2008 Foreign Policy Symposium: Foreign Policy Challenges Facing the Next Administration

Tuesday, September 2, 2008

MR. JACOBS: Good morning, welcome to the University of Minnesota, and to the Humphrey Institute. I'm Larry Jacobs, I direct the Center for the Study of Politics and Governance, which is hosting this series of conversations on America's future all week.

Today we have a remarkable program again. We're starting out looking at the foreign policy challenges facing this country. The constraints are enormous, and there are opportunities as well, and we're going to get into that in a moment.

Following this panel, there will be a panel on "American Voters and Public Opinion," and we've got three of the best in the country to be part of that conversation.

Then the third panel is on the issue of the media, the media, of course, transmission belt -- as President Bush put it, "the filter." And one of the big questions is how accurate is the media that's reporting. And Kathleen Hall Jamieson will be leading a panel based on some of the research and work she's been doing on "Truth Telling in the Media." That will be quite a remarkable panel.

And then closing things out -- about 2:15, is a panel on how the McCain or Obama administration would govern. And that will be co-moderated by Tom Mann and Norm Ornstein.

I want to offer a few thanks. First, the president of the University of Minnesota, Bob Bruininks, has been a stalwart supporter of this initiative from the beginning, and has been very generous, as has been his staff. The dean of the Humphrey Institute, J. Brian Atwood, who's right back here, has been enthusiastic from the start and unstinting in his support.

And I want to warmly thank Brian, who himself is one of our country's outstanding foreign policy experts. And the faculty here at the Humphrey Institute is blessed to have Brian here working with us. And he's been a really a wonderful change agent at the Humphrey Institute in relaunching the Institute.

I want to also thank our wonderful staff who have worked so hard in pulling this together. Finally, I want to thank our lead sponsors, the Rockefeller Foundation and the Wallin Foundation, which is allowing us to broadcast live on the internet all of our panels. If you're interested in a panel you missed -- such as some of the wonderful panels yesterday, you can catch that on-line. It's all being archived.

One request, please shut off your cell phones. Think of this as an aircraft carrier or an airplane. Just shut them off. It does a lot of damage, in addition to being irritating. There will be questions, and we've been doing written questions, but Richard Haass is willing to do live questions, so we're going to switch things up a little bit. He said he's tougher than I am, and I believe him.

We're delighted to have three panels this week that are being co-sponsored with the Council on Foreign Relations. This is the first. I want to welcome the president of the Council on Foreign Relations, Richard Haass.


MR. HAASS: Well, thank you very much. I'm either the brave or foolhardy individual who's happy to take your questions in a few minutes. I'm Richard Haass, and I am fortunate to enough to be president of the Council. We are thrilled to be partnering with Brian Atwood and his colleagues here at this institution. Brian's an old colleague of mine from the trenches of government.

This is the first of three panels we are going to be involved in this week dealing with various aspects of American foreign policy and national security. The one thing we are sure of is, whoever gets elected -- whoever is the 44th president of the United States is going to be facing an inbox that is going to be jam-packed with a number of extraordinary challenges. And it's going to happen at a time the United States is not as well-positioned as any of us would like, I expect, in dealing with them -- given the state of our military, the state of our economy, our dependence on imported energy, et cetera, et cetera.

And this combination of multiple difficult global challenges, and somewhat constrained capacities will make, I believe, for one of the tougher administrations, not just in recent memory but possibly beyond that. So, what we wanted to do in the first of these three sessions is really deal with many of these challenges. Tomorrow we're going to be focusing much more on the one area of the world -- the greater Middle East, which is the greatest geographic concentration of what's wrong in the world.

And then the last of the three panels we're going to deal with what you might call "the fault line" of the intellectual debate about American foreign policy, which really gets at the purposes of American foreign policy -- how much should it be focusing on the promotion of democracy, as opposed to other priorities; and also the means -- to the extent democracy promotion is dimension of American foreign policy, what have we learned and what's the best way to go about it.

But, again, this first session is to look at a broad range of questions. We've got four individuals up here who could address big chunks of those four. But, as extraordinary as these four people are, they probably can't address all of them, which is where I also hope some of your questions will come in.

Let me just introduce them very quickly -- you've got some paper in front of you: Kim Holmes -- at this end, my right, your left. Kim is the vice president of the Heritage Institution, again, another -- not just a friend but someone who I work with in this administration. He was the assistant secretary for International Organizations when I was overseeing policy planning in the State Department. He's written and spoken widely on a broad range of foreign policy and national security subjects for years.

On this side is Benn Steil. Benn is a senior fellow at the Council on Foreign Relations, one of our lead economists, and has been writing an awful lot about markets, currencies, regulation, and so forth. And a lot of these issues, needless to say, have come to the fore.

On this side, my left, Mike Levi, Mike Levi -- Michael is the David Rubenstein senior fellow at the Council on Foreign Relations on Energy and Climate Change. Also has a large background in things nuclear. So, he can address any set of issues in that.

And last, not least, Ted Alden, who's the Bernard Schwartz senior fellow at the Council on Foreign Relations, just finishing a book which is coming out in the not-to-distant future on immigration --

MR. ALDEN: (Off mike.) Immigration and border security.

MR. HAASS: Immigration and border security; is also directing the task force that we have at the Council on Foreign Relations right now on this subject, which is headed up by none other than Jeb Bush and Mack McLarty. And this will be reporting, we're hoping, late this year, early next year in order to provide guidance for the new administration and the new Congress on this thicket of issues.

So, again, we're going to use up some of the time -- we won't filibuster, and then again I will brave your questions, and I'll give you some guidance on those. And just again, if you do have your cell phone on, if you could turn it off that would, that would facilitate the conversation.

Ted, why don't we start with you, because we -- you got the last introduction, so you will get the first question. Last night I was at an event where Jeb Bush spoke, and he spoke to a group of -- shockingly enough, Republicans, and he was quite open in his support for an open approach to immigration. And he even said, "I expect that not everyone in this room is going to like what I'm going to say," or at least "is not necessarily familiar with what I'm going to say."

What do you see as the case for a comprehensive reform in immigration? And what do you see as the prospects for it?

MR. ALDEN: Let's start with the first one, and it's interesting to listen to Governor Bush on this because, you know, he says that whenever he goes out and speaks in public this is the issue where he always faces the most hostility from the audiences he speaks to. So, there's no question, this is a controversial, divisive issue, particularly within the Republican Party, but within the Democratic Party too.

I think the case for immigration reform is really two-fold. The one that I have focused on most is the economic case. The United States has enjoyed an enormous windfall from talented people from all over the world who want to come here, study, work, do research, and eventually stay and live. The statistics on it are quite stunning. I mean, just one example, the number of patents issued every year. I mean, half of the patents that we see registered in the United States -- and that's the best measure we have of innovation, half of those are registered by people who immigrated to the United States.

Our economy has received tremendous benefits from that openness. And so the question is, how do you go about dealing with some of the very real problems out there regarding illegal immigration, and the insecurity of our borders, without killing the goose that laid the golden egg? So that would be my biggest case.

I think a second case is really, is really just a basic -- I would put it "humanitarian/law and order" case. I mean, we have a situation where there are an awful lot of people in this country who are operating under the radar, under the law. And that's bad for us, as a country, because it undermines the rule of law.

And it's bad for them as individuals, because they are vulnerable in every respect, either to arrest and deportation -- which is a deeply unpleasant experience, or to exploitation of various sorts by unscrupulous employers. So, I think there's a strong economic case; there's a strong humanitarian case; there's a strong legal case.

In terms of the prospects, I am, sadly, a bit pessimistic, even though I think it's tremendously important. I think if we have an Obama administration -- just to preface, I think the differences between the candidates on this issue are not enormous. I think, I think McCain's position, Obama's position, are pretty similar.

If we have an Obama administration, however, this is not high on his list of things to do. He has a lot of promises that he's made to his party. His big issues that are going to be on the table, particularly how to deal with the Iraq war, how to deal with health care reform, how to deal with taxes.

I have heard Democrats say this will be our top priority in the second term. So, I don't -- (laughs) -- I don't see an Obama administration coming out of the (blocks ?) on this. (Laughter.)

McCain administration, I think the prospects are somewhat better because this is a gut issue for Senator McCain. He's from Arizona. He cares about it at a deep level. And you can imagine him reaching across party lines on this one, as he has in the past.

But, again, he's had to, in order to secure this nomination, move to a much harder line position where he says, "We are going to secure the border first before we move on immigration reform."

The border cannot be secured without immigration reform. And so the question -- and unless you can cut the stream of illegal workers coming in, you're not going to be able to secure the border. So, the question is, can he finesse that? And I'm not optimistic about that either.

MR. HAASS: (Off mike.) Before I turn to Kim Holmes, let me also -- by the way, and I should have mentioned it, that there's three corporations which have been extraordinarily supportive of the Council and of this particular project -- this foreign policy symposium, and that is Chevron, Coca Cola and the Stanford Financial Group. And I would be remiss if I did not thank them because they have great.

Let me turn to Kim Holmes, for a second. If we had had this meeting three months ago, I would not have asked the following question. But, since we're having the -- even probably one month ago -- but since we're having it now, I am going to ask the question, which is about Russia.

And we've had the obvious experience now of Russia playing an assertive role, to say the least, in South Ossetia, as well as Abkhazia, both physically as well as diplomatically. And the question is, how does one try to deal with the immediate expressions -- again, to be diplomatic, of Russian "outreach?"

At the same time, how do -- one tries to deter it elsewhere yet preserve a relationship with Russia, which is one of the world's more important and more powerful countries? What is, what is your sense about how we get the balance right?

MR. HOLMES: Well, you know, if you look at this whole question about how the Russians view themselves, and how we view the Russian development over the last decade, it's almost two different universes, two parallel narratives or conversations, if you will, that very often were speaking past one another.

Our expectation was, is that as Russia became more democratic, it became more integrated into international institutions, that it would behave more like Western country and adopt some of the values that we have in the West. That's not necessarily the way that Mr. Putin and some other Russians have viewed the situation. There was a sense of humiliation at the collapse of the Soviet Union; all kinds of arguments about being surrounded by NATO, and the like. And this intervention or invasion of Georgia has, sort of, brought these two views together, where really they cannot be separate anymore.

I think that the Russian intervention in Georgia is a watershed event. We always get in difficulties when we start making historical parallels: Is it bringing the Cold War back? No, it's not because the Soviet Union is not there, it's not the same thing. Less than a, sort of, a revival of the Cold War, it's more -- I would see it as a revival of some of Russia's 19th century views of its power and interests in the region on its borders.

Russia makes a claim, historically, to exceptionalism -- what we call "American exceptionalism," in the sense that we are a world player because we have historically supported freedom and democracy. Other countries want to associate with us, through our alliances, because of that.

Russia's view of its particular or exceptional role in the world is different. It's based upon a historical notion of a particular, or what they call "priority interests" on their borders. That's actually what the president calls them. He says, "All nations have interests." He calls them "priority interests."

And, in that sense, they see themselves almost a mirror image of us, and, therefore, make this claim of having a right to intervene on their borders -- in Georgia and elsewhere, because of the sphere of influence that they have had. So, they're making the claim, but it's not -- and they're pretending as if it's a sort of the same claim that we make, but actually it's based upon a whole different view of history and the exercise of power.

What do we do about this? I think that -- frankly, I think Russia miscalculated. I think they were looking at the landscape. They saw that NATO had decided not to give fast-track membership to Georgia in the last NATO meeting. They saw the controversies in the United States over the Iraq war. They (thought ?) President Bush was weak. They saw the divisions in the Alliance. They were angry over Kosovo.

The whole lot of things that they were upset about, and they thought that they would make a claim here, and they thought it would stick. And they thought it would stick because they thought that the West would be divided and not respond, I think, the way that we have done so, even with the European Union and the president of France taking the lead.

The question is, if that is -- if my assessment is correct, and they did miscalculate, what's the best way for us to leverage that? And it seems to me that we must make absolutely certain that whatever we do, we do not look -- make it appear as if Russia got away with this completely cost-free. That doesn't mean that we try to isolate Russia, because in some ways Russia, I think, has already made the decision that it can tolerate a certain amount of isolation without too much problem.

But, on the other hand, if we, sort of, adopt the posture that we're partly to blame for this, or the Georgians are mainly to blame for this, and that we need Russia as a partner in Iran and elsewhere -- if we go too far down that road, I'm afraid that Russia will internalize that as a lesson that it worked in Georgia -- and that perhaps other areas like in Moldova, where they've already made some recent statements, and even more dangerously so in Ukraine -- that they can perhaps press their case on bringing back some of these border countries into the Russian sphere of influence.

I do not believe for a moment that Russia would have done this if they were certain that Georgia was a member of NATO. Russia does not want to fight a war with us. On the other hand, if they perceive that we're not willing to do anything to commit to defend them or to support them, they will draw the conclusion that, I think, that they have drawn, and they will push.

So, it's a -- I really think, at this point, their main goals is to bring down the government of President Saakashvili and to make the economic situation so difficult that he may not survive politically. We need to shore that up -- that government up, and at the same time we (may need ?) to make it absolutely clear that they are on -- that Georgia will be a member of NATO at some point.

If we do that, I think they will back off. If we don't do that, I'm afraid they'll keep on pushing more.

MR. HAASS: You may not have total consensus on this panel, but I think --

MR. HOLMES: That's why I'm here.

MR. HAASS: -- we will come back to some of this, because I think the questions about, again, what should be the extent of our help for Georgia at this point? What should we be doing now with Ukraine, to see that things aren't repeated there? What aspects of the U.S.-Russian relationship, or Russia's relationship with the rest of the world do we protect, as opposed to which aspects do we sanction? These are all real issues.

It reminds me when I used to teach at the Kennedy School, I used to say that foreign policy is hard. This is hard. This question of what to do, in the particular, in order to avoid setting precedents that are negative; set some precedents, from our point of view, that are positive; protecting large interests, at same time not sacrificing immediate interests. This is hard.

And, again, if we had had this session a month ago, I don't think this would have been talked about. And it's quite possible that for the first couple of years of the next administration this could be one of the dominant strategic issues, along with Iran, along with Pakistan, Afghanistan, what have you. And that's something that, again, I think very few of us, if any of us, would have predicted.

Well, since we solved that one, let me (laughs) -- let me move right along to Mike Levi. Again, in this meeting with Governor Bush last night I was surprised by the push-back on the question of climate change, on the science, that a lot of people -- maybe it's the world I move in, shockingly enough, on Park Avenue -- there's a general consensus that climate change is happening, brought about by, among other things, human activity.

I noted that that was not a consensus. So, the question I have, does that really matter, in the sense that -- because what was interesting to me is by the end of the conversation people were saying, whatever you think about climate change, there's now a case for energy security that gets you to do a lot of the same things.

So, shall we just avoid this theological debate about, 'to what extent is climate change happening, and what's causing it,' and just get on to the debate about what to do about energy security?

MR. LEVI: I think that's a dangerous direction to take. And I don't think it's a necessary direction to take, even if you're not certain about the projections on climate change. Because, quite frankly, projecting future course of climate change is an extremely difficult thing to do.

Climate change -- human-induced climate change, as the result of economic activity, that's incredibly difficult itself to project. And the physical implications of that activity are even harder to model. And we're looking at the most complicated possible system we really could be dealing with -- modeling the oceans, the atmosphere, everything out there on earth.

Now, does that mean that we wait until we can sort it out -- sort out the modeling, sort out all the signs, sort out all the details, until we decide what way to go on policy? I think that's dangerous too because it is such a difficult modeling problem, such a difficult problem of projection that we're not going to sort out the fine details in time to decide what the right -- precisely right, precisely optimal course of action is.

So, what we need to be doing is looking at buying ourselves an insurance policy. What we need to be doing is saying, we're willing to spend a certain amount of money, to invest a certain amount of effort, in order to minimize the risks that we face. In this sense, it's very different from a traditional environmental problem, a lot more like a traditional national security problem where we are willing to put in investments to significantly reduce the risks of low probability (but ?) very high consequence events.

Now, why do we have to look at it like this, in addition to, as an energy security challenge, rather than just as an energy security challenge? Because there are a lot of things that we could do to deal with energy security that will have good payoffs in dealing with climate change, but there are a lot of things that we could do to deal with energy security that will have very negative payoffs for climate change.

And if we don't identify those areas of common direction, those areas of conflict, we could lead ourselves into some severe problems. I'll just give you a couple examples: We could look at dealing with energy security by investing and converting coal to liquid fuels. That roughly doubles your emissions for every mile you drive. Or, we could look at investing in other sorts of renewable fuels, like advanced ethanol. That could reduce the emissions that we put out. We can look at increasing the efficiency with which we use fuels in our cars.

You can have all sorts of different approaches to how you do that, but it doesn't need to necessarily be through standards. There are a variety of ways to do that that can have payoffs in multiple dimensions. So, we're going to really need to identify these conflicts, and also these potentials for common opportunity, rather than assuming that by dealing with one problem we'll deal with the other.

And I should note that it works both ways. There are a lot of people out there who think that if we just get the right smart climate strategy, we'll also have a great energy security payoff. And that's also not necessarily true. One does not automatically give you the other.

MR. HAASS: (Off mike.) -- (inaudible) -- if one doesn't automatically give you the other -- and we all agree that we want energy security, and whether we agree or not that energy independence is an unrealistic ambition, you are seeing a slight difference in emphasis among the -- or between the candidates, and clearly, on the question of a supply increase, AKA drilling.

I think whoever's elected is going to be interested in promoting energy security. To what extent is the answer -- should it emphasize increasing supplies of oil, as opposed to alternatives, as opposed to demand reduction? What's a useful way to think about it?

MR. LEVI: These are all pieces of the equation. And when we talk about exploration, we shouldn't only be looking at within the United States, but internationally. The United States does, of course, have untapped potential, but that exists in all sorts of places around the world.

I expect that the biggest potential, though, does come from dealing with demand and from increasing supply of alternatives. And that means alternative liquid fuels, but it also, over time, means being able to plug in vehicles so that we can draw energy off the electronic grid, rather than using liquid fuels. I mean, over not that long of a timeline that is going to be a major player in this.

How does off-shore drilling play into all of it? It's a secondary issue. It's not unimportant, but it's not going to be decisive. If it's part of a package that deals with a host of issues, I think we're going to come out well ahead. It's not a huge environmental problem if you do it properly, if you do it safely.

I was just up in Alaska a week and a half ago, talking to folks up on the North Slope about the challenges that they face in doing these sorts of things, and the opportunities that they have. And it seems like there are a lot of things that we can do quite sensibly, but they need to be part of a broad, coherent strategy.

MR. HAASS: Your chances of becoming secretary of Energy are somewhat less than they were two minutes ago (laughter), but not gone altogether.


Let me, let me turn to Benn Steil. Odds are that when the new president takes office, the United States is going to -- the U.S. economy will either be growing extraordinarily slowly, or not at all. Whether it's technically a recession or not, this is the kind of thing you only know in your rear-view mirror, you never know when you look through your windshield, but it's going to look like something like that.

What are the consequences of that? What is this going to mean for the 44th president that he's going to inherit, essentially, a flat-line economy?

MR. STEIL: Okay, even in the best case scenario, the next administration is going to inherit an extremely fragile -- and not just domestic U.S., economy, but international economy. House prices are continuing to fall across much of the country; the mortgage crisis continues to be quite serious; the two major government-sponsored enterprises -- Fannie Mae and Freddie Mac, that are absolutely crucial to our mortgage market, are really on life support right now. They may not even last until the election.

That mortgage crisis has spilled over internationally into what is effectively a major credit crunch. And the reason is that financial institutions around the world are exposed to mortgage-related securities that are deeply impaired, or they're exposed to the institutions that produced them in the first place -- institutions like Fannie Mae and Freddie Mac.

The main policy tool that we have used to address the economic weakness, deriving from the collapse of the housing market in the United States so far, has been monetary policy. The Federal Reserve has been very aggressive in cutting its key interest rate, its federal funds rate, which was 5.25 percent one year ago. Today it's 2 percent.

One significant side-effect of that has been soaring inflation, not just in the United States, but around the world. Most of the developing world imports U.S. monetary policy directly through linked and pegged exchange rates. And the main reason for that is that most of the world is obliged to trade in U.S. dollars. So, most of these countries hold most of their foreign exchange reserves in U.S. dollars, so they are basically importing the inflation that we produce.

So the next president's going to be inheriting a very uncomfortable international economic situation. It looks, right now, like, at best, a mild version of the 1970s -- that is, very low growth, perhaps a negative growth; combined with significant inflationary pressures. Not a very auspicious beginning for either administration.

MR. HAASS: What you're hearing is the competition between political scientists and economists as to who can be more depressing. (Laughter.) And we'll take a vote by the end of the meeting.

Benn, let me, let me push you a little bit. Given energy imports to the United States, we're basically increasing the central bank holdings, around the world, of dollars; we're a boon for sovereign wealth funds around the world.

How uneasy should this make us -- the fact that there's now certain governments, and other entities around the world, sitting on massive amounts of dollars? Does this naturally make them cautious, or does this also give them tremendous leverage, that ought to keep us up at night?

MR. STEIL: It should be something that we're concerned about. Basically, these sovereign wealth funds are the result of the fact that we need to borrow an enormous amount of money from abroad. Foreigners have built up a huge war chest of dollars, which they now need to reinvest. Much of this money is going to be reinvested in the United States. And that's a good thing.

However, these are not purely commercial enterprises. They're controlled by governments. And we can expect that some of them, at least, will be used for, shall we say, political, strategic purposes. So, we have to be careful about that.

What we're effectively seeing is a form of cross-border nationalization of businesses when these government-controlled entities go abroad looking for firms to acquire; looking for productive capacity to acquire. And we can't be completely confident about how this investment is going to be used.

And that's -- that's a challenge not just for us, it's going to be a challenge in Europe; as well as, you know, Germany is already creating its version of the SIFIUS process. So, this is definitely a byproduct of the very difficult macroeconomic environment we've put ourselves into, and it's one that we're going to have to deal with for years.

MR. HAASS: (Off mike.) It also reflects our energy situation, because probably -- what, half of our current account imbalance is now directly a result of our energy imports.

This is a natural segway into Kim. Your previous job at the State Department was International Organizations. A new president's going to come in a couple of months, should we be doing something big with International Organizations?

He's going to inherit the U.N., the IMF, the World Bank, the WTO, what have you. Should there be some major architecture going on out there, either to adapt an existing institution or to build a new one?

MR. HOLMES: Well, if you look at all the major international institutions -- not just the U.N., but even the World Trade Organization that came out of the Bretton Woods system, these were largely created at the end of World War II when not only the war was very different, but also American power and influence was at its peak.

These institutions, particularly the U.N., have changed dramatically over the last 60 years or so. It's not the same kind of institution that we originally envisioned it, where there would be a, sort of, a sharing of power -- of the Western powers. It is now truly a democratic -- in terms of all the nations being equal in the General Assembly.

Yes, the United Nations still has the veto in the Security Council, but when I was assistant secretary of State for International Organizations I saw that American influence in the U.N. was dramatically limited, and we were often reduced to simply trying to stop things that were -- would be adverse to American interests and values from happening.

So, it was -- it became clear to me and to a lot of my colleagues that, yes, there were certain things that you could, and should, do through the United Nations, but it was a very limited organization because it was based upon the lowest common denominator of consensus. It was a very large organization, and, frankly, it could not deal with issues like Darfur, and Rwanda and others where there would not be a consensus on what to do.

Having said that, there seems to be an interest -- certainly in the McCain campaign, of creating a "League of Democracies." I think, perhaps, that's not necessarily the way to go. The Community of Democracies already exists -- it's very large, it's unwieldly. I'm not sure what the "League of Democracies" would do.

However I could see --

MR. HAASS: (Off mike.) -- (inaudible) -- previous answer. Do you see a League of Democracies as something that would actually exacerbate problems with Russia, because, obviously, they would not be a member?

MR. HOLMES: It depends on what it does. My guess is it would be so large it wouldn't do very much. And our relations with Russia would be determined mainly by what NATO does or does not do.

So, that kind of begs the question, what is a "league of democracy" in relationship to NATO? I could see some kind of a more modest global coalition, if you will, of countries in Asia, and maybe involving India, that would be global in scope, and getting together for maybe cooperation with counterterrorism on some military assistance. That would not necessarily be an extension of NATO but a supplement to it. This might be -- at least in the security area, something that could complement what we're doing in NATO.

But the Human Rights Council in the U.N. is a broken institution. Most human rights groups think it's a waste of time, and actually is a cover for many human rights abuses. I think we should be looking at some alternative institutions on human rights.

And also, even though the WTO is probably -- of all these organizations, functions the best, it's also being stifled by a lack of consensus on what to do in protectionism, and the like. Probably trade should be left alone.

But, I could see some other global institutions and economic cooperation, beyond the G-8, that might give a higher profile to American and Western influences here. It's something that we should be looking at.

I think that the international institutions that we have are not doing the job that they should be doing, and they are certainly not -- they're not working comfortably with American influence, and interests and values the way that they should be, and the way that they are originally conceived.

MR. HAASS: Just as a plug for my own institution, probably the largest single intellectual project we have going on at the Council on Foreign Relations is looking at just this, which is what sort of global institutions do we need to manage this era of history? And, again, looking at whether existing institutions -- where they need to be, either complemented with new institutions or adjusted to meet the challenges of this era.

That leads me back to Ted Alden. Kim mentioned trade. We've had the recent impasse -- to put it gently, in the global trade talks. Again, let me ask you, in a sense, the same question I asked you about immigration, about trade. So, what do we lose by stalled trade talks?

And, second of all, how do we get them going, in particular, within the United States? Can we rebuild the consensus that we give the president trade promotion authority, so-called "fast-track negotiating" authority, and that would essentially make it possible not just to give him the negotiating authority, but to give him the flexibility he would need to at least have a chance of concluding a Doha Round agreement?

MR. ALDEN: I mean, I think, when discussing the Doha Round it would help to, sort of, flip our usual way of looking at trade negotiations. The basic right now is one of stasis. There hasn't been any movement on the Doha Round, to speak of, in three years.

So, we keep talking about the Doha Round breaking down. Well, it hasn't reassembled in about three years now. So, it's -- it's really been on life support for a long time now.

I think it's a serious concern for several reasons. The biggest one, you know, goes back to some of what Kim was talking about, in terms of international organizations. I think the WTO is a uniquely successful international organization. It's one in which all countries who participate in it have committed themselves to binding rules for resolving their disputes -- the disputes that used to be resolved entirely through shows of national power in one form or another, usually economic power.

I think that's -- that was a great step forward that the world took in the 1990s. And I'm worried that the long impasse in the Doha Round, and the proliferation of these bilateral trade agreements -- the United States has been, is guilty of this as any other country, doing deals with little countries -- is going to weaken that organization, perhaps fatally.

The bigger problem that you allude to is there is, in this country, very little enthusiasm for moving forward on international trade negotiations. You look at the polls that are taken, of opinion, in different countries that Pew and others do, and Americans are less positive about the benefits of international trade than virtually every other country in the world. I mean, we like trade less than the French, for god's sakes.

So, it's -- there is, it's an amazing lack of support in this country, which I think conflicts, quite fundamentally, with what we see going on in the world right now. If you look at the GDP numbers for the second quarter, the economy, for a variety of reasons, grew at an astonishingly healthy 3.3 percent. The biggest reason was trade. The weaker dollar has helped our exports across the board. This economy would be in recession right now if it were not for the growth in trading opportunities that we've seen over the last decade.

So, how do you go about rebuilding that? Well, the problem that you have in the United States is that the benefits of economic growth have been shared very unequally. If you look at the numbers over the last decade, all of the gains of the economic growth that we've seen have gone to the very top incomers. We're really talking about 1 percent.

This is research that Matt Slaughter, who was part of President Bush's Council on Economic Advisers -- now an adjunct fellow at the Council, has done. He's looked at the numbers, and he said, you know, we're talking about basically people who've got Ph.D.s, or M.B.A.s, or other professional degrees. They're the only ones who've see real wage gains in the last decade. Everybody else is stagnant or has lost.

And there is -- there are a lot of people who blame that on international trade. I don't think it's the right explanation, but I think we need to look at ways to distribute the gains that we see from trade and economic growth more widely. And until that begins to happen -- whether through the tax system or some other mechanism, I don't think you're going to see the rebuilding of any kind of consensus for moving forward on trade.

MR. HAASS: Okay, well, the trade impasse has consequences, it seems to me, for climate trade. If you can't get a global agreement on trade with a -- whatever it is these days, 190 countries showing up, why do we think we can get a global agreement on the climate?

And so when people talk about Kyoto 2.0 -- and they have this image that you'll be able to get everybody on-board, and this time that everyone will actually be affected by the agreement -- is that just "pie in the sky?"

MR. (LEVI ?): Probably. I wouldn't want to say anything absolutely definitive on it, but I don't think that --

MR. (HAASS ?): (Off mike.) We'd never want to do that.

MR. (LEVI ?): -- (laughs) we want to be careful -- only projections at least five years in the future that no one will remember.

It's going to be extraordinarily difficult to get anything that's any good out of a negotiation over the next year and a half that involves 100-plus countries. If you look at the experience with trade negotiations, it's actually quite instructive going back several decades.

And right now we're still looking at far fewer countries involved in trade negotiations than we have in global climate negotiations. And if you step back 50 years, you're looking at numbers, I think, in the 20s still, for trade negotiations. That's probably roughly around where we need to be in climate negotiations, maybe even fewer.

On top of that, in the trade area we have some sense of what we're trying to do. We have some sense of what effect the various steps we might choose to take will have. In the climate and energy arena, we're looking at a massive global system, a massive amount of infrastructure, closely intertwined with rapidly growing economies in ways where we could agree to a variety of things and have very little idea of how things will actually turn out -- of whether countries will be able to deliver on their promises.

In trade, you can agree to do certain things to your quotas, to your tariffs. Those are things that governments specifically have control over. In climate, you can say, we're going to cut our emissions to this particular level. That doesn't mean that you can actually do it. So, there is another big difference there. So, there are all these things.

Take the trade situation, the very difficult trade situation, and make it even more complicated. Add to that different priorities, and you have a very challenging situation. Does that mean that we are not going to make progress on addressing climate and related energy issues? No. It means that we're going to have to look at other approaches, other fora.

Just like in trade where we're seeing a proliferation of bilateral, and regional and other minilateral agreements and approaches, at more incremental steps, I think we may be seeing that in the near future in the climate arena. And, frankly, that would not be all that bad. We may be able to get more ambitious action.

We may also be able to learn. We may figure out what works; what doesn't; what steps countries can do that are economically sensible, that work for their security, that also deal with climate. And then those can help build the confidence that's needed, over time, to grow into broader arrangements. Because, over time, you will need a broader global approach if you want to avoid shipping pollution overseas, and jobs along with it; if you want to avoid these kinds of competitiveness problems; and, frankly, if you want to make the numbers add up, so that what you're doing actually has the effect on the climate, on reducing climate risks, that you want it to have.

MR. HAASS: (Off mike.) -- (inaudible) -- economics for a sentence (sic), and turn to Benn. It's quite possible that, some time early on in the next presidency, some important country is going to -- particularly someone in the energy field, is going to move away from the dollar. And they're going to say, "We've had it, having everything vulnerable -- linked to the dollar. We're tired of seeing the value of our holdings diminish as the dollar weakens vis-a-vis other currencies."

How likely is this? And, more important, so what? If it happens, what will it mean for the United States?

MR. STEIL: It's not extremely likely, but we've come a little too uncomfortably close to what I will call the "tipping point." That is, the world does most of its trade in dollars. Virtually, all commodities trade today is done in dollars. Dollars are used as a universal standard of measurement. Pretty much everybody around the world knows what it means when we say that oil is at $115 dollars a barrel. That's meaningful to people.

What we're seeing right now is an effect we should be concerned about. That is, countries that hold enormous reserves of dollars, like China, are seriously looking at ways to diversify those reserves. They are concerned that the dollar, despite recent rise over the past few weeks, is on a long-term downward trajectory.

One reason for that is, with financial globalization, it's become easier and cheaper to switch the currency denomination of your investments than it's ever been before. And so capital flows are far more sensitive to interest rate differentials than they've ever been.

And the situation you have now is quite dramatically different than what it was, say, in the earlier part of this decade. The main competitor, as it were, to the U.S. Federal Reserve, is the European Central Bank, which is taking a very different view of what appropriate monetary policy is in a similar environment. The Federal Reserve has cut interest rates dramatically. The European Central Bank has been raising them -- not aggressively, but raising them.

And, over a long period of time, we are seeing some reaction to that. If countries like China, like our major creditors in the Middle East, begin to increase their reserve holdings of the euro, that gives them an incentive to conduct more international trade in euro.

And then there's a feedback effect. If you trade more in euros, then you should hold more euros in foreign exchange reserves. And, over time, what you could see is more and more trade being denominated in euros; more and more foreign exchange being denominated in euros; people start measuring their standard of value for things, internationally, in euros.

And what does that mean for us? Well, the whole idea of a currency crisis is foreign to the United States because we produce the international money, so we can never run out of it, as it were. But, what if we were to become obliged to borrow in euros and trade in euros? It would mean that other countries would look at our national balance sheet the way we look at, for example, Argentina's national balance sheet: Is there an imbalance? Is there a chance that they won't be able to get enough hard currency to pay off their debts?

If we were in that situation, we would put ourselves at the same risk of a currency crisis -- (audio break) -- and the Federal Reserve would essentially become impotent in a crisis because we might need euros, rather than dollars, in order to get ourselves out of a crisis. So, it is something we should be concerned about.

MR. HAASS: -- (audio break) --


Let me ask -- (audio break) -- last question. I don't have a crystal ball, but I would think there's a decent chance that -- (audio break) -- 2009 or 2010, either the Director of National Intelligible will request an emergency meeting with the president, or the phone will ring in the Oval Office and the person at the other end of the phone will be speaking Hebrew. And -- (audio break) -- (question of ?) Iran will come to (the fore ?), and that Iran will have reached a point of being able to enrich uranium in sufficiently large quantities to, at least -- (audio break) -- a military option. Whether it decides to avail itself of that option is a second -- a separate question.

What -- (audio break) -- is your sense of what the administration should do to -- (audio break) -- that day? And what should we do when that day arrives?

MR. (HOLMES ?): (Off mike.) This administration?

MR. HAASS: (The next ?) administration.

MR. (HOLMES ?): Well, there is a -- I think this is true, not just with respect to what U.S. policy towards Iran would be, but also -- (audio break) -- and the war on terror that, in many ways, the differences that you (heard on the campaign trail ?) -- (audio break) -- as Senators Obama and McCain -- (audio break) -- from what will actually -- (audio break) -- even if (President Obama ?) -- (audio break) -- office.

-- (inaudible) -- Obama would find the same kind of -- (audio break) -- issues and difficult problems that Bush had. And, frankly, (we wouldn't?) see that much difference -- (audio break) -- even on the case of Iran. -- (audio break) -- President Bush is -- (audio break) -- letting the European Union take the lead on Iran, at least in negotiations with Security Council. That is not -- (audio break) -- a great deal of difference between -- (audio break) -- view of the world and -- (audio break) -- view of the world.

I think the debate about whether or not we talk to Iran or not was (greatly ?) exaggerated. The under secretary of State for Political Affairs, Bill Burns, went and talked directly to the Iranians -- (audio break) -- about that. It's because the issue -- (audio break) -- communication.

The question is, is what do you put on the table on negotiations. If you're going to deal particularly directly, at the presidential level, with the Iranians, are you going to give them a -- put on the table a free hand with Hezbollah in Lebanon?

What happens when the Saudis and the others, who are afraid of a Shiite dominance of the Middle East, start becoming afraid that the United States and the Iranians are starting to get too close together? That would create a huge problem of imbalance of power inside the Middle East.

The point is, this is -- you think Russia's hard? This is even harder. And I think that the only way forward, for the next administration, really is to start thinking outside of the box about how we try to prevent that day from happening. That is, getting the call from Israel, 'we're saying, this is it; we believe they're about ready to go on the point of no return; we're going to attack.'

And the only way I can see that we can avoid that is to convince the Iranians that if they ever were to use a nuclear weapon against Israel or anyone else that there would be serious, serious consequences. And this means, start thinking about providing not only a new coalition to deter a nuclear Iran, but also giving security guarantees to countries like Israel -- letting them know ahead of time that there is no ambiguity about what would happen if they attack Israel.

In the short-term, maybe the diplomacy would work. Frankly, it's not been working. I don't think the Security Council has the ability to stop the Iranians from getting a nuclear weapon. The Russians were not playing all that a constructive role before. They'll be playing even less a constructive role now on the Georgians.

MR. HAASS: (Off mike.) I didn't understand something you said. If one is skeptical about diplomatic prospects -- there's probably good reason to be --

MR. : Yeah.

MR. HAASS: -- even if we put forward some new package directly to Iran. Let's, for argument sake, say the Iranians reject it, or don't accept it, and they reach a point where they can spin enough centrifuges so they're producing a considerable amount of uranium.

What I heard you say -- I'm not disagreeing, I just want to make sure I understand you -- is that we have certain options for managing that outcome, with things like defensive systems, security guarantees, declaratory policy, and so forth. Are you, therefore, saying we should not think about a so-called "preventive" attack against Iran? Or are you --

MR. (HOLMES ?): No. No, that's plan B. A "deterrent" strategy is plan B. Plan A is to prevent them from getting it. And it may very well be that Israel will be the surrogate military intervention that does this.

And the question will be, for President Obama or McCain, is whether or not to concede to that; and, even more importantly, to provide military assistance to it. That is most likely the scenario that we will face.

MR. HAASS: Thanks for the clarity.

As you can see, no shortage of extraordinarily difficult issues. And I've had the occasion to meet with many of the candidates in the last year or two, and every one -- when I finish the conversation I'm always tempted to say -- and sometimes I can't resist the temptation, are you sure you want this job? -- (laughter) -- Because it will be a -- it'll be a difficult one, and it is sobering.

Anyhow, with that, why don't we open it up. I just ask you if you -- ask a question I'll -- do we have microphones? How do we work it here? We do have microphones. Just introduce yourself; tell us where you're from; and please keep it a question -- as short as you can, rather than a statement. And I will be brutal if you start making speeches.


Q (Off mike.) -- (inaudible) -- I'd like to ask a question about the structures and --

MR. HAASS: Please wait for the microphone, for a second. As loud as you are, we could still use the microphone.

Q Yeah, nobody ever said I didn't have enough voice to fill this hall.

But, I'd like to ask about structures and tools. The structure of the NSC, for example, is it adequate? Is it functioning? A lot of folk felt it didn't work as well as it might have, particularly in the first term.

And then the tools: The way the military phrases it, it's "diplomacy, intelligence, military and economic." Do we have -- Secretary Gates recently spoke of the need for more diplomatic and development stuff. We sometimes seem to have nothing but sanctions to use against countries, which aren't always real effective -- Cuba's still got a government there (laughs).

What do we need to think about in those terms? We could identify the problems, but how are we going to go after them?

MR. HAASS: Okay. One is processes, the other is instruments. Am I the only one that's worked on the NSC, or has anyone else worked on the NSC?


MR. : (Off mike.)

MR. HAASS: (Laughs.) On the NSC, I actually think it works pretty well. Indeed, I'd also say one other thing. The last couple of reorganizations the United States has subjected itself to -- one in the intelligence community, the other in the realm of Homeland Security, have been less than complete successes.

And the idea of undergoing a new reorganization, given what we've just been talking about for the last hour, ought to make one think twice. So, I don't think there are organizational fixes to what challenges the United States. A lot depends on the people you put in the jobs, and how well they're able to work together. But, I would not recommend, at this point, any fundamental changing of the national security process.

The one thing I'd probably do is look for ways -- if you listen to our conversation, of making sure that energy-related issues got integrated sufficiently; that we don't want to make energy policy here and have national security policy there. So, that's the one thing I would just want to make sure. And that, again, I don't think requires elaborate institutional, much less legislative reforms. But I would want to make sure that energy policy and national security policy, and also some of the economic issues we're talking about, were just sufficiently integrated.

And I think that has been the trend, by the way, over the last 20 years, is to -- as you broaden your definition of what constitutes national security, to bring in economic and energy type issues to the decisionmaking process should reflect that.

Kim, why don't you talk a little bit about tools? I mean, Bob Gates has talked about the need -- it's interesting having the head of the Department of Defense talked about greater need for civilian tools. And we've seen it, obviously, in situations -- "the aftermaths," if you will, in places like Afghanistan and Iraq, but the adequacy of American instruments?

MR. HOLMES: Yeah, before I do that, could I just comment on what you said about the NSC? When I was in the first Bush term I was -- along with Richard, we were able to see the conflicts between the Department of Defense and the Department of State. And we had an opportunity to think about that since then, about how that came about.

And it seems to me that, in hindsight, it's not so much an organizational or a structural fix, as it is a leadership fix. The NSC will have the imprint of the president and the style of the president. And the National Security Adviser can either be a low-key, behind-the-scenes, or it can be somewhere along the -- on the order of what Henry Kissinger was.

It really depends less on organization charts than it does on the style of the president. If the president's going to insist that differences are overcome and they will not be continued, that will be a decision the president makes. And there's really nothing you can do on the organization charts to even fix that if he doesn't want to do it.

You mentioned the tools. You know, we have a lot of tools already at our disposal that are -- that are not used as well as they should be. And this maybe does come to one thing that could be done, in an interagency process that's not done as well as it should be. We have seen the "ad libbing," if you will, in the Iraq war where we put together various regional task forces, trying to bring in the civilian, and the foreign aid and the military side of it. The Department of Defense has been forced to -- and, actually been quite imaginative in trying to come up with these kinds of solutions to the problems that were provided in Iraq and Afghanistan.

But that has not really made its way up to the White House and the National Security Council level where you can bring in Treasury, and Commerce, and others, not so much on the formulation of policy, but rather in creating ad hoc task forces or interagency groups that execute the policy in a more effective way. That may be something where there could be some organizational fixes that are different from what we have.

The tools -- the weakest toolbox we have now is public diplomacy. We shut down the vast public diplomacy apparatus we had in the Cold War in the 1990s. We have found ourselves now with a very restrained ability to communicate with foreign audiences.

We've got, I think, in many ways a soft and hard power debate is, in some ways, a less an issue of tools -- notwithstanding what I just said about public diplomacy, as it is about being smart about what you're doing and trying to find ways, as the example I gave a minute ago about interagency task forces, where you can bring the talented people that are already there, and the resources inside the agencies, to bear on a particular problem. That needs fixing. That's not done as well as it should be.

MR. HAASS: Great. Let's get some more questions.

Sir -- here in the middle. Just, again, wait for the microphone. It's hard to go too quick with the microphone, because people are going to get killed coming down the stairs here, and I can't afford the Workmen's Comp.

Q My name is Mike Harris. I'm from Elizabethtown, Kentucky.

My question is, what is the likelihood of success of a military strike against Iran in order to stop the development of a nuclear weapon? If, and after the -- what are the likely repercussions of a failure, and what are the like repercussions of a success?

MR. HAASS: Let me first turn to Mike Levi who writes a lot about nuclear things.

And then, Kim, if you want to -- (inaudible) --

MR. LEVI: Yeah, why don't I focus on the first part, and leave the second. It really depends on how you define success. At a military level, it's fairly straightforward to take out the key, known Iranian facilities; to take out their ability to convert uranium, as it comes from the ground, into uranium that goes into the centrifuge operation in Natanz.

Frankly, to take out Natanz it's -- what's there is essentially above ground. Taking out underground facilities would require multiple strikes, but is relatively straightforward, especially with sophisticated military tools.

So, taking out what there is relatively straightforward; would put them back by a substantial number of years in their progress. It would not eliminate the program once and for all -- you simply can't do that through technical means, but it would put it back substantially.

All that said, the big questions may be: Are there hidden facilities that we don't know about? And if what we're really scared of is a (breakout ?) that comes from a hidden facility, well, you're not going to bomb that hidden facility. That's the problem, right in there.

So that's what we really need to think through: If there is a military strike on Iran, are we taking out the real problem? Are we doing something to make ourselves feel better? And, removing whatever we have on the ground, frankly -- whatever inspectors, whatever intelligence, whatever weak abilities we have on the ground to perhaps get wind of the fact that something is happening clandestinely -- if, in the process of a military strike, we eliminate those capabilities, we're in even deeper trouble.

I think we're going to have to ultimately assess the wisdom of doing this, one way or another, in the context of everything else that's going on in the region and the world at the time. But, those are pieces that are going to have to come into play in our thinking.

MR. HAASS: (Off mike.) I'd just like to say, in your strategic assessment, you would want to factor in what sorts of retaliation could you expect from Iran in the way of terrorism, Afghanistan, Iraq, what have you?

You'd want to think about think about the economic consequences, steps that could -- would lead to major spikes in the price of oil. You'd want to think about something Mike was hinting at, Iran's likelihood of then reconstituting a nuclear program in the way that would probably be even more difficult to get at. You'd want to think through the political repercussions in Iran -- whether it might actually increase the degree of national support for a nuclear program because, quite possibly, one of the conclusions in Iran would be that the only reason this happened was because they didn't yet have a mature nuclear program. And you'd want to think about the regional political consequences.

So, I'm not saying those are arguments to do it or not to do it, I'm just saying that when you draw your decision tree, and you write your decision memo -- in the State Department, or wherever, there's quite a lot that goes into it beyond the narrow question of what you could actually, physically accomplish in a set of preventive strikes.

I think there are, again, a lot of potential repercussions, direct and indirect, you'd want to factor into your analysis, and you'd want to factor into things Kim was talking about a few minutes ago, how confident you were about your ability to manage a situation like that if this didn't happen.

And, again, this is a -- you know, Yogi Berra got very famous for saying, "When you reach a fork in the road, take it." Well, this is a fork in the road where, quite honestly, there's no cost-free option. These are both expensive options -- to use military force, or to live in a world where Iran has certain capabilities.

And, again, it's why it's such an unattractive choice and why it would be nice if this choice could, one way or another, be avoided. But if we do have to face this choice, there's not going to be a cost-free option for the United States at that point.

Do you want to add to that?

MR. (HOLMES ?): Yeah, if I could add something. I think that it makes a difference whether or not -- if this were to happen, whether or not Israel or the United States did it. By that I mean, I think, perhaps if the Israelis were to undertake an attack -- I mean, they have less military capability than we do, there would need to be -- need to be some kind of assistance -- but, if the Israelis were to do that, I think it would be logical for the Iranians to conclude that they would do it again if need be.

In other words, the whole question of reconstitution would be more of a problem for them if the Israelis were doing this, than if we were. If we were doing this, we would run into all kinds of political backlash, not only perhaps even inside the United States, but also from the Europeans and elsewhere. And they probably could be confident that eventually we could be worn down, and therefore they could reconstitute that.

And the question would be, for the regime at that point, what kind of decision do they make? Do they say, we're going to reconstitute; we're going to continue this, but know every time we try to do this the Israelis are going to come after us and there's no point in doing it. I could see where they might make a determination at that point it's not worth it and may think about it differently.

Q (Off mike.) -- (inaudible) -- follow up?

MR. HAASS: Actually, well, I don't -- I try to avoid follow-ups, only in the sense that there's about a 100 people with their hands here. I don't mean to be rude, that's the only reason.

So, I'm going to leave that one out there floating a little bit. I apologize.


Q Jeremiah Johnson (sp), from Iowa.

My question would be, Richard, is it wise to encourage our elected officials to violate their oath to the people by -- where it says "to provide the common defense for ourselves and our posterity," and they're not to do anything outside of that? Is it wise to do that?

And, wouldn't it be better to have private organizations to handle those, where you have a democratic process, where people can contribute if they so choose to; and if someone is not in support of those interactions around the world, then they can choose not to engage in those interactions?

MR. HAASS: Okay, I'm lost.

Q Do you need me to rephrase that question?

MR. HAASS: Very briefly, though.

Q Okay. Wouldn't it be better, instead of encouraging our elected officials to violate their oath to the Constitution, wouldn't it be better instead to have private organizations instituted for the purpose of solving these problems?

MR. HAASS: (Off mike.) You mean a private Department of Defense?

Q (Off mike.) -- (inaudible) -- Blackwater -- (inaudible) --

MR. HAASS: Well, again, I think there's --

Q (Off mike.) -- (inaudible) --

MR. HAASS: Just as a rule of thumb, one never wants elected officials to violate their oaths of office. I think we can all agree on that.

I think there's a -- there's a limit to the privatization of foreign policy and national security. And we all represent here private organizations. We're, you know, we're throwing out ideas, but, at most, we have influence, we don't have power.

And I would be nervous about living in a world where one began to proliferate so-called "private actors" who would be using military force. It seems to me it potentially becomes a much messier world. And I would want to limit the number of agencies who had control of significant amounts of force in particular.

In other areas -- (with international ?) relations, I'm relaxed. So, if the Gates Foundation wants to be the greatest supporter of international work on health issues, that, to me, is not necessarily something to worry about whatsoever. Or, if other -- you know, if this university wants to become a major force in international education, that is something to be welcomed.

But, the proliferation of groups that have access to significant amounts of physical force, seems to me, a dangerous way to go in the world.

Let's try to move it around for a -- all the way in the back. I see a gentleman -- yeah, yes, sir. You're next -- "the penultimate row," as we would say.

Q Yes, I'm George Hogay (sp) from Boston.

This is a question for Ted Alden.

Barack Obama says that he wants to renegotiate NAFTA. And if I'm not mistaken, after NAFTA North American trade has tripled -- tripled. So, my question is, what do you think are the economic and political implications were we to renegotiate NAFTA, and what would be reaction in Mexico and Canada?

MR. ALDEN: My expectation is that that is one of those promises that he will quietly try to forget if he becomes president.

I mean, it was, it was raised in the primary. It was not only raised in the primary, it was raised in the primary when Ohio was the state at issue. And this plays extremely well in certain states in the country, and we all know that. Since that time, he's barely been asked about it. He's barely mentioned it. His own advisers have kind of indicated to the Canadians and others, well, this, you know, was politics, you shouldn't -- you shouldn't take it too seriously.

But, let's say, for the sake of argument, he feels obligated, as president, to make good on that promise. What I expect he will do is some version of what President Clinton did when he came into office and had to make the choice, 'Do I go forward with a NAFTA or not?' And that was when they created these side accords on labor and environmental issues. I suspect he will launch some sort of negotiation designed to strengthen the provisions for dealing with environmental degradation and labor rights violations.

I'm just going to make a quick comment on that because this has been the -- this has been the basic approach of the Democratic Party to the trade issue now for about 15 years. And I think it really is bankrupt, because you have to think of the logic here. The fundamental concern for a core constituency in the Democratic Party -- the labor unions, and a lot of other people, a lot of other working people, is that they haven't seen their wages rise. They believe that that's because they're facing greater international competition. There are a lot of low wage workers around the world willing to do jobs for less than they can be done in the United States -- a reasonable analysis.

Well, what's their remedy for dealing with that? 'Well, we go to Mexico; we go to China; we go to others, we say, well, you have to enforce your environmental laws; you have to raise your environmental standards; you have to force your labor laws more aggressively.' 'And our hope is that somehow over time, this will -- this will increase the cost of labor in these countries, and, therefore, that competitive pressure will be lessened, and this will allow wages to rise in the United States.'

It's incredibly convoluted process for trying to deal with a core concern in the Democratic Party, which is that wages for most American workers have been stagnant for a long time. So, if he has to do it, that's probably what he'll do. But, it will make absolutely no difference in terms of addressing the issues that his party is concerned about.

MR. HAASS: You think it'll just be cosmetic if it happens?

MR. ALDEN: I think it has to be. I think, you do a fundamental renegotiation -- and it really is, you know, you're pulling at the string, because there are a lot of things the Mexicans don't like; a lot of things the Canadians don't like -- you cannot do anything fundamental, I believe.

MR. HAASS: Okay, there's a clear answer.

Yes, sir?

Q Carter Page (sp), from New York.

MR. HAASS: Hi, Carter.

Q I wanted to follow up on Kim's question regarding Russia President miscalculation over the recent weeks.

If you listen to what government leaders, and thought leaders in Russia, have said over the course of the last 10 to 15 years, they've consistently stated that the former Soviet Union states, CIS, are really the top priority. I think, potentially a -- I'm just curious, your thoughts in terms of how far the U.S. should push this, in terms of the expansion of NATO, and how, you know -- to the extent that push comes to shove, where do you, where do you draw the line and how do you balance their -- that being their top priority, versus other issues?

I think if you were to have this panel in Russia, or a three -- a series of three events in Russia, they would spend two days talking about the former Soviet Union, as opposed to us spending one day talking about the Middle East. So, how do you balance that in?

MR. HOLMES: (Off mike.) This is the central question, what's at stake here is how Russia's going to define itself for the foreseeable future in the next 10, 15 years, and even further. And we would hope, over the last 15 years, that by Russia becoming more democratic and integrated, that it would start behaving more like us or more like Western Europe.

What does that mean? That means, first of all, you don't intimidate your neighbors; you don't have a, sort of, a strategic philosophy where the only absolute security I have, as a country, is when all of the countries on my border are insecure. And that's essentially the old Russian imperial model.

And that -- the question is, is whether or not that's going to stick or not, because if it sticks, they're going to behave this way for as far as we can see. And it's a gamble on their part on whether or not the rest of the world goes along with it.

They didn't touch the Baltic states. The Baltic -- Latvia's got lots of Russians in it. And even though they'd made claims about protecting all Russian citizens anywhere they are, they didn't touch the Baltic states. Why is that? They're in NATO and they're in European Union.

So, the point is is that I wouldn't view getting Georgia, or Ukraine, or any of these other countries so much -- getting them into NATO, as so much an issue of whether or not we're going to fight a war with Russia. I just don't think that's going to happen.

I think it's more of a geopolitical point, where so long as they believe there's a possibility that they can reconstitute the old sphere of influence of the Russian empire by bringing Georgia, Ukraine and others back into the fold, if they are successful on that -- and, let's be honest, this is mainly about the fact that they got Europe, and a lot of people, over the barrel on energy, natural gas, and oil -- this would not be happening if it weren't for that. And they're going to only get richer, and, therefore, I assume even more assertive in the future, based upon that.

We are truly at a proverbial cross-roads here with the Russians. If they draw the conclusion that they can get away with this, there'll be more of it. But, if we can -- if we, and the rest of the world, and many of the Europeans, can say, no, that's going to the past; that's looking backwards; that's not the way that we -- that's not the kind of, quote "partnership" we want with Russia; there will be consequences if you do this; you will not -- it will not be business as usual, then, hopefully, they will not draw that conclusion.

Maybe we can't stop them. We can't force them to do anything. They're rich enough now with energy and gas to do what they pretty much damn well please. So, this is mainly a political issue, a geopolitical issue, and how it reverberates inside the Russian political system.

MR. HAASS: Let me just abuse my position and say one or two things. One, is just to echo something Kim said: This is yet again an enormous price the United States and the world pays for our energy situation.

The lack of a serious energy policy is corrosive for American national security. Whether it's Iran, Venezuela, Russia, what have you, we pay an extraordinary price for the fact that so much wealth is now heading in the direction of governments that are -- make for bad citizens, internationally, and treat their own citizens poorly. So, again, it's important to think about energy policy as central to national security policy.

I think we have to be very careful about isolating Russia more, because in a funny sort of way, their isolation as freed them up. One of the few ways they've paid for what they've done with Georgia is through their stock market and through investments. I actually want them more integrated in the world because then they pay a price, and they see some of the negatives of what they've done.

I would think right now we ought to think very hard, not just about what we can do to bolster Georgia, but also to bolster Ukraine. And it doesn't necessarily mean NATO enlargement, because in Ukraine there's no consensus for NATO enlargement.

But there are things we might want to think about economically, politically, what have you -- even in the military realm, short of NATO enlargement, that would send some important messages. Because I don't think -- and I think Kim here is exactly right, I don't believe that this is the end of it, with what we've simply seen with these two provinces in Georgia.

K.T., did you want to ask something?

Q (Off mike.)

MR. HAASS: You have to wait for a microphone, young lady.

Q (Off mike.) Hi, my name is K.T. -- (inaudible) -- Nixon, Ford, Reagan administrations; ran for the Senate from New York, which is where I'm from.

I have a question on immigration. I was struck by what you said, where you said it would be impossible to secure the border. Could you please elaborate, because I do think this is an issue that Senator McCain, if he becomes president, would turn to pretty quickly?

MR. (ALDEN ?): It would be -- I will be impossible to secure the border without some sort of immigration reform. And this is -- you know, this is the basic position that this administration has taken -- the Homeland Security secretary, the present people in the White House have taken.

And I think it's correct, which is that the numbers that you're dealing with now are so large that using enforcement measures alone, of one sort or another -- be they physical barriers, like the fence we're building on the southern border; virtual barriers, like cameras that can spot people coming across; or interior enforcement measures, like the raids that we've seen on various plants -- that you're never going to do more than make a dent in the numbers using those measures alone.

What you need to do is you need to reduce that illegal flow. And that was the logic of immigration reform. You know, the idea was you have 400 (thousand) or 450,000 guest worker visas every year -- and, you know, we can debate whether that's a good way to do, I have mixed feelings about it -- but the idea was that a lot of the people who are coming here illegally now, particularly from Mexico and Central America, will have a vehicle for coming legally. They can come as legal guest workers; they can work here for a period of time; and they can go home.

And then the idea was that you will reduce the illegal flow to a manageable number. And then your enforcement measures have a chance of taking hold. I mean, part of the problem is we think of this entirely as a Mexican border problem. You know, the fact is 40 percent of the people who are here illegally right now came in on an airplane. They came in on a visa, and they overstayed their visa and they remained in the country.

So this is a massive problem, and you're never going to get a handle on it unless you can reduce the size of the problem. And that's why I think border security and immigration reform are intimately related. And that's what Senator McCain believed, until his campaign began to tank and he had to rethink.


Q Robert Demers (sp), from Oklahoma.

My question is on -- with the recent crisis with Fannie and Freddie, our response was the housing bill that was kind of put together pretty rapidly. Some unprecedented stuff went on in that bill, bordering on, I'd say, nationalization.

Do you think this is a response to foreign pressure to support those entities? And is that a problem for our national security?

MR. HAASS: Benn, why don't you take that?

MR. STEIL: Foreign pressure is inevitable in this particular case because a lot of foreign governments -- and particular, China, own a significant amount of securities issued by Fannie Mae and Freddie Mac, or owned and guaranteed by them. So, it's become a significant foreign policy issue for us.

I think the response, to date -- particularly from the administration, to the Fannie Mae/Freddie Mac crisis, has been poor. And the reason is that their situation is inherently unstable. You have the administration saying that 'we're willing to provide a backstop, for example, in terms of injecting public funds into Fannie Mae and Freddie Mac, should it be necessary.'

But, that makes it virtually a given that it will be necessary, because Fannie Mae and Freddie Mac can't go out and raise private capital when people like you and me say, well, why should we put capital in these companies when the government is probably going to nationalize it next week?

So, my view is that, at this point, given how far we've come, the best we can possibly do is call the game quits as soon as possible; nationalize them; help revive the mortgage markets that way by recapitalizing them. And then, hopefully -- in, say, two, three, four years out, when the mortgage market has stabilized, the housing market is stabilized -- we split them into small pieces, very small pieces, small enough that they won't be systematically important any more.

We don't let them use any names that even intimate the possibility that they're connected with the federal government in any way; and we privatize them and be done with them. I mean, they're a significant source of the current housing and mortgage problem we're living through right now.

MR. HAASS: There we go. We've probably got time for one or two more.

The gentleman in the pinkish-orange-ish red-ish shirt there.

Q Tim Haney (sp), from St. Paul.

Following up on your energy question, every president beginning with Richard Nixon spoke emphatically about the need to achieve energy independence, and yet we have not. Why not?

MR. HAASS: Why don't you start, Michael?

MR. LEVI: Because it's impossible. (Laughter)

MR. HAASS: That's the clearest answer you will ever get from an academic, so I hope you all -- (laughter) -- were paying attention and taking notes at that minute. But, you can say a few more things.

MR. LEVI: We need to think about energy independence more carefully. If energy independence means getting all of our energy resources domestically, there's no way that's going to happen. If energy independence even means that our energy decisions are decoupled from our foreign policy and from how we're able to operate in the world, that's impossible.

But, we can head in a direction where we can operate in ways where our energy decisions don't have such an enormous effect on foreign policy. For example, steps that we can take to reduce the price of oil, and the amount that we -- and not just "we," but others consume, can relieve some of the pressures that others have been talking about here, that come from the huge flows to corrupt dictatorships, countries that threaten our national security because they have that freedom to act from the huge volumes of money coming in through resource transfers.

MR. HAASS: (Off mike.) But the question is an interesting one. It's now 35 years since the 1973 war, and the first oil crisis and energy crisis -- 35 years. And what we've seen in those 35 years is precious little progress to make America more, not less, independent.

We've become -- our consumption has grown; our dependence on imports has grown. Why has this been such a failure, if you will, of public policy? Why do we have so little to show for the last 35 years?

MR. LEVI: It's going to require substantial government action to make things happen. And we haven't been willing to have substantial government action. That does not necessarily mean all sorts of narrow mandates, but it does mean things like gas taxes; it means things like -- if you're talking the climate sphere, "cap and trade" systems; it means a lot of government support for research and development -- all these things to leverage private capital.

But it does mean a substantial role for government that we have not been comfortable with. And I think that's a big part of what it's going to take to set us in a different direction. We have not been willing to do that.

MR. (HOLMES ?): (Off mike) -- can I jump in? I think the short answer is is that the price of energy and oil in the 1980s and '90s went down. And, therefore, it was not a pressing issue because it was so cheap. And now that it's not cheap, it's back on the table.

And so it's not just a question of our dependence, it's also this -- we've been talking about Russia, the whole geopolitical dimension of Russia is a function of the rising prices of natural gas, and it's now becoming their instrument of choice in exercising their power -- even more so, than military power.

So, we're in a brave new world here. It's not just what we're dependent on, it's also how this can be used by Venezuela, and Russia, and others, as instruments -- almost, in some cases, hard instrument of power. There was even some talk over the weekend that Russia was thinking about cutting out some gas supplies to Western Europe.

And everybody shakes their head and say, well, they couldn't possibly do that. Well, who knows? They might actually do that. That would -- that would rearrange Europe's philosophy, probably, if they did that, at least rearrange their perspective.

MR. HAASS: I would say one other thing, which is Fareed Zakaria, in his recent book, made a powerful argument that empires come and go, and great powers come and go for many reasons. In the case of Britain, it was the loss of adequate economic foundations to sustain a major world role.

In the case of the United States, I would think that the biggest threat to our position of global leadership is our politics. And it's, at times, the dysfunctionality of our politics and the unwillingness to tackle some issues, whether it's entitlements -- which are something of a cancer in the American body politic; energy issues, and so forth.

And I would argue that one of the challenges for the 44th president is to have a fairly open conversation with the American people about the consequences of some of the things we're doing. And if we want things to change, particularly in the energy area, here are the options.

And, you know, there's as whole menu of options, from -- as Michael, and Kim, and others talked about, from increasing supply -- traditional supplies; alternatives; there's regulatory options; there's pricing options, what have you. There's a -- there's a full menu of public policy options.

But, one way or another, I think implicit -- or explicit in what a lot of us are saying, is this needs to be a national security, and, as a result, governing priority for the 44th president. And the point that Kim Holmes has made is right, the price right now, in a funny sort of way -- the expense, the cost is our friend.

It will focus people's minds, and it will allow the next president to make a case for sometimes difficult political remedies -- that if people were driving and it only cost a dollar to fill up. People now understand, directly and indirectly, the costs we are paying for expensive energy. So, I actually think, funnily enough, the situation now provides a political opening for the next president that hasn't probably been there for some time.

I'm getting cards face -- shown to me that we have about run our time. So, let me thank Kim Holmes, Benn Steil, Michael Levi and Ted Alden.

Let me again thank Coca Cola, and Chevron and the Stanford Financial Group.

Let me thank the Hubert Humphrey Institute for doing this. You've got a rich day here. If you are comfortable where you are, you've got a rich several days later this week.

And let me thank all of you for your interest and your curiosity this morning. (Applause.)

MR. JACOBS: A couple quick reminders tomorrow morning there's another panel that's being co-sponsored by the Council on Foreign Relations on "The Greater Middle East."

In 15 minutes we're going to have another panel. This one, it's going to have Charlie Cook, Andy Kohut and Bill McInturff. It'll be moderated by E.J. Dionne. So stay tuned for that.

One request: We've got another panel we're going to be setting up for, so it's really helpful if you'd let these panelists go up into the atrium. And if there's media here, we've got media rooms for people to do interviews. So, let us kind of shift out. See you back in 15 minutes, 10:00. Thank you.


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