are two vacant seats on the board. He’s put out two names. They haven’t been formally nominated. Even if those two people get on the board, it won’t make a big difference. But if he’s reelected he gets to reappoint the two vice chairs and the chair. And if those two vacant seats are not filled, which frankly I think is the more likely outcome, a reelected president Trump will have the potential to essentially remake the Fed. So I don’t think Fed independence is a near term issue, but I do think it is very much an issue if Trump is reelected. And I think if you’re looking for something that markets at some point are going to focus on in the run-up to the election, I think you’ve got to put that on your list too. MALLABY: Either of you want to comment on that, or good? OK. Another question. Yes, right here. Q: Hi. Great conversation. Jay Koh from The Lightsmith Group. I’m glad the word “climate change” was mentioned at least once. Mark Carney and the Network for Greening the Financial System—which is a substantial number, at least thirty-six-plus central bankers, not including the United States or some other major OECD countries—have said that climate risk is now an important consideration. There’s a major conference here next week that the secretary-general’s holding. Is climate risk of any kind being factored into your forward economic analysis and upside or downside surprise? And if there’s more volatility going forward, do you think it plays into investor sentiment at all? Or is this just an irrelevancy? Because we’re pretty far into this conversation without it actually rearing its head at all. MALLABY: Anybody want to? ALEXANDER: Let me just say a couple things. I mean, the honest short answer is no. In part, that reflects the fact that I don’t see the financial sector as being vulnerable. And the obvious short-term issue is some set of climate events that creates losses that filter back on the financial system. One of the things people don’t talk about in terms of the crisis of 1907 is the role that the 1906 earthquake played in setting up the circumstances for that. And so there are—there are some serious questions about how you view those vulnerabilities. I don’t think those are kind of massive, near-term issues. There’s a set of longer-term issues about the fiscal outlook, which I do think are important. It’s obviously part of the debate of the United States. It’s my impression that it’s part of the debate in Europe as well, that if you’re actually looking for a scenario for how you could get a significant fiscal expansion out of Germany, one way is the Greens win, right? So I do think there are ways in which it filters in, but it’s not a kind of an immediate issue. LAGO: If I could add just on this, it is a more immediate issue in investment decisions that the financial sector is making, and everybody. So it’s a learning process that is an accelerating phase. But anybody who invests or already holds long-dated assets is essentially going through a crash course in figuring out what is going to be the impact on—of climate change on the return and the capital integrity of these assets. But it’s true that in the link to the macro forecasts are absolutely in terms of the spending commitments that are going to have to be made. And I think in Europe, it’s not just in Germany, it’s literally been one of the priorities of the new president of the European Commission. There are very specific commitments there that are going to—that are going to require significant spending. So that would be, for me, the most relevant macro angle. MALLABY: In Europe, I guess it might also be the case that—and this is a bit what you’re saying—that it contributes to the fragmentation politically. That, you know, the Extinction Rebellion has a lot of energy behind it, Green parties can mobilize that. And in an environment where we’re already talking about the sort center-right, center-left having lost to the populist wings, a resurgent Green movement further complicates European politics and makes it tougher to sort of come up with cohesive governments, because of the coalitions being difficult. We’ve run out of time. Thank you all for coming, for participating. Thank you to the three panelists. (Applause.) (END)
  • Democracy

    Daniel Kurtz-Phelan discusses the September/October 2019 issue of Foreign Affairs magazine with co-contributors Ernest Moniz and Sam Nunn. The authors discuss their joint article "The Return of Doomsday," which focuses on the new nuclear arms race and how Washington and Moscow can prevent further escalation. For further reading, please see the September/October 2019 issue of Foreign Affairs, including the article “The Return of Doomsday” by Ernest J. Moniz and Sam Nunn. *Members may bring a guest to this event.*
  • Saudi Arabia

    Senator Murphy discusses his progressive foreign policy vision and national security interests in Yemen and Saudi Arabia.  TALEV: Thank you. I’m going to be really concise, conciser than normal, this morning because the Senator actually has somewhere to be a little bit early, so we’re going to do half an hour of the you Q&A in twenty-five minutes. So we’re going to make this happen. Good morning. Welcome to today’s Council on Foreign Relations meeting with Senator Chris Murphy. I’m Margaret Talev, the politics and White House editor for Axios, and I will be presiding over today’s discussion. Senator Murphy, as you all know, is the junior senator from Connecticut. He is a member of the Foreign Relations Committee, and the top Democrat on the Subcommittee for the Near East, South Asia, Central Asia, and Counterterrorism, which will explain all of his planned adventures this summer, most of which got cancelled and redirected. He is also a leading advocate, as all of you know, in the bipartisan push right now for a gun control package that the president or Republicans can get behind. And his congressional district before joining the Senate included Newtown, Connecticut, home to Sandy Hook Elementary. So with that introduction, Senator Murphy, please come on up, make a few comments, and then we will move to this portion of the conversation. Thanks, again, all of you for being with us. (Applause.) MURPHY: Well, thank you very much, Margaret. I’m excited to spend some time with you here on stage. Thank you to all of my friends at the Council for having me back once again, and for all the great work that you do to keep the foreign policy community connected to Congress here in Washington. I want to talk to you a little bit this morning, for about ten minutes or so, about the future of what I will call progressive foreign policy, with an eye towards the next administration. In the two Democratic debates that we’ve had so far, if you count generously, candidates about spent about thirty minutes talking about foreign policy out of nine hours of debate. That’s less than 6 percent of the time on stage. And only two of the candidates have released anything that could be fairly characterized as a foreign policy plan. And we’ve seen a lot of plans from candidates. I get that primary elections generally aren’t decided on international issues, and this one probably isn’t going to be different. But if tonight’s debate plays out like the first two, I’m going to actually stat getting worried for my party for two reasons. First, I just think Democrats who are running for president have a civic responsibility to flesh out their vision for the world before they sit in the Oval Office. If Congress remains divided, then it’s going to be foreign policy where the next president has the most discretion. And I want a president who has given some real, deep thoughts to these big, hairy questions of how America intersects with the world before they get there. But second, I think in the last few months, and indeed just in the last few weeks, we have seen a major opening for Democrats to seize on the issue of national security. Trump won the election in part by selling himself as a deal maker who could get big things done with Iran and North Korea on nukes, with China and Europe on trade, with Mexico on the wall. But Americans are now coming to grips with this realization that none of those deals are getting done. It’s the most potent indictment of those dealmaker claims. And Trump’s casual flirtation with war with Iran, and his waffling on troop levels in the Middle East have made Americans really worried that Trump can keep us safe. Now, Democrats maybe can’t completely close the national security gap with Republicans that traditionally exists. But Trump gives us reason to try, because if we did we could make more progress on this gap, this election, than in the past. And that might make the difference in 2020. So here are a few thoughts to chew on, a little unsolicited advice for the small cadre of foreign policy thinkers who are advising our 2020 candidates. First, let make a simple argument, and it’s this: There is almost no important domestic progressive value that can be advanced without a foreign policy complement. You care about repairing America’s broken democracy? Well, the better China gets at exporting the tools of tyrants, the less check Russia feels on its efforts to manipulate foreign elections, then the less healthy our own democracy becomes. You want to focus on immigration? Well, the less involved America is in fixing broken counties in Central America the more refugees show up at our borders. And guess what? The xenophobic national movement is, indeed, global. When antiimmigrant parties score victories in Europe it strengthens the hand of similar movements here. Now, your priority is the climate? Well, you can’t save the Earth without global engagement. And rejoining Paris is just the easy part. After that, we need a massive global diplomatic effort to convince countries to comply. My point is this: Even for the Democratic candidates who say it’s time to focus on American problems, our issues don’t exist in a vacuum. If you care about democracy, or human rights, or the environment here, then you have to care about these fights everywhere. And you need to be engaged on them everywhere. But of course, there’s another reason for America to reenter these values fights. The world is a safer place the more people have access to self-determination, and freedom of speech, and protection from persecution or discrimination. The ideas that undergirded the post-World War II order have not suddenly come undone. Democracies still tend not to attack each other. Countries where women have equal rights to men, they breed fewer terrorists. Participatory democracies and open economies are still the best protection against instability. And of course, progressives should never cede ground about which party or political movement cares more about protecting America. We put our nation’s security first. And that’s why we think that we should put democracy promotion, and human rights, and climate change, back at the center of American foreign policy. Now, really, in some ways, that’s the easy stuff, elevating our game on these critical topics. Here’s the tougher sled, and it’s what I want to spend just a little bit more time talking to you about this morning. The foundational crisis that the next president will face is that his or her foreign policy toolkit, the levers that the president can press to try to protect and advance our interests abroad, is basically a 1988 Ford Taurus on a road that is crowded with shiny new Teslas and Land Rovers. Our obsession with defense buildups in a world where the most significant threats to the United States are not conventional military threats, and our refusal to create capacities to meet our enemies where they exist—this destines to slide us into global irrelevance, unless we figure out a new way to meet modern threats with modern capabilities. Now, before I go through a few of these new tools that the next president is going to need in order to be successful, let me give you just two examples of how our current toolbox is totally failing American national security interests. First, let’s look to Ukraine, where a new reformist president, who I met in Kyiv for the first time last week, is trying to deescalate tensions with Moscow. The American response to Russian aggression in Ukraine has been mostly a military one, because that’s what we do. Four billion dollars a year in new troop and equipment deployments to Eastern Europe, radar systems, javelin missiles, troop training packages for Ukraine. But Putin doesn’t change his behavior. Why? Well, because Putin actually doesn’t want to march his army on Kyiv. He wants to politically and economically destroy the country so that they eventually tire out and decide to cut a deal and return to Russia’s orbit. Brigades and missile systems aren’t a bad idea, it just can’t be our only idea. Putin delights when we spend $4 billion on military hardware and virtually nothing to try to break his energy grip on Europe, or attempts—or his attempts to hack into and disrupt the Ukrainian economy, or to use bribery to undermine an already corrupt military system. We’re not meeting Putin where he sits in Ukraine and the region. Second, let’s look at how the American government today is dealing with the global information war. China, Russia, North Korea, terrorist groups, they’re all putting billions of dollars into manipulating information flows around the world, especially in sensitive political environments. Now, it’s taken us way too long to catch up, but finally a few years ago Senator Rob Portman and I passed legislation establishing a new center at the Department of State, the Global Engagement Center, to combat global propaganda. Now, that’s the good news. The bad news, the money’s not in the State Department. The money is in the Department of Defense. And so the Department of Defense is quietly ramping up its antipropaganda messaging operation because, well, they’re the only ones who have the money to do it. Now, it would be more effective to empower voices in countries on the front lines of Russia or China’s information wars rather than American military bureaucrats. With small budgets, you can only afford to entertain small ideas, so we’re not thinking about funding high-quality content to help independent media outlets or funding a Russian language version of Al Jazeera that could be a real alternative to Russian satellite channels. There are hundreds of other examples of how badly we bungled our smart power tools, but the bottom line is this: the obsolescence of American foreign policy—of the American foreign policy toolkit is the real crisis. And building a new toolkit serves progressive values in two ways. First, it allows us to more effectively fight for democracy and human rights in climate, which are both domestic and global priorities for progressives. But creating more effective national security capabilities and relying less on the bluntness of raw military power and arms exports, it will get us into less dumb wars and military conflict. That’s a progressive value as well. Now, listen, we shouldn’t let our guard down. We’re never immune to a conventional military attack, and neither are our treaty allies. And I do believe that peace comes through military strength. I’m not arguing for a massive downsizing of our military budget. But there is such a thing as too much of a good thing, especially when military spending comes at the expense of creating capabilities that actually meets the threats that we face. So what do we need in this new foreign policy—this progressive foreign policy toolkit? I’ll end with just a few ideas. Number one, we desperately need more economic leverage around the world. In the Cold War, there were two superpowers. We, frankly, didn’t need to be that nimble to win economic friends because your only other choice was the communist Soviets. Not so today. The Chinese, the Indians, the newly semi-capitalist Russians, the Gulf states. Everyone is looking to win friends over to their value system based on economic relationships, and we’re losing out. Consolidating our international development agencies, it was a nice start, but we need to supercharge the investments that America—still the world’s biggest economy—can offer other nations. For instance, the Chinese are developing a model where they midwife a technology in their closed government-subsidized and controlled economy, and then they release it onto the world at a dirt-cheap price. Now, we need to have an answer to what China has done with 5G, and what they’re going to do with advanced batteries and AI in the next decade. And it can’t just be a robust campaign of shaming other nations who partner with Chinese companies. We need to put real public dollars, ideally in coordination with the Europeans, behind partnerships with Western companies who want to develop true competitor products to Chinese tech exports. Number two, progressives shouldn’t be afraid of new multilateral trade deals. Free trade can be a progressive idea. Now, we should rework the Trans-Pacific Partnership so that it’s less friendly to corporations and more friendly to workers and the environment, but it’s a mistake for progressives to not see trade policy and critical statecraft. We can use trade agreements as a way to export our values and our interests. We shouldn’t forsake this tool just because we signed some bad trade deals in the past. Number three, let’s get really serious about supporting existing democracies and fighting corruption in all countries, whether or not they’re democratic. If you total up all the money that the U.S. Department of State spends annually on protecting democracy and fighting corruption abroad, it’s about $2 ½ billion. Now, that sounds like a lot of money, but that’s as much money as the Department of Defense spends in two days. And it, frankly, pales in comparison to the amount of money that China, and Russia, and others are leveraging to undermine fragile democracies. So how do we do this? Well, here’s just one idea: Let’s create a new category of foreign service officers dedicated to fighting corruption abroad so that every single embassy in the world has one or more dedicated American staffers that put on—that are working on putting and protecting the rule of law first and from attack. Number four, and lastly, we need to harden the State Department and USAID. I always think back to this trip I took in 2011 when I was visiting Western Afghanistan. We met with a capable group of Army commandos who were protecting Afghan farmers from attacks by the Taliban. And that was great. What was not so great, the farmers that were protecting were growing poppy and selling it to the Taliban who now, with this American protection, at least paid for the crop, instead of having the Taliban steal it. What those farmers really needed were agricultural advisors to help them grow another crop and Afghan-speaking political advisors to help them negotiate a détente with the Taliban once the poppy supplied disappeared. But because all we can do in dangerous conflict zones is deploy twenty-year-old commandos, we are stuck guarding the poppy fields for the enemy. Or in Syria, where during most of the conflict over the last decade you know how many State Department advisors we’ve had side-by-side with our thousands of soldiers there? One. General after general tells us Syria is a political, not military, problem. So why don’t we have diplomats there? Well, because we haven’t developed any real hybrid class of diplomat warrior, despite the general failure of soldiers to do effective diplomacy. That can change. And progressives should lead that effort. And these are just four ideas. They’re the tip of the iceberg when it comes to new capabilities to meet Russia and China extremist groups where they lie. But the lack of creativity in American foreign policy today is maddening to me. But as I said, so is the lack of attention to serious national security thinking amongst leading Democrats. And if we don’t start thinking outside of the box about how to bring progressive values to the world stage, then no matter how the next president reorients American priorities, he or she won’t actually be able to effectuate new goals with the same military-heavy toolkit that exists today. Recognizing the new realities of the threats that we face and shifting our capabilities to meet these threats, that should be the goal of progressive foreign policy. This shift will benefit progressive values at home and keep us from falling into more ill thought out wars of choice abroad. Thank you very much for your time this morning, and I really look forward to a good discussion. Appreciate it. Thank you. (Applause.) TALEV: (Off mic.) MURPHY: (Laughs.) I am going to watch the debate. I didn’t watch all of the first two, because it was just hard to follow that many candidates. This one will be a little bit easier. TALEV: The seven-hour climate change debate? MURPHY: What’s that? TALEV: The seven-hour climate change—it wasn’t a debate; it was a town hall. MURPHY: And I guess—listen, I made the point that my friends who are running for president should be thinking more about foreign policy and that those that are questioning them should ask them more about it because it’s important. But I would also argue, it probably would expose some interesting differences between the candidates. If all you’re interested is fireworks on the debate stage, I imagine if you asked some pretty complicated questions about the negotiations with the Taliban or the future of U.S. relations with Israel, you might get some distinctions in the way that the candidates on that stage present their arguments and their beliefs. And so, yeah, I think there’s a lot of good reason for it to be a bigger part of the debate tonight and going forward than it has been. TALEV: I’m going to ask you about John Bolton, because we’re all thinking about it. But I want to ask you, just in terms of the Democratic field right now, as far as you can tell who do you think actually has the most substantive sort of built out foreign policy plan? I know you haven’t decided to, you know, publicly support anybody yet, but does everyone have a robust foreign policy team? Are you familiar with who everyone’s advisors are? MURPHY: No, I think it’s remarkable that there has been so little serious discussion of foreign policy proposals and priorities thus far in this campaign, especially because, as I mentioned, there’s been no shortage of serious thinking about policy. So there’s dozens of domestic policy plans that have been released by these candidates. But as far as I can tell, none of them have put down on the table an idea—their idea for what American presence in the Middle East will look like during their four or eight years in office, or what they would do alternatively in Syria or in Afghanistan. I get it. There’s maybe not a lot of demand for that amongst voters in Iowa or New Hampshire. But if you haven’t thought about those questions before you show up at the Oval Office, it’s hard to make it up on the fly. Bernie and Elizabeth have given speeches or written pieces outlining some of their basic priorities. Pete Buttigieg has given some interviews on this topic. Obviously those who come from the Senate, you know, have a just built-in set of experiences and expertise. Cory is on the foreign relations committee. But I think it’s really fascinating how little this discussion has been present. And I think that needs to change. TALEV: Do you think the phrase, “progressive foreign policy,” is there an agreement on what that means? Because I see different people use it in different ways. There’s a piece in The Atlantic this morning that, I’m paraphrasing, but the headline is something like: The problem with progressive foreign policy, or why it can’t work. And I’m just—I think I understand the rhetorical appeal of the phrase, but does it mean the same thing to everybody? MURPHY: No, it probably—it probably doesn’t. And, you know, the case that I’m making here today is that we should perhaps sort of simplify the discussion that we’re having about progressive foreign policy. I think we should connect our domestic progressive priorities to the fights that we have abroad. We need to understand that if you’re fighting for democracy here, if you’re fighting for human rights here, you have to be engaged globally on these issues. And, second, I do think that what does unite progressives is the idea that we should learn from our mistakes in Iraq and Afghanistan, while not withdrawing from the world. A progressive foreign policy is one in which we give the presidents the tools to succeed globally, other than the deployment of American troops or the export of American arms. I think that’s at the center of progressive foreign policy, right? We want We want a role in the world, but we want that role to look different than what has been available to prior presidents who really, when they saw a crisis, could only respond to it militarily. And that’s why I’m talking about capabilities. That’s why I’m talking about the nuts and bolts of what a president has at his disposal in order to respond in Ukraine, or in Syria, or in Central or South America. I think a progressive foreign policy is about capabilities. It’s a much more concrete discussion. And I think it ultimately gets us to the place where we want to be, which is forward-deployed with less chance that we get into dumb military conflicts, or we export weapons that end up facilitating or fueling dumb military conflicts. TALEV: Is it an anti-war platform? MURPHY: It’s not an anti-war platform in the sense that we always reserve the right to use military force in order to protect our interests abroad. But it is a recognition that, you know, over the last thirty years the threats that we faced are, by and large, not conventional military threats. But we don’t have the capabilities to meet Russia or China where they exist. And often, we try to—we try to create an adversary that is focused on fundamentally unconventional military attack. That’s why I make this point about Putin’s aims in Ukraine. Yes, he has figured out a way to sort of create hybrid military conflict, in which he’s invading without really invading. But ultimately he doesn’t want to march that army all the way to Kyiv. And we don’t have the capabilities to meet all of his asymmetric tools. TALEV: John Bolton’s departure this week as the national security advisor, it sort of had all the drama we’ve all come to expect out of daily operations at the Trump White House. But I’m wondering, like, what do you think it actually means for foreign policy? I’ve heard a lot of people this week say it doesn’t matter who the next national security advisor is because Trump’s going to do what Trump wants to do. Do you think that’s true? And, like, what are you looking for in the next month, kind of as he—you know, the president has said he’s going to name a new national security advisor probably next week. UNGA is coming up. You know, the spectrum of a potential Rouhani meeting—although the White House keeps downplaying that. Like, what are kind of the litmus test that you’re looking for in the next month, and do you think it matters that John Bolton’s gone? What impact do you think it will have? MURPHY: Well, the choice of national security advisor can’t not matter. Proximity to the chief executive always matters. And I think it matters in particular with this president. And the fact of the matter is, no matter how empowered Mike Pompeo is by the departure of John Bolton, he still isn’t in the White House every day. The national security advisor is. And so this choice does matter. Now, Trump, you know, is obviously very personality driven. And so if it’s somebody that he trusts and grows to trust, that person will naturally matter more. And so we’ll all watch this choice very carefully. But I don’t think you can say that it doesn’t matter. One of the points that I’ve tried to make in the last few days, which has been lost a little bit by my progressive friends, is that as bad as John Bolton is, we do have to also remember that there’s, you know, about 20 or 30 percent of foreign policy that is truly controversial, right, where there’s big differences between Republicans and Democrats. Seventy percent of it, you know, is basic blocking and tackling of American interests abroad, in which we don’t have disagreements. I was in the Balkans last week. And, you know, there’s not big disagreement between Republicans and Democrats about the role we should play to bring Serbia and Kosovo together in mutual recognition. And John Bolton was working on that, just like he was working on other things. And so I have always worried about John Bolton’s fascination with war, but I also worry about how fast we’re cycling through personnel in this administration because on the stuff that we don’t disagree on, this instability of personnel at the top of the White House is making the advancement of our interests impossible. When, you know, the president of Serbia and the prime minister of Kosovo don’t know who to talk to on a regular basis, even on the stuff that Republicans and Democrats can agree on, we can’t get anything done. TALEV: You must have agreed with John Bolton on some things, like perhaps his stance on Russia. I mean, do you—like, do you think that every instinct John Bolton had took the president in the wrong direction or do you think there are some firewalls that he put up that did help to slow down or hold back policy that you might not have been comfortable with? MURPHY: Well, I mean, listen, there’s not going to be anybody, you know, that occupies that position that I will disagree with on everything. And, you know, John Bolton, you know, did seem to have brought us to the brink of war with Iran. And so we were dangerously close, perhaps minutes away, from entering a conflagration with Iran that would have essentially dragged down the entire region. So you know, as dangerous as we thought John Bolton was, he might have been just that dangerous. But, yes, there were issues upon which he was giving good counsel to the president. But it doesn’t seem as if he had much impact. If he was trying to tell the president to put conditions on our reintegration of Russia with the G-7, the president wasn’t listening to that advice. The president seems to have made up his mind on some pretty big topics around the world. And no matter who you put in these big jobs, it doesn’t seem like there’s a lot of success in convincing him not to talk to dictators without preconditions, not to try to find ways to bring Russia back into the global hierarchical infrastructure. TALEV: Do you expect the president to meet with Rouhani? MURPHY: I don’t know. I mean, I guess I stopped trying to predict or expect anything from this White House. You know, I was—listen, obviously, you know, I’m torn, admittedly, on, you know, how this White House should conduct diplomacy. I generally am not a believer in refusing to talk to adversaries, or even enemies. But it is just absolutely startling how little diplomatic blocking and tackling this administration is willing to do ahead of a meeting between the president and a leader of a nation that is adversarial to us. And while I supported Trump’s initial talks with Kim Jong-un, in the end, you know, those series of talks didn’t move the needle significantly on any of the issues that are of concern to American and our allies. And it did legitimize his regime. And so if you’re going to just meet with Rouhani for a photo op, and you’re going to actually do nothing to bring them back into the JCPOA or try to address concerns about their ballistic missile program, then I do think we have to ask questions about whether we’re better off with or without that meeting. TALEV: And sanctions—if dialing back sanctions are a precondition for a meeting, do you support that at this time? Do you think the sanctions on Iran are appropriate right now? MURPHY: Well, no, I don’t believe that the sanctions are appropriate, in that they were applied to—as part of the president’s withdrawal from the JCPOA. And of course, this report from last night is just sort of too hard to believe, the idea that the president is going to release $15 billion in coordination with the Europeans to get Iran back into the compliance with the agreement, so that he can get his photo op, right? The idea that we are now paying additional money—or thinking about paying additional money to the Iranians—to get them to comply with a deal that they were already complying with, so that Trump can get a photo op, is kind of the personification of this administration’s foreign policy in many ways. And a sign of, you know, in fact, how hard it was always going to be to get any kind of deal with Iran that was better than the JCPOA. TALEV: I hate this clock. This clock is killing me. Let’s do a couple real quick, and then I know you guys have amazing questions so I will—I’ll forgo some of my other amazing questions. MURPHY: I’ll give short, amazing answers. TALEV: (Laughs.) Next month marks the anniversary of Jamal Khashoggi’s murder. Do you think that the Saudis are being held accountable by the rest of the world, and by the U.S.? And can you bring us up to speed on the latest with your plans, along with Senator Young, on forcing the vote on U.S. security assistance? MURPHY: The Saudis are not being held accountable. Mohammad Bin Salman has gotten away with murder. And it frightens me. The message that’s being sent to dictators and would-be dictators around the world about what they can get away with, especially when it comes to people under American protection. And I’m just absolutely heartbroken that the United States has somehow overnight become the inferior partner to the Saudis in our bilateral relationship. They call the shots, not the United States of America. And especially today, when we are less reliant on their oil than any before it confuses me as to why that would be the case. Senator Young and I have discovered a unique means by which we may be able to change our bilateral relationship for the better. Inside the Foreign Assistance Act is an ability to take a vote to compel a human rights report on a security partner. And then after that report is filed, Congress can pass legislation with fifty votes rather than sixty to change the nature of the security relationship in any way, put conditions upon it, for instance. I think that that’s an important new vehicle to try to perhaps put some conditions related to the investigation of the Khashoggi murder on our security assistance. But I think the president’s made it pretty clear by now that he’s going to veto anything we do to change our relationship with Saudi Arabia, as he did with our resolutions to pull United States troops out of the military coalition vis-à-vis Yemen. And so I think we need to keep the pressure up. I think we need to keep forcing these debates in the Senate to make the world understand that this silence on the Khashoggi murder from the administration is not shared by Republicans and Democrats in Congress. But I don’t know that that eventually results in legislation being signed into law. TALEV: We haven’t talked about Russia yet, and getting denied entry. Perhaps someone will ask. I want to close the part of our conversation actually with a domestic policy question, but I think it has broad interest to the rest of the world given the U.S.’s sort of unique status when it comes to guns and the general public. You, and Joe Manchin, and Pat Toomey, and Lindsey Graham, a bit, have all been trying to figure out what kind of a bipartisan gun control effort is ultimately amenable to President Trump and passable in Congress. And I’m just hoping you can briefly bring us up to speed. We know that you were in discussions with the president as recently as yesterday. Will you talk to him today? And how imminent is a decision or announcement on what could happen? MURPHY: So we had a—you know, about a forty-minute conversation with the president yesterday. We got into some of the details about expanded background checks. Others talked to the president at length later in the day. I don’t know whether I’ll talk to the president today, but I expect that our teams will be meeting throughout the day. I think the president needs to make a decision about whether he wants to get behind the 90 percent of Americans who support expanded background checks. And I think what we don’t know yet is whether he’s willing to do that, because it would involve taking on the NRA. The gun lobby is never going to support any expansion of background checks in this country. And the president has, I think, the right instincts, which is why he’s still personally involved in these talks, that the gun lobby is weaker than ever before, and this has become a voting issue for swing voters, and a turnout issue for young people in this country. But I don’t think he’s made the decision to break with the gun lobby and really sit down and do detailed negotiations with those of us who work on this issue. I will agree with you this is an international issue. I always remember a story that Matthew Barzun, our Obama-era ambassador to Britain told me. He said when he would go around to schools, he’d hand out two cards. And on one card he’d ask kids to ask a word that reflected something they liked about the United States, and on the other card a word that reflected something they didn’t like or confused them about the United States. And he called me to tell me about this exercise because he said, Chris, if you believe it, that on 70 percent of the cards in the second category the same one word is on the card? And this is sort of 2013-14. And so I was wracking my brain. I said— TALEV: Right after—right after Sandy Hook. MURPHY: Well, it was right after Sandy Hook. But it was also right after the disclosures about tapping Merkel’s phones, it was still in the—you know, in the aftermath of the Iraq War. So I said, well, is it spying? Is it Iraq? He said, no, it’s guns. It’s guns. Seventy percent of kids in England say the one thing they don’t understand or don’t like about the United States is guns. And so our inability to deal with this issue is one of the things that pushes us away from our allies. And from the very start, our foreign policy has been predicated on creating a model—an economic and a governance model here in the United States—that is so attractive to the rest of the world that they want to sign up with us. It’s not just about how strong our military is overseas. It’s about what the American experience represents to people. And this failure to deal with the epidemic of gun violence in this country, it is part of the story as to what drives allies and potential allies away from the United States. TALEV: Thank you. OK. At this time—oh, good, I see a couple hands—I would like to invite members to join in our conversation. And I want to remind everyone, this meeting is on the record. There are cameras in the back, as you can see. When I call on you, please wait for the microphone, and then if you would share your name and affiliation with us also that would be awesome. Keep them tight. We’ll get as many as we can. OK, let’s start right here. Q: I’m Paula Stern. And I’m going to ask a question based on my service for 10 years at the U.S. International Trade Commission, which I chaired. The use of economic nonmilitary instruments, you talked about trade and you talked about the idea of a progressive policy that would have a new multilateral trade negotiations. I’m wondering if you would address the existing theories of bilaterals we have put in place, the Trump administration has, and specifically the steel Section 232 restrictions on many of our allies, and many of the countries, for example you mentioned Ukraine three or four times. Whereas, there have been deals made separately with some other countries to not have the restrictions, as spelled out in the original proposals, country by country, that the president placed. So I’m wondering how you use our trade relations with these individual countries, recognizing that you said that military is something that we real on way too much, and that your new progressive policy should look at non-military means. MURPHY: Sure. Well, listen, there are all sorts of other elements, I would argue, to a progressive foreign policy vision of the world that I did not mention. One of them is the reinvestment in international associations and bilateral—multilateral arrangements. So I think progressives do believe that the world is safer if we all have forms through which we are interconnected. And that is something that this administration fundamentally does not believe. They are interested in the delegitimization of bilateral associations, organizations, and efforts. Which is why, on trade, they have chosen to conduct themselves on a bilateral basis. That is connected to their overall agenda of trying to delegitimize bilateralism. I share in the concerns of some of my Republican colleagues, Pat Toomey chief amongst them, who we just mentioned, the way in which the president has gone around Congress to try to use tariff policy as a national security tool, when it is actually Congress that is vested with the authority to institute tariffs for economic reasons. And so I think Congress has to capture back tariff authority. And the president has, you know, tried to convince us that it’s all about national security when really he is using it for classic economic justifications. And in general, I just think you got to be really careful about using trade policy and sanction policy as a tool to try to push American interests around the world. At some point the dollar may not be the world’s default currency. At some point, people may tire of the United States using our economy as a means to try to bully nations into complying with our national security priorities. Now, I’ve supported sanctions efforts. I’m not saying that I haven’t voted for those efforts. And I do actually think sometimes it makes sense to call countries to task with tariffs. But we have become generally over-reliant on using tariffs and sanctions as a way to bully countries into working with us on host of issues. And that has some real danger for the nation moving forward. Q: I’m William Hauser, Inter-University Seminar on Armed Forces and Society. And my question is, do you support or oppose the expansion of petroleum supply across Central and Northern Europe by Russia? MURPHY: So part of my trip last week that we’ve referenced a few times was to Germany, to make—are you talking about Nord Stream 2? I assume you’re talking— Q: About petroleum pipelines going through Europe. MURPHY: Right. So part of my trip last week was to—was to Germany to make the case to them that the completion of the Nord Stream 2 pipeline, which is about bringing gas into Russia—into Germany and Europe from Russia is a terrible idea, and that we are essentially countermanding the effectiveness of our sanctions policy against Russia, which we have jointly agreed to, by then allowing Russia to build pipeline capacity into Europe that obviates their need to continue gas flows through the Ukraine. Senator Johnson and I, he’s a conservative Republican from the Midwest. He and I have a piece of legislation that would stand up a billion-dollar American development capacity to support efforts inside Europe and other places to make them truly energy independent. Right now, again, we give advice of how you can wean yourself off of oil and gas produced in other places. We, again, try to sometimes use sanction policy to stop our friends in Europe from becoming more dependent on outside-produced fossil fuels. But we don’t really offer any help to them to do that. And so my view is that we should use the largess of the American government and of our finance institutions to actually help finance some of these wind projects, these solar projects, these geothermal projects in and around Europe. So I have grave misgivings about the construction of new pipeline capacity. But I think we can’t just complain about it, as the United States. We actually have to help the Europeans, especially some of the—some of the less-developed of the Europeans, come up with new plans. TALEV: So we found something you and President Trump have in common, on Nord Stream 2. MURPHY: Right. TALEV: OK. In the back. Yes, in the white dress. Q: Hi, Senator. Thank you so much. Can you also speak a bit more about a progressive foreign policy vis-à-vis some other transnational challenges? And specifically I’m thinking about climate change, about nuclear nonproliferation, and about refugees. TALEV: Don’t forget to identify yourself. Q: Yes. Who am I? Alex Toma with the Peace and Security Funders Group, and a very proud term member here at CFR. MURPHY: You know, so I did—I did reference these issues, as I was talking about, you know, progressives domestically care about the issue of immigration, and the treatment of minority groups, and of course if you care about those issues domestically you have to care about them internationally. You have to invest in economic development and security assistance in the Northern Triangle in order to allow people to stay home, which is what they want to do. They don’t want to have to flee to the United States. And of course, if you care about protecting our interests in the Middle East, then you have to understand the danger that refugee flows out of places like Syria presents to our national security and the national security of partners there. You know, we could care about refugees in dangerous places around the world because we are compassionate progressives, but we can also care about refugees in dangerous places because of cold-blooded national security interests. And so you know, from a progressive foreign policy viewpoint we can—we can pick, right, either genesis of our—of our concern. And I mention on climate change, one of the reasons why, you know, you need a massive investment in diplomacy generally around the world, and why you need to sort of fix our relationships with our allies and with our—and with our competitors, is that, you know, joining Paris is going to be the easy part, right? I mean, we have come to sort of mistake Paris for the end of the negotiation rather than the beginning of the negotiation. And so you are going to—you are going to have to have a surge of diplomacy as part of a progressive foreign policy agenda, because in order to negotiate to the climate—the climate goals in Paris, you’re going to have to have American leadership in a way that it doesn’t exist, obviously, today. Q: I’m Ari Baki (ph) with the Council on Foreign Relations and Lehigh University. Senator, you put democracy promotion at the heart of a progressive foreign policy. And what I would like to so is ask you to be a little bit more specific in terms of how you would apply this when the Democrats come to power, and say you were influential in this. And I’ll give you essentially three sets of countries to see how you would deal with them. Let’s start with alliances like Hungary and Turkey, where you have authoritarian leaders that have usurped the democratic processes. You have adversaries like China and Russia. And then you have important countries like India, where a populist leader is increasingly doing things that are quite undemocratic. So how would you approach these three types of problems, if you want, in terms of democracy promotion and give some meat to your arguments? MURPHY: Sure. So, you know, we often—we often create this dichotomy in American foreign policy in which we have interests here and values over here. And then we sort of ask how you would choose between values and interests. I think that’s a mistake, because, as I’ve argued, promoting democracy abroad is an interest. It’s not just a fuzzy value that Americans have. It’s an interest. We believe that the more people that have access to democracy, the more safe the world and the less threats that we face, and that ultimately the more stable our own democracy is. And so I think you have to sort of sit democracy promotion in a list of interests that you have in every one of the bilateral conversations that you referenced. And my argument is that you should be elevating democracy promotion in the conversations that you have with a sort of sometimes ally, like Turkey or the countries in Europe, that you mentioned. And that you need to be raising these issues and concerns earlier in your bilateral meetings and negotiations in a way that we aren’t today. Second, I think we need to be working together with the European Union in raising and presenting these concerns. I think if you’re not doing it jointly, then you aren’t making real efforts. Third, I think you’ve got to recognize the threats that are presented to democracy in these places. Part of the reason why I think we have to have these new beefy anti-propaganda efforts is because Russia is sort of taking advantage of the fact that we’ve downgraded democracy promotion in our conversations in a country like Turkey, right? They use information warfare to spin up anti-democratic narratives in those countries and provide excuses for Orbán to consolidate power. Well, I would argue that we have to be playing defense and offense when it comes to the information warfare against democracies. Defense in the sense that we need to identifying and rooting out these Russian trolls, and bots, and working with our allies in places like Hungary, for instance, to do it. Offense, in that we need to be funding counternarratives. We need to be actually putting money into truly objective journalism that’s going to identify the trolls, but also tell less objective narratives in these countries. That’s actually what the Global Engagement Center was setup to do. And then I do think occasionally you have to draw some hard lines and send some messages about allies that have just gone too far in attacking freedom of speech. And that’s why, to me, Saudi Arabia is a really important case study here. I think that when we don’t convey real consequences for murdering a journalist, a dissenter, someone that sought protection in the United States, then we are sending a message to all of those countries that you mentioned about what they can get away with. And so I wouldn’t argue that you break off relationships with every country just because they are backsliding on democracy. I think you attack some of the insidious forces that help those attacks. I think you elevate the conversation in the bilateral relationship. But then you do find ways to send hard messages that there is a moment that you’ve gone too far, right? There is a moment at which you can’t be part of Europe any longer if you’re not going to be a democracy. There is a point at which American security assistance does shut down, if you start going after—physically going after journalists or political dissenters. And we’re not doing any of those things. We’re not elevating the conversations. We’re not attacking propaganda. And we’re not showing where our bottom line is. TALEV: The pink jacket. Q: (Off mic)—from Al Jazeera. I just wanted to pick up on the issue of Saudi Arabia. You sent a letter this week, along with Senator Young, to the Saudi crown prince, regarding aid to Yemen. Do you think—is this a new approach to, you know, address him directly? And do you think that you will get any response from the Saudis? And what would happen if that aid is not released? And just one quick question, regarding the resolution that you have introduced along with Senator Young, is there a timeline for forcing that vote in the Senate? MURPHY: So I am—I’m infuriated that this withdrawal of funding for the U.N. has not gotten more attention here in the United States and globally. The beginning of this year, the UAE and the Saudis committed $750 million each to the U.N., which was commensurate to their commitment last year, in order to stave off what is going to be the inevitable starvation and disease this fall and this winter in Yemen. Cholera numbers are already spiking in and around the country. The Emiratis and the Saudis welched on their commitment. They literally pulled it back and decided that they weren’t going to make it, too late in the funding cycle, really, for other nations to make up the difference. And so as we speak feeding programs, health care programs, immunization programs that the U.N. runs in Yemen are shutting down. And tens of thousands, if not hundreds of thousands of Yemenis, many of them children, are going to die this month, and next month, and the month after because the Saudis and the Emiratis have decided that they are not funding the promises that they made. That is a moral abomination. And we should be raising this every single day with the Saudis and the Emiratis. And I’m going to be honest with you, this administration is not doing it. They are raising it, but they have all sorts of other issues that are on the table with them that often come first—many of them related to Iran. Iran dominates our negotiations and discussions with our Gulf partners. And as long as they are doing what we ask on Iran, then we let them go on Yemen and on their commitments to the U.N. And that is not acceptable. Senator Young and I sent a letter to the Saudis, who have frankly been more intransient than the Emiratis on this question. I don’t know if it will work, because so long as they don’t feel like they’re getting real pressure from the highest levels of the administration—and I’m not saying that assistant secretaries and deputy assistant secretaries aren’t asking the Saudis and the Emiratis to put up the money. I’m saying they’re not hearing that from the president, and they’re not hearing that enough from the secretary of state. And this is now a matter of life and death in Yemen. And it’s a stain on our country’s conscience to be still involved in a military coalition with the Saudis and the Emiratis when they are refusing to put up money to stop the humanitarian disaster. TALEV: And your timing on forcing the vote, this next couple weeks or what? MURPHY: You know, I think it’ll be—it’ll be this—my hope is it’ll be this fall. So the next couple weeks, September/October. TALEV: Gentleman in the back. Q: Nadeem Yaqub, a journalist with Voice of America. Quick question. By trying to host Taliban and Afghan government at Camp David, do you think President Trump killed the opportunity to have a deal on Afghanistan? And related to that, second question, if the negotiations or the dialogue, you know, continues after the presidential elections in Afghanistan, do you think the Afghan government will have a more important and robust role in the negotiations? MURPHY: So, I mean, I have not opposed the idea of having negotiations and talks with the Taliban. Obviously I would prefer the Afghan government to be a part of those talks. I would prefer for them not to have to occur sequentially, in which a deal with the Taliban—between us and them was a prerequisite to the Taliban’s talks with the Afghan government. But I think we have to admit that the emperor has no clothes. I mean, the policy of the last eighteen years has simply not worked. And the idea that we should just do more of the same of the next eighteen years—be engaged in a military conflict with the Taliban, the perhaps permanent occupation of Afghanistan—I don’t think is acceptable to the people that I represent in Connecticut. But the way in which Trump decided to orchestrate the denouement of these talks was cataclysmic. I mean, why on Earth did this agreement have to signed at Camp David? What was the benefit of bringing the Taliban and the Afghan government to the United States? How would the agreement be more legitimate being signed on American soil than on Afghan soil? I mean, this made no sense, these Camp David talks, except for the fact that Trump’s foreign policy is essentially first, second, and third about photo ops. And this at least would have been a photo opportunity for the president. Now, I don’t think he thought it through very well, because he might have gotten the initial photo op and then two, or three, or four days later the talks would have embarrassingly fallen apart, perhaps leading to even more violence then we’re going to get now. But the instinct to have this conversation was not wrong. And I guess in my mind, I’m upset that the photo op and the bad idea to bring the parties to Camp David, has caused the talks, which may have actually happened in something positive for U.S. national security interests, to collapse. TALEV: I’m being told I have time for one more question, unless you change your mind and you want to run late for Senate for us. Right here in the front. Q: John Duke Anthony, a long-time consultant for DOJ and State. If you can just elaborate a bit more on this pushing allies away. And it’s obviously that you’re conflicted, many of us are conflicted about how far, how fast you push and press an ally, who snaps back and says: Look, if you think you can get a better friend than us, then you must be smoking something. If we held elections here, it’s practically guaranteed that we will be displaced or deluded. The Islamists will come to power. You’ll have a far more entrenched, vociferous adversary than you can imagine. So over the years it seems as though pushing, presenting democratic values, processes, dynamism is very much for us psychologically intelligible. But at the end of the day, politically expendable, because other interests seem to trump it at the final hour. This leaves us in a very sticky, illogical, embarrassing situation. I’d like to see you elaborate a bit more, if you would. MURPHY: Sure. Listen, I don’t—I don’t think it needs to be embarrassing to the United States that we continue to deal with countries that have not made a transformation into a democracy. Again, that’s why, you know, I approach democracy promotion as a value—or, excuse me—as an interest that stands aside with other interests. There may be nations in which there are other interests that we have that may cause us to put democracy promotion in the middle of the pack. Others where we may make it a higher priority. And so my argument here is not that we should not be dealing with nations that haven’t made a commitment to democracy. My argument is that it should be higher on our list. And second, that we should take a whole bunch of steps to try to make it easier for democracies to expand or flourish in these places, which is why I make the argument that pushing back against propaganda or pushing back against the development and export of tools out of China that make autocracy and dictatorship easier, is really important to the broader fight for democratic values. And then lastly, I think we have for a long time been addicted to our form of democracy, right? So you don’t have a democracy unless you have an American-style democracy, or whether you have a British-style democracy, right? If you don’t have a parliament, and you don’t have a prime minister, then you’re not engaged in self-determination. I think we need to be flexible about the mechanisms by which people have greater ability to have a say in the way that their lives are run. You know, take a look at some of the transitions that have been happening in Jordan, for instance, in which they do not have a democracy, by Western standards, but they have a parliamentary system that, you know, over time has had a little bit more to say about the way in which things are run. Local democracy is still democracy. There may be ways in which, you know, autocrats still have control at the federal level but that there are decisions being made with democratic inputs at the local level. And so I think we got to be flexible about sort of the demands we make to empower individuals to have greater say over their lives. We’ve got to have mechanisms to push back on the influences against democracy, not just beat our friends over the head to be better about it. And then we have to look at it as an interest that stands side-by-side with other interests. And sometimes exists here, and sometimes exists there. And then do it all in coordination with the Europeans. You know, if we’re not doing democracy promotion with the Europeans, we’re not doing it—we’re not doing it well. And, again, you know, Europe and the EU stands as a great attraction to countries that are trying to correct their—correct for democratic deficiencies. And as the European Union disintegrates, with help from the United States, it makes it a whole lot harder to, you know, go to the Turks and say, hey, listen, you know, you don’t have a future with Europe if you’re not going to fix the flaws in your democracy. Well, today they look at Europe and they say, well, it doesn’t look like the members that are inside the EU have much of a future with the EU, the way things are going. So why should we get our act straight to be part of that club? And so if we don’t invest in these multilateral institutions that are part of our leverage on developing democracies, then we’re also—we’re also not doing all that we can. So that’s a big answer, but there are all sorts of approaches that you can take to try to—to try to elevate these conversations. And of course, we’re going backwards on all of those counts in the Trump administration. If we just start to make some progress forward in the next administration, and we start to have some candidates that are thinking a little bit more about this before they get there, we’ll be better off. TALEV: You don’t have time for one more do you? MURPHY: We’ll do one more. All right. All right. You didn’t need to pressure me that much, but one more. TALEV: Oh, good! Else is going to be so happy. (Claps.) All right. Q: Thank you, Senator. Nice to see you again. Elise Labott from Georgetown University. I was wondering, in the context of some of the things you were saying on Iran and Saudi Arabia, you’ve been, you know, very tough about Saudi Arabia’s role. But at the same time, you see these kind of constellations happening in the—in the Gulf, and with Israel, Saudi Arabia working closer with Israel against Iran. President Obama, one of the reasons he reached out Iran and wanted, you know, to have more of a rapprochement is because he said that the thought that the Saudis and the Iranians needed to share the region. And I was wondering in the context of the last year or so, with Mohammad Bin Salman and the concerns about Saudi Arabia, how you view a kind of—you know, this landscape going forward. What is Iran’s role now? Qatar has been playing an increasing role. What is, in your mind, the ideal kind of situation of great powers in the region, including how to incorporate Israel? Thank you. MURPHY: You know, I think that Obama’s instinct here was twofold. One, he thought that by taking this question of Iran’s nuclear weapons program off the table we could more effectively organize the international community to address Iran’s other malevolent behavior in the region. We never got a chance to really test that proposition. Second, he believed that we were better off having a dialogue with Iran than not, and that you can’t solve the various quandaries of the region without America being able to talk to both the Gulf states and the Iranians. And Yemen is a perfect example, right? We could have absolutely—John Kerry came very close to a peace deal in Yemen right before he left office. And he did that only because he could talk to both the Iranians, and the Saudis, and the Emiratis. And had we kept up our ability to talk to the Iranians, we might have been able to get a settlement of accounts in Yemen long ago. And so our decision to not talk to the Iranians makes everything harder in the region—Syria, Lebanon, Yemen, et cetera, et cetera. So, you know, I—listen, I think the Iranians are horrible actors in the region. But I also think we’ve closed our eyes to all of the dangerous things that the Saudis and the Emiratis have done over the years to undermine our national security interests. I mean, the idea that we just sort of, you know, put blinders on when the Saudis for twenty years have been funding the export of Wahabism, which serves as the building block to the international extremist movement, is nuts to me. And Hezbollah’s terrible, but so are the Sunni extremist groups that might not exist but for the decision of the Saudis to move an intolerant version of Islam all around the world. We talk to the Saudis. Let’s talk to the Iranians. And if we went back to the Obama-era premise, isolate their non-nuclear bad behaviors, and still have the ability to talk to them, side by side with the Gulf states, we’d be much better off. TALEV: I want to thank all of you, and Senator Murphy, for spending extra time with us. Thank you. Appreciate it. MURPHY: Thank you, guys. Thank you, everybody. Thank you, Margaret. (Applause.) (END)
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